Understand Contracts Because Words Matter

Contracts, or the lack of them, can be a major legal issue for business owners. With some foresight and preparation, many contract problems can be prevented. In this legal area, an ounce of prevention may be worth thousands of dollars in legal fees.

The benefit to a well written contract is clarity. Courts will enforce a contract based on its meaning in plain English. Courts will seldom rewrite a contract because a party finds its application unexpected or unfavorable. A well written contract has a much greater chance of being enforced as the parties intended. Only when a court finds the language ambiguous or capable of differing interpretations does the court look to other evidence. In those cases, litigation gets more expensive and often winds up before a jury.

A verbal contract can be enforced by a court with some exceptions. The difficulty in enforcing a verbal contract is having to come up with the proof of its existence in the absence of ink on paper. Because the parties haven’t written down their expectations, their rights and obligations, it may be up to a judge or jury to decide if a binding contract was formed and, if so, who broke a promise.

Parties involved in business transactions should have contracts for their agreements with vendors and customers. A basic contract includes a description of the work, product, or service, a price, and a time for performance. In a dispute, courts may fill in non-essential terms if it finds a basic contract was formed. Other common terms in a contract include choice of law or jurisdiction, waiver and modification, and limited warranties.

Contracts with employees, especially those critical to your operation or in management, are worth considering. Employers often use non-competition and confidentiality agreements to prevent employees from going to competitors or starting their own competing businesses with the employer’s know-how. These “restrictive covenants” are simply a form of contract. After all, a contract can be defined simply as an agreement between two parties.

Never sign a contract without reading or understanding it. It is always good advice to seek legal counsel before signing any legal document. Even if the words seem clear to you, an experienced attorney can spot potential problems in the contract language you may not. Don’t give into pressure to sign. It may be a sign that the party who is pressuring you is not someone you want as a business partner.

Uncertainty and risk are not good for any business. Written contracts can prevent or at least help you manage uncertainty and risk when it comes to dealings with a fellow owner, another company or an employee. Call Scott Fegley at the Fegley Law Firm to you create well written contracts or review a contract presented to you. Call our Yardley, PA office at (215) 493-8287 or contact us by email at scott@fegleylaw.com. We Give You Peace Of Mind.

2012: An Interesting Year for Employment & Business Law

As you saw with my last post, last year had plenty of drama from the personal injury side of things. Between New Jersey’s PIP rule adjustments, the renewed national gun control debate, and “social media discovery” becoming a normal phrase tossed around in legal circles, 2012 sure did not disappoint from the employment and business law aspect either.

For starters, there was the unfortunate case of Kristopher Brooks, a young journalist who landed his dream job with the News Journal in Wilmington, DE and promptly lost it after posting about the job offer on his blog. Similar to the article that discusses the judge allowing for social media discovery, we need to remember that all aspects of society are still trying to clarify the boundary lines for social media and the internet. In this case, Mr. Brooks had the unfortunate experience of playing the guinea pig.

As Inc.com reports:

What seems entirely innocent to the average digital native didn’t sit well with the News Journal, however. They called Brooks to rescind the offer. “I just told my immediate editor what the post was about. And he said, ‘Oh, that sounds okay.’ Around a quarter to six, [local editor] Phil Freedman called me and told me [the post] was an illegal use of the company logo and I wasn’t supposed to quote from the offer letter that I got…and that they wanted to rescind my job offer because of that,” Brooks told Loop21. He immediately offered to take down the post but the News Journal was unmoved. He lost the gig.

Another major development last year involved Michigan’s Right-to-Work law. Michigan Governor Rick Snyder signed the bill into law in mid-December. As Elizabeth Hartfield of ABC News explains, “Right-to-work laws have garnered a lot of national attention in recent years as more states have implemented this legislation that prohibits unions from requiring workers to pay dues as a condition of their employment.” This appears to be an issue that will probably not be going away in 2013 either, since Pennsylvania lawmakers recently unveiled a package of right-to-work bills per Myles Snyder of ABC 27 in Harrisburg.

Hartfield continues:

The laws are meant to regulate agreements between employers and labor unions that would prohibit the employer from hiring non-union workers.

The laws are particularly divisive–proponents argue that businesses will be more likely to set up shop in the state, while opponents argue that weakening union power will lead to lower wages.

Well, that will wrap things up in our look back to 2012. Here is to 2013 and everything it brings! Give me your take on the articles and cases by commenting below. Also, visit the Fegley Law Facebook page and share your thoughts there. Make sure to “LIKE” our page too!

If you have an employment or business law matter, please call our Yardley office at 215-493-8287 or send us an email HERE. We will be glad to help.

What Form of Business Do I Want to Start?

Once you are past the idea phase of your business and are now ready to offer your product or service to the public, you must consider protecting your business and family assets from possible losses. Failing to consider liability and risk may put everything you worked so hard for – both from a personal and business standpoint – in jeopardy.

There are several different legal structures for a business you can choose from.  However, the most common for a small start-up business that will not have many employees to start out are the S-Corporation and Limited Liability Company (LLC). Here are the basics for each one:

S-Corporation

The S-Corporation is ideal for small businesses with a reliable cash flow or whose owners have other sources of income to maintain their standard of living while the business grows.  Although it is a separate legal entity, the income or loss of the company “passes through” to the owner’s tax return unlike in a C-Corp. The business files only an informational tax return with any tax due being paid at the individual level.  The S-Corp provides liability protection and a tax advantage to being a sole proprietorship, but offers less flexibility with the company’s cash and requires the owners to be employees of the company to gain the tax advantage.

Limited Liability Company (LLC)

Another popular option for small businesses is the hybrid entity structure known as the Limited Liability Company, or LLC. With this legal structure, the owner gets the liability protection of a corporation.  However, the IRS will tax a single member LLC as a sole propriertorship or a multi-member LLC as a partnership.  One can also elect to have the LLC taxed as an S-Corp.  Sound confusing?  The main point to keep in mind is that each of these forms gives you liability protection.  Tax treatment and advantages vary.  You should consult an account about the tax advantages for your particular business.  Generally, it is a trade-off of less flexibility for greater tax advantages (S-Corp) versus total flexibility and no tax advantage (LLC taxed as a sole proprietorship).

This post is solely for basic informational purposes. Given the multiple issues involved in forming a business, I recommend you consult an attorney early in the process.  We are happy to help.  Please call us at 215-493-8287 or send us an email HERE.