FAQ on Business Law
- I’m planning on buying an existing business, or starting my own new business. Should I consult with an attorney?
When buying or starting a business, legal issues abound. An attorney may be able to explain terms assisting in establishing priorities and pursuing the objectives requested by the client.
- What are the advantages of conferring with an attorney who handles business law issues?
An attorney may help you avoid some of the most common business legal mistakes. If you are buying or starting a new business, you probably have a lot at stake. Getting legal advice is as important as your initial investment.
- What are some of the pitfalls of not being represented by an attorney in the purchase of a business?
The pitfalls of purchasing a business can be numerous, including the financing of the deal, the potential tax consequences, and the transfer from the seller to you of things like debt and inventory. These are only a few of the many issues.
Certain terms and conditions of a sale may require negotiation to seek to obtain better terms.
- When buying a business, the seller’s attorney or representative may present you with an alleged Standard Buying Agreement. Is there such a thing, and what’s in it?
A so-called “Standard Buying Agreement” really is a misnomer. In other words, there’s no such thing as a universally accepted, standard agreement.
What may seem “standard” to one party may be beyond the expectations of the other party. More likely than not, any alleged “standard agreement” prepared by the other party and presented to you will have terms that are favorable to the other party – not to you.
Before signing a buying agreement, have all business documentation reviewed by an attorney.
- How can an attorney help me negotiate favorable terms for a commercial lease?
An attorney can seek to obtain terms that are reasonable. Commercial leases often have a degree of complexity and specificity that merit review by an attorney.
- How often should the Officers or Directors meet and what type of documentation should be prepared about the meetings?
By-laws often describe the frequency and purposes of required meetings. If the by-laws are not available, they should be prepared. In the event of a delay locating the by-laws, the corporation should, at minimum, meet once per year for an annual meeting. Major transactions should be documented by either a resolution signed by all Officers and/or Directors, and may in certain circumstances be unanimous and in writing, following the requirements of the Corporations and Associations Title of the Maryland Annotated Code.
- Should you have an attorney review business contracts?
Yes. Business contracts need to be reviewed by an attorney.
- What is a trade secret?
Under the law, a trade secret is 1) a practice, method or process that is kept secret for its economic value and 2) where reasonable efforts are made by the owner to keep it secret.
- What relief can the owner of a trade secret obtain?
An owner can seek either an injunction or damages.
An injunction can enjoin, or stop, a party from utilizing or revealing an owner’s trade secret that was obtained by improper means.
Damages can compensate the trade secret owner for loss or unjust enrichment caused by another party using or disclosing their trade secret.
- What must the owner of a trade secret show to obtain relief?
First, the owner must demonstrate that they maintained the trade secret for its economic value and that they took reasonable precautions to keep it a secret. Next, there must be evidence of misappropriation. Misappropriation is where a third party acquires, discloses, or uses a trade secret that they somehow acquired by improper means.
- What constitutes “improper means” of acquiring a trade secret?
The statute describes “improper means” as including anything from “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.”
- What laws govern trade secrets?
Trade secrets are governed by State, not Federal law. Forty-six states, including Maryland, along with the District of Columbia incorporate the Uniform Trade Secrets Act (UTSA) into their laws.
In Maryland, the UTSA is located beginning at Md. Code, Commercial Law, § 11-1201.
- What is an employee agreement that includes a restrictive covenant?
You can protect your valuable work product, trade secrets, and other proprietary information with employee agreements between your business entity and your employees. Properly drafted, these agreements may protect your business from an employee leaving to start a new and competing business, or taking customers with them to a competitor.
It is recommended you consult an attorney because in Maryland certain restrictions apply that dictate whether or not these agreements are enforceable by the courts.
- What are some of the guidelines for employee agreements with restrictive covenants?
In Maryland, there are first two basic considerations for enforceability of a restrictive covenant on an employee: 1) the period of time the restraint is placed on the employee, and 2) the geographic area of the restraint.
More specifically, in Maryland, courts will not enforce restrictive covenants unless 1) the employer has a legally protected interest, 2) the scope and duration of the covenant is reasonable to protect the employer’s interests, 3) the covenant does not impose undue hardship on the employee, and 4) the covenant does not violate public policy.
Other factors that merit consideration in determining whether a restrictive covenant is enforceable is the skill-set of the employee (they are often harder to enforce against unskilled workers that do not possess specialized knowledge or unique skills), whether a trade secret or customer list is at risk, and whether enforcing the covenant would be unconscionable (grossly unfair to impose on the employee).
In Maryland, restrictive covenants can be subject to something called “blue penciling.” Blue penciling is where a court can strike portions of an agreement that it believes are too restrictive and inequitable, freeing the employee from some of the covenant’s most restrictive obligations.
- What is a Golden Parachute?
While often much maligned, a so-called Golden Parachute can protect you as an employee in the event that a company is sold or merged. The goal is to protect your compensation and benefits, or produce an acceptable buy-out in the event business circumstances change.Types of Business Entities
- What is an LLC?
LLC stands for Limited Liability Company. An LLC is a stand-alone entity, separate from who owns and operates it. If you are doing business with the public, an LLC is a form of business entity that can personally protect you from liability.
- What is an S-Corporation?
An S-Corporation offeres liability protection. Its income, for taxation purposes, passes through the corporation to its shareholders where it it is then taxed as regular income of the individual.
- What is a Sole Proprietorship?
This is the simplest form of business entity to form. This type of entity is wholly controlled by one person, but does not offer any personal liability protection.
- What is a Partnership?
A Partnership is a business entity jointly owned by all Partners in the business. Each individual Partner is responsible and liability for acts of the business.
- What is a C-Corporation?
A C-Corporations is how most large businesses are organized in the United States. For taxation purposes, the corporate entity is taxed separately from its shareholders, who receive profits passed on as dividends.
Don’t go into business alone. Fred Antenberg is an attorney located needs in Columbia, Maryland who handles business matters in Howard County and surrounding counties in the State of Maryland. Call Fred at 410-730-4404.