Business Law FAQs

Subject: Agreement

Question: Hello, I am a 23.5% partner in a California Corporation. I recently decided to sell 22% to a friend of mine. The agreement reads that I forward him those shares and he has a deadline of 9/10/2006 to pay me in full for those shares. If he does not pay me in full by that deadline, any unpaid for shares will revert back to me. I am charging him a total of $7,000.00. He has paid $2000.00 so far. I wrote the agreement and emailed him a copy. We both signed our own copies and faxed them to a 3rd partner. There is not a copy that exists has both our signatures on it. How binding is this contract? Do I have any legal options regarding stoping it at this time before I reeive another payment from him? Thank You.

Answer: First, you should have consulted with an attorney. If the corporation has an S election, the new shareholder needs to sign a new election. Frankly, you should have a stock pledge agreement as security.

It sounds like your agreement should be binding because each party has the other's signature.

I hope this helps!

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Subject: partnership proposal

Question: Dear.Mr Ronald

Ronald, I will like your input on negotiating. I own a successful small business and i have been able to grow it to where it is today with great input from a cordial friend whom we have been working together close to a year now. he has no financial input in the business but he has contributed profoundly into the business intellectually  giving the company management input to develop all the necessary corporate infrastructure the business need to thrive. now he want to reaffirm his commitment to the business. He has propose to take up a 25% stake in the business subject to an agreed valuation and a position of Executive Director on the Board with a token package this will enable him also to share in the success of the business. what is fair? he has no monetary equity but can give valuable intellectual capital. what percentage should i negotiate it to that will be a fair deal

Answer: You certainly should find a way to fairly compensate someone who has been instrumental in growing your business. Nevertheless, you should be very cautious about giving away ownership in the business. If the relationship cools, or if your friend becomes sick or dies, you will have to worry about a potentially adversarial minority stakeholder. Therefore, if you want to compensate this friend, I suggest that you have your attorney prepare a "phantom" stock agreement. The way these type of agreements can work is to tie in the payment to the profit of the company. For example, while this friend is employed by the company he would be entitled to x% of the annual profit and if the company is sold, y% of the proceeds. This could be an annual contract. If he quits or the arrangement is terminated, his rights to future compensation ceases.

I hope this idea helps you!

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Question:
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Category: Business Law
Location: NJ
Subject:  Legal issues with pornagraphic industry in nj

I am attempting to open an online buisness in adult entertainment.  I want to know any forms i might need, things I would need to fill out etc.  I know that it is a sensative issue and Im not sure If it is even legal in NJ.  I am trying to be fully legal with no questionable aspects of this buissness.  What forms must actors fill out? Forms with state or county? Legal disclaimers? Basically I am very concerned about breaking the law and risk of a law suit.  Please let me know.  THank you very much.
-Joe


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Reply:
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Category: Business Law
Location: NJ
Subject:  Re: Legal issues with pornagraphic industry in nj

First, you should consider NOT locating in NJ. Because of Gov. Corzine's Sales Tax law changes, Information Services are now subject to NJ Sales and Use Tax. There are very few guidelines on what is included as an Information Service, but there is no reason to take the risk.

You will need to establish a Limited Liability Company to protect your personal assets. You will also need contracts with the performers and models and agreements with end users.

Frankly, there are no "magic forms." Rather, you need representation to fit the specific needs of your business.

I have more infromation about setting up businesses at www.taxesq.com

I hope this helps!

Ron Cappuccio

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Name: Wantaregh

Subject: What contract should I use

Question: I'm starting a vendors market.  I will lease the parking lot of a local business (Berkeley, CA) as the location for this new small business. The Market will operate once a week for three months initially, with an option to reopen at a later date for a longer period.  What sort of contract should I use to establish an agreement with the parking lot proprietor and what sort of additional information (legal forms) might he require?

Answer: First, you need a lease with the parking lot owner with an option to renew. You may be able to negotiate a lease that varies with the number of vendors. Also, you need to make sure that local zoning regulations are met. In many localities, there are prohibitions or very strict limitations on outdoor markets and "flea" markets.

You will also need contracts with your vendors. Further, you should contact your liability insurance company to determine the cost for covering suits from customers of the vendors. In an ideal world you would have the vendors provide you with a certificate of insurance. That is not realistic for these types of vendors.

I Hope this helps!

