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Owning a business is exciting at times, frustrating at others, but always demanding.  There are so many decisions to make on a daily basis, and often, as a business owner, you not only have to make the decisions, but must also roll up your sleeves to make those decisions bear fruit.  One decision you should make early as a business owner is determining who will be your trusted advisors to guide you through the legal and accounting issues your business will encounter.  Selecting a professional to assist you with legal and accounting decisions is vital to launching and maintaining a viable enterprise, because decisions made early in the formation of a business can have far reaching consequences down the road.

In my practice, I often see clients who chose to handle matters without engaging attorneys and accountants early in the process, and later failed to recognize issues as they arose during the day-to-day operations of the business. Those decisions can cost business owners far more money down the road than hiring the appropriate professionals in the beginning, and can have a significant effect on the ultimate success or failure of the business.  I have found those mistakes fall into seven basic categories. This is Pitfall number 4 of 7 common pitfalls I see businesses owners make. Over the next few weeks, I will be sharing all 7 of these pitfalls and proven ways to prevent them.

 

Pitfall # 4 – Failure to Address Employment Issues

Proper Documentation of Employees – Federal laws require all employers to obtain copies of certain documents at the time of hire, and to maintain copies of those documents on file for the duration of the employment.  Best practices should be adopted for all incoming employees to ensure proper documentation is received.  In addition, routine audits of employment records should be performed to make sure a company’s records would pass muster in a federal audit.  Failure to adhere to these laws can result in the business being shut down, and even criminal charges in some circumstances.  Consulting with an HR professional or an employment attorney on proper procedures and best practices in hiring and record retention is advisable.

Employment Contracts – North Carolina is an “at will” state, which means employees may be hired and fired, at will, for any cause or no cause at all.  Accordingly, most employees do not have written employment contracts.  There are two exceptions.  The first would be a union contract where a collective bargaining agreement governs the employment relationship.  The second would be a key management position where a written offer of employment is agreed to between the company and the employee.  The laws which govern what employment contracts can and cannot provide are constantly evolving.  A business wanting to use a written employment agreement to retain top executives in its business should have an employment attorney draft a standard employment agreement to ensure the employment laws regarding restrictive covenants and non-competes, confidentiality, termination, and the like are adhered to.  If you have a written employment agreement that you have been using for a number of years, it is good idea to have it reviewed every few years by an employment attorney to make sure the provisions in it are still enforceable.

Employee Policy Manual – Since most employees do not have an employment contract to govern the terms of their employment, any business that employs more than three people in the business should have an employee policy manual to guide the employment relationship. The employee handbook can cover an array of issues. One important area to address is use of computer systems and the internet. Having policies in place regarding use of a computer terminal at work by employees has been increasingly important in the age of cyber security. An HR consultant or employment attorney can prepare an employee handbook, or review and update any current policies and procedures a company may already have in place.

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About the Author

Ashley focuses her practice on Outside General Counsel Services and Business Bankruptcy and Creditor’s Rights Practice Areas. She is an effective, results-driven advocate for her clients.  Her background of 30 years in business bankruptcies, distressed debt workouts, problem loan recovery, and real estate title and commercial litigation provides her with a solid foundation of general business, accounting and legal skills.

 

 

 

Ashley Rusher

 

Owning a business is exciting at times, frustrating at others, but always demanding.  There are so many decisions to make on a daily basis, and often, as a business owner, you not only have to make the decisions, but must also roll up your sleeves to make those decisions bear fruit.  One decision you should make early as a business owner is determining who will be your trusted advisors to guide you through the legal and accounting issues your business will encounter.  Selecting a professional to assist you with legal and accounting decisions is vital to launching and maintaining a viable enterprise, because decisions made early in the formation of a business can have far reaching consequences down the road.

In my practice, I often see clients who chose to handle matters without engaging attorneys and accountants early in the process, and later failed to recognize issues as they arose during the day-to-day operations of the business. Those decisions can cost business owners far more money down the road than hiring the appropriate professionals in the beginning, and can have a significant effect on the ultimate success or failure of the business.  I have found those mistakes fall into seven basic categories. This is Pitfall number 3 of 7 common pitfalls I see businesses owners make. Over the next few weeks, I will be sharing all 7 of these pitfalls and proven ways to prevent them.

