“An ounce of prevention is worth a pound of cure.”
You may be familiar with this famous quote by Benjamin Franklin and think advice from the 1700s would be inapplicable for business decisions in 21st century. However, our experience tells us otherwise.
Business owners who try to act as their own attorney when entering into a legally binding document, like a commercial lease agreement, assume a tremendous amount of financial risk. Many intelligent individuals find themselves in the middle of what would have otherwise been a preventable legal or financial mess if they had only sought proper legal advice.
Some common items that often trip up business owners when it comes to commercial leases are the exclusion or deficient use of the following clauses:
1. Attorney Fee Clause: If your contract dispute requires litigation, attorney’s fees and court costs should be paid by the person who loses the litigation. Including this clause acts as a deterrent to the filing of frivolous claims.
2. Use of the Property: Avoid surprises by ensuring that the tenant’s intended use of the property is explicitly permitted in the lease.
3. Approval of Alterations and Signage: A commercial lease should require the landlord’s prior written approval prior to the tenant making any substantial alterations to the property. There should also be language requiring that any alterations made be in a workmanlike manner. Finally, the landlord should have to approve in writing to the tenant’s outdoor signage. This is due to the fact that many signage require making permanent alterations to the exterior of the building.
Are you an owner in a multi-owner Corporation, LLC, S-Corp, or Partnership? If so, have you given any thought to or prepared a formal business succession plan?
One of the more difficult parts of being a business owner can be deciding how to wind up a business or determine how to restructure ownership after an owner wants out or dies. In order to simplify this process, the business owners should insist on having a formal Buy/Sell Agreement signed when they begin their business relationship.
A Buy/Sell Agreement is a legally binding contract that stipulates how an owner’s share of a business may be reassigned if that owner dies or otherwise leaves the business. Buy/Sell Agreements often stipulate that the available share be sold to the remaining owners or to the company. Buy/Sell Agreements can take many forms and there are no requirements as to how such agreements must be structured. Terms for such an agreement are negotiated between the owners. Therefore, the advice of an attorney is needed to ensure the best possible exit strategy for all of the owners.
Important clauses that every Buy/Sell Agreement should contain:
1. Valuation. The Agreement should include detailed information about your business’ worth. You should consider having it professionally appraised or using a set formula to value the business. You want the valuation provision clearly defined to establish a fair purchase price in the future in order to reduce conflicts.
2. Identify the Parties. The Buy/Sell Agreement must identify all the owners entering into the agreement.
3. Funding the Buyout. You want to make sure the Buyer has the financial ability to fulfill the payment terms of the Agreement. Many Buy/Sell Agreements utilize life insurance policies to ensure the purchase will be adequately funded. Don’t just assume the Buyer will have the cash at the time to purchase the business or that they can borrow 100% of the purchase price.
Small Business Week is celebrated May 5-11 in recognition of the entrepreneurs who saw a need in their community and stepped out in faith by opening a business to provide a solution to that need. These business owners are key to our economy and without their ingenuity, hard work and dedication, many of our communities would be suffering.
Small business owners hold a special place in our hearts at Davis & McCann. In fact, we’ve helped over 100 businesses get a start in Western Kansas in the past five years alone. There’s something inspiring about listening to someone share their dreams and visions to make their community better. We want to see people succeed and do well in life. Being able to play a small role in someone’s success by helping them get started with a new business venture allows us to end our day feeling content, knowing we’ve helped make our community just a little better than it was yesterday.
Fledgling businesses often find themselves full of doubt when times get tough. With so much business being lost to internet sales, local businesses often fail to see the value they are providing to community members. What are some ways you can encourage your local small businesses? Here are just a few ideas that can go a long way to keeping that entrepreneur flourishing in your local community:
1. Like, share and comment on any social media the business may post. Sharing and commenting on a post will help the information stay visible on social media to a broader audience, and potentially draw the attention of prospective new customers.
2. Leave a positive review for the business on Google, Yelp, or their social media or website. Positive online reviews help attract new customers.
2. Encourage friends and family members to check out the business. Word of mouth from trusted sources carries a lot of credibility.
3. Lend moral support. Stop by and bring a cup of coffee or a snack and let your favorite business owner know you appreciate the service they are providing in your area. Encouraging words go a long way when days are difficult.
4. Don’t expect free goods or services. Businesses aren’t open just for laughs. It is extremely common for
Starting a new business is exciting but the decisions you make in the beginning can have long-lasting impacts on your future profitability and success. If you’re ready to start your new for-profit business in the State of Kansas, here are a few basics on the various business entities available to you:
• Although arguably the least complicated way to set up your business, it also creates the greatest liability risk for the owner.
• No annual minutes are required and no reports or filings, other than income tax filings, have to be made with the State.
• With this form of business entity, the owner is 100% liable for the company debts and obligations.
If you own income-producing property, one of the ever-present concerns you face is the possibility of being sued by a tenant. If you own the income-producing property individually (not in and LLC or corporation), personal assets, such as your home and other investments could be subject to the Court judgment, should you be found guilty in the lawsuit. Additionally, have you considered what will happen when you die? Will your family fight over your home, vacation home, or investments properties?
If you haven’t taken the necessary steps to protect your assets from lawsuits or probate, you or your heirs could face a nightmare of legal fees and court dates. Two commonly used tools to protect real estate assets include limited liability companies (LLC) and trusts:
LLC: In a nutshell, an LLC protects your personal assets from lawsuits or claims that results from your ownership of assets in the LLC (in this case, real estate). You must comply with Kansas LLC laws in order to receive those protections, but with the assistance of an experienced attorney, this is easily accomplished. Your attorney should prepare the LLC formation documents, file your LLC with the State and advise you on your compliance duties with the State. Formation documents should at least include: Limited Liability Articles of Organization and an Operating Agreement detailing who the members are and what their
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