Ron Cappuccio
www.taxesq.com
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Name: Carol

Subject: Selling a business

Question: I have had a small scrapbook business located inside of a Merchant Mall for the past 4 years.  This is where you rent an area for your merchandise and don't have to be there with it.  They have a centralized checkout that keeps up with your total sales.  I am closing my business as of June 30th.  The owner's of the Mall have approached me about buying my remaining inventory, fixtures and vendor contacts.  They want to keep it in the mall since it brings in alot of business, therefore they don't want it to go.  I know how to price fixtures and inventory, but I don't really know how to put a price on vendor contacts or the value of established clientele.  How do you go about turning over your vendor accounts to them?  Do I contact my vendors and let them know that I am no longer in business and that someone else will be taking it over?  They also would like to make payments as well.  We are not talking about a great deal of money.  I have had a 50% off sale this entire month so there is some inventory left, but not alot.  What type of documents would need to be in place for such a transaction?  I don't want to only have a verbal agreement.  I don't feel as if that would be a wise decision, but considering it's not alot of money, I don't want to spend a great deal of money on a lawyer.  My sales for 2006 were $16,000.  I also do not want them to manage the business under my business name.  What steps need to be taken?

Answer: Because your sales were so small, I can understand your financial concern. Since AC Moore, Michaels, Target, Walmart, etc are now all stocking scrapbook supplies, it is impossible for the small stores to compete. My retail scrapbook clients have gone out of business and are focusing on niche items.

You should have a lawyer to protect you in this transaction. You need an agreement of sale of assets and you should be paid for transferring your accounts. Maybe you can be paid a percentage of sales? Also, do not sign a covenant against competition.

I hope this helps!

Ron Cappuccio
www.taxesq.com
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Name: Desmond

Subject: general business deal question

Question: We're a small pet related company with a product we think would appeal to large business.  Who exactly is the person(s) we should target/contact to negotiate a contract or pitch a proposal?

Answer: First, you need to be sure your product is protected. You should check with a patent attorney if the product can be patented. If not, can the large company simply adapt the product and manufacture it without you?

Most large companies require an agreement prior to accepting a product submission. This greatly limits your rights and should be reviewed with your attorney. Also, many retailers acquire products from distributors. Therefore it may be best to get your product sold by distributors.

Finally, you can can check online for the "product acquisition" or :purchasing director" for the company and direct an e-mail to that person.

I hope this helps!

Ron Cappuccio

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Name: Jeff

Subject: Business Investor Advice

Question: Hi Ronald,

My wife and I have a small retail purse store. We are in the need of more
operating funds. I have a someone that is willing to invest somewhere between
15K and 30K to help us get to where we want to be. He would basically be a
silent partner. He says he only has money to offer. Nothing else. This business
is a first for us and we have never done anything like this before. I am
wondering what type of numbers are fair to pay someone like this and how often
are they generally paid? Also would I have to change the ownership with the
state? Should we get and Attorney involved? Right now we are a LLC. Thank you
for your time.

Answer: Jeff:

Thank you for the question. Like many small business owners, you are afraid to
get legal help for major business decisions. In the long run that is the biggest
mistake you can make. You need an attorney to draft the loan or investment
agreement. Frankly, you should try to get the money as a loan rather than
investment. Since you will be doing all the work, why give up control, or a have
to answer to someone else for such a small amount of investment?

If the investor wants ownership, he would become a member of the LLC and you
would have to have a new operating agreement.

I hope this helps!

Ron Cappuccio
www.taxesq.com

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Name: maggie

Subject: new business?

Question: Hi RI dont know if you can help me... but him am 41 years old and am a
business owner (tanningsalon/Spa) its can be very lucrative but it is a seasonal
business and my rent just keeps going up sometimes i feel him "working to pay
rent" we are in business 4 years now...but a few of my customers i became very
friendly with and they are quite well off" today her sister came in and i
started to ask about the"business"they are all in and she proceed to tell me...
Its a "student loan consolidation business" they buy leads then send out either
post cards, cold calling or they can buy the "credit cards' and send them out to
the people on the list ( that have student loans already)saying if you
consolidate we will give you a 1 1/4 point lower on your current interest rate.
then you get them hooked and you send it in to a the lender then the check gets
cut , you get your commission and your out of the "loop"
these people are making money hand over foot and i would like to get in as well
my rent is choking me along with my other finances my husband is not working as
he helps with my salon, so what is your take on this? have you ever herd of
this? can you help? where do i begin?
pls advise... very confused
maggie"


Answer: Maggie:

I am sorry for the delayed response but I was on vacation. This student loan
consolidation business sounds like a Multi-Level Marketing scheme. Frankly,
MLM's are typically bad deals. You should focus on your business and possibly
renegotiate the lease. Also, you may want to look for a property to buy since
interest rates are still very favorable.

I hope this helps!

Ron Cappuccio