 

Pitfall # 3 – Failure to Observe Tax Laws

Payroll Taxes – For some reason, when a company is experiencing financial distress the first thing it does is steal from its employees and the federal and state taxing authorities by failing to escrow and then remit payroll taxes.  Make no mistake that is exactly what the company is doing if it withholds payroll tax from its employees and fails to pay it to the taxing authorities.  It is not only bad form, it is a crime.  The taxes withheld from employees’ pay are called the trust fund portion of the tax.  The taxes the company pays as an employer on payroll are called the employer portion of the tax.  There is a 100% penalty for business owners and other “responsible parties” who fail to remit the trust fund portion of the payroll taxes.

By way of example, if the company withholds $10 from Joe’s wages for payroll taxes and owes an additional $12 for the employer portion, but fail to remit $22 to the taxing authority, the business owners, officers, directors, payroll clerk, and anyone else the taxing authority determines is a responsible party will be held personally liable for 100% of the trust fund portion of the taxes, or $10, plus interest and other penalties.  Do not mess around with payroll taxes.  I advise my clients to always pay the government first.  “Borrowing” from the withheld taxes to fund operations is a very slippery slope from which few business owners recover.  If personal liability, inability to discharge such taxes in bankruptcy, and possible criminal charges is not enough, it can be a public relations nightmare as well.  Tax liens are published in the local Business Journal for all to see.   There is a simple solution.  At a minimum set up separate bank accounts for the collection of payroll and sales and use taxes, and do not conduct business out of those accounts except for payment of those taxes.  In addition, hire a reliable payroll service to remit employer and employee tax reports and taxes to the taxing authorities.

Sales and Use Taxes – Same song, second verse.  Like payroll taxes, sales and use taxes are trust fund taxes which create personal liability for responsible persons and potential criminal liability.  What’s more, failure to remit sales and use taxes is the fastest way to get a business shut down by the state taxing authority and company assets auctioned off to pay the back taxes.

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About the Author

Ashley Rusher

Ashley focuses her practice on Outside General Counsel Services and Business Bankruptcy and Creditor’s Rights Practice Areas. She is an effective, results-driven advocate for her clients.  Her background of 30 years in business bankruptcies, distressed debt workouts, problem loan recovery, and real estate title and commercial litigation provides her with a solid foundation of general business, accounting and legal skills.

 

 

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If you have a business dispute in North Carolina that’s headed to litigation, the court in which the lawsuit is heard can be an important strategic factor.  If you’re planning on filing a lawsuit – particularly in a complex or high-stakes case – court options should be carefully considered.  And if you’ve been sued, don’t assume that you’re always stuck with the court that the other party chose.

Typically, lawsuits in North Carolina for amounts over $25,000 are filed in Superior Court in a county that has some connection with the case (often, where one of the parties is located).  However, some cases might be eligible for federal court.  Also, other specialized state-court options may be available.

 

Federal Court

Federal court is not available for every dispute.  But it is sometimes an option – in cases involving a “federal question” (a federal law is involved) or where there is “diversity jurisdiction” (the parties in the case are from different states and the amount in dispute exceeds $75,000).

 

Business Court & “2.1” Cases

Other options are also sometimes available within the North Carolina court system.  Notably, North Carolina offers a Business Court that is specially designed for hearing complex and high-stakes business cases.  Cases can be heard in Business Court if they involve issues such as corporate governance, securities, antitrust, “intellectual property” like trademarks or trade secrets, or business-to-business contracts in which at least $1 million is in dispute.  These types of cases are considered ‘mandatory” Business Court cases, where the Business Court is required to take the case, if requested.  In addition, in certain other circumstances where the Business Court would not otherwise be required to take the case, “complex business” or “exceptional” cases can be assigned to a Business Court judge or another judge with special areas of expertise.  These types of cases are called “2.1” cases – referring to a rule of court that allows local judges to recommend the assignment of a specialized judge.

 

Weighing the Options

In deciding where to file a business lawsuit in North Carolina – or whether to attempt to change the court in which a plaintiff filed suit against you – various factors should be considered:

• The benefit of an assigned judge. Generally, in North Carolina state court, civil lawsuits are not assigned to one judge to hear all the proceedings.  If you have several issues that come before a judge during the course of a lawsuit, you could have several different judges be involved with your case.  If you have a complex case that takes time for a judge to really understand in depth, it may be beneficial to be in Business Court or federal court (where particular judges get assigned to cases).
• Judicial expertise. While I find that judges in courts across North Carolina generally try to work hard and be fair, not every judge is going to view a complex business case in the same way.  For instance, Business Court judges generally have backgrounds as business litigation attorneys and spend their days focused on business disputes.  They are necessarily going to have a different perspective than the average Superior Court judge – who, for example, may be a former criminal prosecutor who spends the majority of his or her time presiding over cases about crimes and car crashes.  If your case involves federal law, it may similarly be advantageous to be in federal court, where judges are more familiar with federal law.
• Judicial capacity. Generally, North Carolina judges do not have judicial clerks (employees who help do research and other tasks for the judge).  But Business Court and federal court judges do.  The amount of time and attention that the court will be able to devote to meticulously considering your case may differ, depending on the court.
• Timelines. Different courts may take different amounts of time to resolve a case.  It is never clear which court will handle a case the quickest.  But, as an example, I have had cases in federal court where I have waited many months to get a ruling on a preliminary motion in the case.  The case would have been completed in state court by the time it really got started in federal court.
• “Home cooking” concerns. If you’re not in North Carolina and get sued by a North Carolinian in a North Carolina state court, you may want to consider federal court, if you have concerns about whether a North Carolina court would favor a North Carolinian.  Similarly, if you were sued in a county in which you think your opponent “knows all the judges,” a transfer to Business Court might result in the case being assigned to a judge in a different county.
• Presentation style. Are your legal arguments most effectively presented in a lengthy written brief, or in a quick oral presentation?  Federal court or Business Court is usually best where you need to provide a lot of written explanation.  Regular state courts usually depend more on oral presentation.  If it is important to you to make presentations in a technology-friendly courtroom, federal court or Business Court is often best.
• Procedural rules. Federal and state courts have different rules regarding court procedures.  Likewise, the Business Court has its own procedural rules that differ from other state courts.  These procedural rules may significantly affect, for example, the process for how “discovery” information is exchanged between the parties.
• Cost. Which court will be most cost-efficient is difficult to predict. Often federal court or Business Court can incur more costs, from higher filing fees to more attorney time needed to write briefs and comply with additional procedural rules.  However, sometimes a pretrial motion that is carefully examined by a judge who is well-educated in the applicable law can favorably resolve a case that would “drag on” in another court.

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About the Author

Elliot Fus

Elliot has practiced law for over 20 years and is a member of the Federal, North Carolina and Forsyth County bar associations.  He is an experienced litigator with major case experience in state and federal courts and in private arbitrations.

Owning a business is exciting at times, frustrating at others, but always demanding.  There are so many decisions to make on a daily basis, and often, as a business owner, you not only have to make the decisions, but must also roll up your sleeves to make those decisions bear fruit.  One decision you should make early as a business owner is determining who will be your trusted advisors to guide you through the legal and accounting issues your business will encounter.  Selecting a professional to assist you with legal and accounting decisions is vital to launching and maintaining a viable enterprise, because decisions made early in the formation of a business can have far reaching consequences down the road.

In my practice, I often see clients who chose to handle matters without engaging attorneys and accountants early in the process, and later failed to recognize issues as they arose during the day-to-day operations of the business. Those decisions can cost business owners far more money down the road than hiring the appropriate professionals in the beginning, and can have a significant effect on the ultimate success or failure of the business.  I have found those mistakes fall into seven basic categories. This is Pitfall number 2 of 7 common pitfalls I see businesses owners make. Over the next few weeks, I will be sharing all 7 of these pitfalls and proven ways to prevent them.

 

Pitfall # 2 – Failure to Plan

 Business Plan – Every company needs a business plan.  The business plan should consider the market for the product or services offered by the company, the costs to develop, market and sell the product or services, the relative cash flow needs to operate the business, how the company will be capitalized, and what net profits can be expected by running the business.  Often business owners have a great idea and jump into business without having a plan in place.  A business plan also needs to be revisited from time to time to evaluate how an ongoing business is meeting its objectives.  An accountant is a great resource for helping a company develop a business plan and financial models around that business plan.

Strategic Plan – Every business also needs a strategic plan.  The strategic plan differs from the business plan.  A business plan examines the cost of doing business so a company can be prepared financially to sustain its operations, and make money for the owners.  A strategic plan, on the other hand, is aspirational.  It is a set of goals the owner wants to accomplish for the business, and can include employee compensation and benefits, enhancing the customer experience, developing a new product or introducing a new service, or expanding existing operations.  Every business should be in tune with its industry and looking ahead five years to plan for the future of the company.  Trade publications, industry blogs, conferences, and continuing education or training programs are great ways to stay in tune with an industry and pick up on the clues to assist the company with planning for a sound future for the business.

Succession Plan – We all want to leave something meaningful and lasting behind for posterity.  Most of us have a will and do some personal estate planning so our loved ones will be provided for after we are gone, but more often than not business owners fail to take the same care in planning for the future of their company.  Business owners should not neglect the process of deciding the future leadership of the company.  Every business should have a plan in place to address what happens with the ownership and management of the company when the current owners and officers leave the company.  It is important to train individuals to assume responsibilities of top management and carefully plan who the future owners of the company will be to ensure a smooth transition without business disruption in the event of a death, resignation, or retirement.  A good business and estate planning attorney can assist a business owner with making sure the long term goals for the business carry on in the hands of those most qualified to run the business, and that the business is owned by those individuals the business owners desire to succeed them as owners.

 

About the Author

Ashley Rusher

Ashley focuses her practice on Outside General Counsel Services and Business Bankruptcy and Creditor’s Rights Practice Areas. She is an effective, results-driven advocate for her clients.  Her background of 30 years in business bankruptcies, distressed debt workouts, problem loan recovery, and real estate title and commercial litigation provides her with a solid foundation of general business, accounting and legal skills.

Most small businesses, whether at the start-up phase or when seeking to grow and expand, will inevitably need capital infusions to obtain their corporate objectives.  Aside from personal funds or loans from governmental or commercial lenders, entities often times seek to raise additional funds through selling “securities” (i.e., stock or other forms of equity or debt) to potential investors.  What many small business owners do not realize is that the sale of securities is heavily regulated by both federal and state laws and failure to comply with such securities laws may have serious repercussions on an entity and its owners.

A “security”, as defined under both federal and state statutes, encompasses a wide variety of instruments, including but not limited to notes, stock, treasury stock, bond, debentures, warrants, evidence of indebtedness, participation in profit-sharing agreements and investment contracts.  When an entity sells a security, such sale must either be: (i) registered with the United States Securities and Exchange Commission (“SEC”) and the appropriate state securities authorities, or (ii) exempt from registration under federal and state securities laws.  These requirements apply to all businesses in all securities offerings, ranging from small private companies selling securities to friends and family, to global public companies selling securities to a large base of potential investors.  Every securities transaction must comply with both federal securities laws and the securities laws of each state of residence of an investor.

 

Registration and Exemption

Registration with the SEC or state securities agencies can be complex, time consuming and expensive process that includes the preparation and filing of a disclosure prospectus that must be provided to all potential investors.  Therefore, issuers usually seek to avoid the registration process by structuring securities offering in order to qualify for an available exemption from registration under both federal and securities laws.  Structuring an offering to comply with an available exemption may include imposing certain restrictions on the monetary amount of securities offered, sophistication of the investors (i.e., accredited investors) and number of investors the securities are offered.  Certain exemptions at the federal and state level may be self-executing (i.e., no additional follow-up information required), while other exemptions may require notice and other related filings at the federal and state level.  Certain exemptions may also require the additional preparation of other disclosure related materials to be provided to the investors and/or the federal and state governing authorities.

 

Failure to Comply with Securities Law

Failure to properly comply with federal and state securities laws in connection with the sale of securities could result in serious repercussions for an entity.  Depending on the nature and severity of the securities law violation, the company and its principals could face criminal charges at both a federal and state level. Further, the SEC and/or state securities authorities may pursue claims for civil penalties, ranging from monetary fines to temporary or permanent prohibitions on the company from conducting future capital raising activities.  In addition, investors may seek to rescind their purchase in the offering and receive the principal amount invested in the company with interest.  It is important to note that those principals who control the company may also be personally liable to the investor for rescission or damages if the company no longer has available cash to reimburse such investors.

 

Long Term Impact

Aside from the potential legal ramifications noted above, securities laws violations could have negative long lasting effects on a company in connection with future financing activities.  As a company grows, it may ultimately seek to raise additional capital from more sophisticated investors, such as angel investors and investment banking firms.  Such sophisticated investors, as part of the due diligence process, will analyze the company’s capitalization table, including prior sales of equity and debt in the company.  If a security violation (or a potential violation) is revealed in the diligence process, then the investors are more likely to avoid investing in the company due to the uncertainty of future potential lawsuits and penalties.  In the event a company elects to conduct financing activities that includes the sale of securities, regardless of the size of the offering or target investors, it is recommended that such company consult with a securities professional to ensure that such securities offering complies with all federal and state securities laws.

 

About the Author:  Chris Seamster

Chris focuses his practice on Corporate and Securities Law

Executive Order No. 80 Reaffirms North Carolina’s Commitment To Reducing Statewide Greenhouse Gas Emissions and Supporting the Expansion of Clean Energy Businesses

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On October 31^st, Governor Roy Cooper issued Executive Order No. 80 highlighting North Carolina’s commitment to fight climate change and lead North Carolina’s transition to a clean energy economy. The executive order calls for the State of North Carolina to protect North Carolina’s environment while growing clean energy technologies.

“A strong clean energy economy combats climate change while creating good jobs and a healthy environment,” said Cooper. “With historic storms lashing our state, we must combat climate change, make our state more resilient and lessen the impact of future natural disasters.”

Cooper signed the executive order at SAS Institute’s solar farm in Cary. The order affirms North Carolina’s commitment to reducing statewide greenhouse gas emissions to 40% below 2005 levels by 2025. Additionally, the order calls for an increase in registered, zero-emission vehicles (“ZEVs”) in North Carolina to at least 80,000 and a 40% reduction in energy consumption in state-owned buildings.

The order creates the North Carolina Climate Change Interagency Council, which includes a representative from every state cabinet agency, to make changes happen.

The order also directs the following actions:

• The North Carolina Department of Environmental Quality (DEQ) will develop a North Carolina Clean Energy Plan to encourage the use of clean energy, including wind, solar, energy efficiency, and energy storage.
• The North Carolina Department of Transportation will develop a plan to accelerate the use of zero-emission vehicles across state government. Cabinet agencies will prioritize the use of ZEVs for trips that can reasonably be made with a ZEV.
• The North Carolina Department of Commerce will support the expansion of clean energy businesses and service providers, clean technology investment, and companies with a commitment to procuring renewable energy.
• All cabinet agencies will integrate climate mitigation and resiliency planning into their policies, programs and operations.

 

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Since January 1, 2018, North Carolina has observed a new set of rules pertaining to powers of attorney.  These new rules are North Carolina’s take on the Uniform Power of Attorney Act, which was also recently adopted by Georgia and South Carolina (with each state putting their own twist on some of the provisions).  In addition to adding some consistency to the way powers of attorney are handled throughout our region, the new law clarifies certain points of law and eases some of the concerns that made banks and other financial institutions reluctant to deal with powers of attorney in the past.

 

What is a Power of Attorney?

Before diving into the finer points of the new law, it may be helpful to review what a power of attorney is.  A power of attorney is a document that allows a “principal” to appoint an “agent” to act in the principal’s place.  Unless the document says otherwise, the agent’s authority begins as soon as the document is executed.  If a principal so desires, a document can instead be written so that an agent’s authority doesn’t spring into existence until a specified event comes to pass (such as the principal losing capacity to make decisions on his or her own behalf).  In either case, a principal can put limits on the agent’s authority to act, but in general, the agent can deal with the principal’s real property, tangible personal property, and bank accounts in exactly the same way as the principal could.  Subject to any limitations put in place, the agent can even can operate the principal’s business, pursue claims and litigation on the principal’s behalf, sign the principal’s tax returns, and more.  With a power of attorney in place, a principal doesn’t have to worry about his or her life grinding to a halt in the event that the principal is not able to deal with his or her assets directly. An agent will be there to keep things on track, and there won’t be any need to first endure a potentially lengthy and expensive guardianship proceeding in court.

 

Power of Attorney Changes

Some of the biggest changes to the new law affect the relationship between principals and agents, including the manner in which a principal can revoke a power of attorney and an agent’s authority thereunder.  Also clarified are the rules regarding co-agents serving together under a power of attorney.  As an additional means of protecting principals, the new law states that certain important powers can no longer be given to an agent under a general grant of authority, but must be explicitly granted to the agent.  Finally, under the new law, powers of attorney do not need to be recorded with the Register of Deeds in order to be effective (unless the agent needs to carry out a real estate transaction).

 

Many of the changes affect third parties – people or institutions who may deal with an agent acting under the authority of a power of attorney.  Under the new law, it is much clearer when a third party is free to reject a power of attorney and what steps a third party may take to assure itself that a power of attorney is legitimate.  Third parties should remember that the power of attorney execution requirements vary from state to state, so it is always wise to look at the document’s state of origin and choice of law provision when evaluating its legitimacy.

 

Is a Previous Power of Attorney still valid?

It is important to know that a power of attorney executed prior to January 1, 2018 is still valid, even after the change in the law.  However, a pre-2018 power of attorney will likely lack some of the protections that are now the norm under newer documents.  As time passes, financial institutions and other third parties will become less and less familiar with pre-2018 powers of attorney, and these documents may become harder for agents to use as a result.

If you would like to replace your old power of attorney or execute one for the first time, the estate planning attorneys at Blanco Tackabery are here to help.  Please feel free to contact us by phone or email to discuss powers of attorney or any other estate planning needs you may have.

 

About the Author: Ryan Layton

Ryan is a wills, trusts and estate planning attorney at Blanco Tackabery.

 

While pundits and voters may focus the bulk of their attention on marquee congressional races this Election Day, an equally important but less trumpeted electoral contest also appears on North Carolinians’ ballots: a three-way race to either remain or become an Associate Justice of the Supreme Court of North Carolina.

Unlike the nine United States Supreme Court justices, who ascended to that Court by scoring a presidential nomination and surviving Senate confirmation, the seven men and women who comprise North Carolina’s highest court secured their judicial posts via popular, state-wide election.  However, despite the unusual privilege that North Carolina voters enjoy when it comes to selecting the jurists who serve on their State’s highest court, some may be surprised to learn exactly what kinds of cases that Court hears.

 

Types of Cases Heard

Those cases can be broadly divided into two categories:  (1) cases that the Court must hear; and (2) those that the Court may, in its discretion, elect to hear.  Each of these two categories is addressed in turn below.

Cases falling into the “must hear” category currently include the following:  (1) appeals from decisions of the superior court in which a criminal defendant has been convicted of first-degree murder and the judgment imposed includes a sentence of death; (2) final judgments and otherwise appealable orders rendered by the North Carolina Business Court; (3) appeals from all trial court decisions regarding class action certification; (4) appeals from final orders or decisions of the Utilities Commission in general rate cases; and (5) any decision issued by a three-judge panel of the North Carolina Court of Appeals in which there is a dissent.  Beginning January 1, 2019, appeals from district court orders that terminate parental rights or deny a petition or motion to terminate parental rights will be added to this list, although there is some movement to rescind this category.

Cases falling into the “may hear” category include appeals from unanimous decisions rendered by a three-judge panel of the North Carolina Court of Appeals, or cases decided by the Court of Appeals on initial en banc review (that is, heard by the full Court of Appeals, as opposed to a panel of three judges), in which the subject matter of the appeal has significant public interest, the cause involves legal principles of major significance to the jurisprudence of the State, or the decision of the Court of Appeals appears likely to be in conflict with a decision of the Supreme Court.  Other cases falling into this category include appeals from certain trial court or administrative agency decisions in which the subject matter of the appeal has significant public interest, the cause involves legal principles of major significance to the jurisprudence of the State, delay in final adjudication would likely result from the Court’s failure to certify the case for direct appeal and thereby cause substantial harm, or the subject matter of the appeal is critical to overseeing the jurisdiction and integrity of the court system. A similarly limited subset of trial court and administrative agency decisions may be heard by the Supreme Court by direct appeal, skipping the Court of Appeals, when the workload of the State’s two appellate courts is such that the expeditious administration of justice requires immediate and direct appeal to Supreme Court.

 

Cases that are the Exception

Finally, toeing the line between “must hear” and “may hear” are decisions rendered by a unanimous, three-judge panel of the North Carolina Court of Appeals, or decided by the Court of Appeals on initial en banc review, which directly involve a substantial constitutional question arising under either the federal or state constitutions.  These cases defy easy yes/no categorization because, although they technically give rise to a statutory appeal of right, the Supreme Court itself decides what amounts to a substantial constitutional question.  As a result, a litigant may believe his case involves a substantial constitutional question, thus making his appeal a much coveted “must hear” case, but the Court may disagree with the litigant’s assessment of the substantiality of the constitutional question presented. If so, the Court may demote the appeal to “may hear” status.

For “must hear” cases, “may hear cases,” and all cases in between, the appellate litigators at Blanco Tackabery stand ready to assist you in navigating the complex arena of North Carolina Supreme Court appeals.

 

About the Author:  Chad Archer

Chad focuses his practice on civil litigation.

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Owning a business is exciting at times, frustrating at others, but always demanding.  There are so many decisions to make on a daily basis, and often, as a business owner, you not only have to make the decisions, but must also roll up your sleeves to make those decisions bear fruit.  One decision you should make early as a business owner is determining who will be your trusted advisors to guide you through the legal and accounting issues your business will encounter.  Selecting a professional to assist you with legal and accounting decisions is vital to launching and maintaining a viable enterprise, because decisions made early in the formation of a business can have far reaching consequences down the road.

In my practice, I often see clients who chose to handle matters without engaging attorneys and accountants early in the process, and later failed to recognize issues as they arose during the day-to-day operations of the business. Those decisions can cost business owners far more money down the road than hiring the appropriate professionals in the beginning, and can have a significant effect on the ultimate success or failure of the business.  I have found those mistakes fall into seven basic categories. This is Pitfall number 1 of 7 common pitfalls I see businesses owners make. Over the next few weeks, I will be sharing all 7 of these pitfalls and proven ways to prevent them.

 

1. Failure to Organize and Observe Corporate Formalities

 

Selection of Proper Entity Type – The first pitfall made by many business owners when starting a business is not properly organizing a business entity.  Too often owners start a business “on the side” and run that business as a sole proprietorship.  This has a number of legal and accounting consequences, including personal exposure to liability for acts of the business, tax implications, and too often a comingling of personal assets and liabilities with business assets and liabilities.   Let’s face it, the reason you form a business entity to conduct business is to separate the business operations and its liabilities from your personal assets.  Owners need this protection right from the start, so selecting the proper entity type and correctly forming that entity under the law prior to commencing business is an absolute must.

It seems everyone wants to form a limited liability company these days, because something about it just sounds so safe.  In reality a business may be better suited as a corporation or another type of limited liability entity.  The business owner should also consider the tax options available under the chosen form. Is the business just going to own real estate?  Is the business going to hire employees?  Is the business going to be service related or manufacturing?  All these details influence the type of business entity the business owner should form.  Knowing the benefits and drawbacks of each business type is essential in making a smart start to the business.  Thus, an early consultation with legal and accounting advisors will ensure the business starts off on the right track.

Importance of Shareholder Agreements and Operating Agreements – Another common mistake made by business owners is setting up an entity and then neglecting to define how the owners will govern the business.  When there is more than one owner of a company, a Shareholder Agreement or Operating Agreement establishes the ground rules for operating the business and the legal relationship between the owners.  These agreements cover management and governance of the company, voting rights and protocols, profit-sharing, adding new owners, transfer rights of existing owners, buyouts, and dispute resolution between owners.  It is the playbook for the organization.

Failure to reach an agreement between the owners on these vital issues, and reducing that agreement to writing is the most common pitfall I see in my practice, and results in dissention and costly litigation more often than it should.  Having a simple agreement drafted by an attorney covering these issues, and then referring to such agreement in times of conflict will generally resolve the issue, without the business suffering.

Establishing Entity Control – “We want to own the company fifty, fifty.”  Spouses, family members, friends, all want to be completely fair and equitable in the ownership of a business.  I get that, and it is admirable, but it is one of the most often encountered legal pitfalls for business owners.  I always counsel against this and ask clients to make the hard decision of who will have entity control if there is a disagreement regarding an important decision.  Every company has to have a final decision maker, and that person is going to be the person who owns the majority of the ownership interest in a company, be that shares of stock, membership interest or partnership interest.  This makes good business, and personal relationships must be set aside for the moment so that entity control is established and the potential for “deadlock” is reduced or

Secretary of State Filings – The business is validly formed entity, and has a shareholder agreement establishing corporate governance, now it must keep up its annual filings and fees with the North Carolina Secretary of State.  This is a simple process for limited liability companies, but often overlooked by many business owners, especially single-member limited liability companies.  Failure to file annual reports and pay annual fees will result in an administrative dissolution of the company. Corporations must also file income tax returns every year to remain in good standing. Administrative dissolution may not seem like a big deal, but it is if the company wants to buy or sell real property, enter into a contract, or borrow money.  Technically an administratively dissolved company is not in good standing with the North Carolina Secretary of State, and does not have authority to act as a valid entity to transfer title to property, enter into a contract or borrow money.  A simple way to avoid this pitfall is to put an annual reminder on the calendar the beginning of every April prompting the company to file an annual report and pay the required fees.  The annual report is a simple form and may be completed online and filed electronically.  It requires no special assistance from a legal advisor, although most law firms will offer this service to its clients for a nominal annual fee.

Corporate Formalities – A failure to observe corporate formalities could be a very costly pitfall for business owners.  Corporate formalities are the corporate governance actions taken by a business to establish the validity of the decisions made and actions taken by the company, which in turn maintain its separate identity from the business owners.  This is important to shield the business owner from the liabilities of the company.  Certain fundamental basic formalities should be observed from day one, and maintained throughout the operation of the company.  Common corporate formalities business owners neglect are electing a board of directors, electing officers and managers of the company, keeping up corporate minutes of decisions and actions taken by the board of directors, or members or managers of a company, and maintaining separate financial books and records for the company from the personal finances of the business owner.

Often business owners operate “out of one checkbook” or “help themselves to the till.”  Such practices are dangerous and may expose the business owner to liability of the business.  If the assets and liability of the company are comingled with the person assets of the business owners an argument can be made for disregarding the entity form altogether and treating the individual owner and the business as one and the same.  The same is true for a failure to file annual reports with the Secretary of State, maintain corporate books and records, and otherwise observe the corporate form as a separate and distinct entity.

 

About the Author

Ashley Rusher

Ashley focuses her practice on Outside General Counsel Services and Business Bankruptcy and Creditor’s Rights Practice Areas. She is an effective, results-driven advocate for her clients.  Her background of 30 years in business bankruptcies, distressed debt workouts, problem loan recovery, and real estate title and commercial litigation provides her with a solid foundation of general business, accounting and legal skills.

 

 

Article written by: Chris Seamster, Business and Corporate Law Attorney

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Many individuals, business and legal entities operate under an assumed business name or “d/b/a”. The assumed business name certificate is intended for the registration of business names other than the legal name of an individual or legal entity and are filed in the local Register of Deeds’ office.

The North Carolina General Assembly recently revised the laws governing assumed business names (see Article 14A, Chapter 66 of the NC General Statutes) and now requires that all assumed business name filings filed in the local Register of Deeds’ offices must be compiled into a statewide centralized online searchable database at the NC Secretary of State’s office. To comply with the law, if an assumed business name certificate was filed any time before December 1, 2017, the individual or entity must file a new assumed business name certificate with the local county Register of Deeds’ office in order to keep the assumed business name filing effective.

The law allows a 5-year transition period to give all businesses using an assumed name time to re-file their assumed business information before the old filings expire on December 1, 2022. The new certificate of assumed name will be recorded and indexed in that county and it will also be uploaded to a statewide database of assumed business name information housed at the NC Secretary of State’s office.

The Fair Labor Standards act requires that workers be paid an overtime premium (generally time-and-a-half) if they work over 40 hours in any given week. There is an exemption available for “any employee employed in a bona fide executive, administrative, or professional capacity.” To determine if the exemption fits an employee’s situation, three factors are reviewed:

1. How the worker is paid (salary or hourly);
2. How much the worker is paid (the salary threshold); and
3. The duties the worker performs (the job duties test).

In 2016, the Obama Administration’s Department of Labor announced a rule that the minimum salary threshold, which had been $455 a week ($23,660 annually) would be increased to $913 a week ($47,476). Needless to say, this doubling of the salary basis meant that many workers who had been treated as exempt no longer qualified. The rule was set to take effect on December first, 2016.

The Challenge

Business groups, including the United States Chamber of Commerce, argued that doubling the threshold was unreasonable and illegal. So did Republican attorneys general and governors of 21 states. Essentially, the plaintiffs argued that the Obama rule overemphasized the salary portion of the three part test, and made salary a determining factor. This, they claimed, was over-reach by the executive branch, and was the equivalent of re-writing the law. Two lawsuits were filed, by business groups and by 21 states’ attorneys general. The suits were consolidated in a single case in a federal district court in Texas.

The Court’s Initial Ruling

In late November, the Texas court issued a nationwide preliminary injunction, determining that it was likely that the plaintiffs would succeed on their argument that Department of Labor had exceeded its authority by doubling the salary threshold. This ruling stopped the implementation of the new overtime rule, but only until the Court reached it for a final ruling. By this time, many employers had already modified their payment methods, or otherwise adjusted to the new rule.

The Obama Department of Labor appealed the preliminary injunction. That appeal was pending when the Trump administration took over, and Trump’s Department of Labor did not withdraw the appeal. Meanwhile, the plaintiffs had also filed a motion for summary judgment. This motion would end the case in their favor, if granted.

The Texas district court has now ruled on the plaintiffs’ motion for summary judgment, finding in favor of the businesses and states who challenged the new rule. The case is now over, The Obama overtime rule is voided, and will not go into effect (unless the Trump administration appeals, which is not expected).

Next Steps?

The Trump Administration’s plans for the overtime law are not known. The Secretary of Labor, Alexander Acosta has stated that the Department will make an effort to re-draft the regulation. He also indicated that he believes the current salary threshold is too low, and should be raised, although likely not doubled. While the Obama rule only addressed the minimum salary test for exemption, there are many who would like to see all three prongs addressed, arguing that there are uncertain, and therefore difficult to apply with certainty. On July 26, 2017, the DOL published what is called a “Request for Information”, asking stakeholders for their recommendations on what changes, if any, should be made. Based upon the content of the request, it appears that the agency is planning to start over on the revisions. So far, the Department has received over 120,000 responses to the RF, with a deadline for the responses is September 25, 2017.

It is unlikely that anything will happen quickly in this process, and businesses can expect time to respond when a final rule is promulgated. A good guess is an increase in the minimum salary, perhaps of approximately half of what the Obama Administration proposed, to somewhere in the mid-$30,000 annually.

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Article written by Peter Juran.