If you back up your data by some type of external hard drive, tape drive, or mirror drive, and your backup is in the office with you, it will probably not do you much good if your office burns, floods, gets blown to bits, or someone comes in and steals your external hard drive, etc., when they take your other equipment. If you are only backing up one data set, then you might overwrite good data with data that has been infected by a computer virus.

Offsite data backup has become much more reasonably priced, and often will store multiple encrypted data sets going back several weeks, and also may store your data remotely at multiple locations.  Redundancy is helpful in case one of their offsite backup location burns, floods, or gets blown to bits, and it is always nice to go back to the last data set before you downloaded the computer virus.

It is well worth your while to make sure that you automatically backup your data, such as setting it to back up automatically every evening, so that you don’t forget to run your backup.

If your business data is important to you, take the time to make sure that your data is securely backed up offsite.

When is the last time that you backed up?

In that entity book, you should maintain the bylaws or company agreement, buy-sell agreements, shares or unit certificates, member ledger, and minutes of annual meetings.  We also recommend that you keep any documentation received from the Secretary of State’s Office, State Comptroller’s Office, or Internal Revenue Service (IRS) that relates to the entity.  That way, you are keeping all of the imported entity documents together in one place.

Since it is so important to maintain all of the proper entity documents in one location, it is pretty safe to assume that it is also very important to know where you are keeping the entity book.

When is the last time that you saw your entity book?

Commercial collections have gotten quite a bit more difficult lately with debtor business failing or filing bankruptcy and courts not willing to grant things, such as Receiverships, as much to assist with collections on judgments.

Firms like ours have to look at much more closely at which files we would be willing to handle on a contingency fee basis. That also means that our clients have to look much more closely at which files they would be willing to pay an attorney on a straight time basis to pursue.

I have been encouraging our clients to look at the amount of the claim.  If it is under $10,000, they may consider handling it themselves in Small Claims Court if collection is questionable.

While the court may grant attorney’s fees as part of the judgment if you are represented by an attorney, if the debt is uncollectible, then you won’t be able to recover your expenses and costs.  Also, judges often cut the attorney’s fees awarded in a judgment so that the other side has “gotten something”, and is less likely to appeal the case.  In other words, if you get a judgment, it may not cover the full amount of attorney’s fees that you actually paid your attorney.

If the case is not very strong, or there may be a defense or counterclaim filed, then litigation could get expensive.  However, an attorney is more likely to better prosecute your case or defense if it is more complicated.

Also, if the case is filed in Justice Court, rather than Small Claims Court (even though it is the same Judge on the bench), then the Rules of Evidence and Procedure apply, just like in County and District Court. You are at a distinct disadvantage in Justice Court if you are not represented by an attorney, even though the law now allows corporations to represent themselves in Justice Court without an attorney.

Basically, you need to look at how collectible the debt is likely to be.  If it is a fairly straight forward case and very collectible, it may be something that could be handled on a contingency fee basis. If the debt is under $10,000, you have the option of handling it yourself in Small Claims Court.  If you do not have the time or desire to handle it, the obligation owed is over $10,000, or it may be complex, involve a defense or counterclaim, then you need to weigh if it would be worth hiring an attorney on a straight time basis.

Planning ahead to make sure that employees and vendors can still be paid, that receivables can still be collected, and that work can still be done may mean the difference between the business staying in business, or closing the doors for good.

Who has access to the business checking account is just one part of business succession planning.

You may be able to set up personal accounts as “Payable on Death” accounts, or “Right of Survivorship” accounts, so that on your death you can make sure that someone has access to the funds on those accounts.  But when you have a business conducted under a legal entity, like a Limited Liability Company (LLC) or a Corporation, just because a Member, Shareholder, Officer, or Director dies, doesn’t mean the entity dies.  You cannot have a “Payable on Death” account for an LLC or a Corporation. That means that if you want to make sure that someone can access the funds in the account, they need to already be a signer on the account.

If you are incapacitated, you may have Powers of Attorney (medical and financial) that allow you to name an Agent to make medical and financial decisions for you, personally.  However, those Powers of Attorney will not usually allow your Agent to act for you in your role as an officer or director of a business entity.  Again, that means that if you want to make sure that someone can access the funds in the account when you are incapacitated, they need to already be a signer on the business account.

Take some time to think about and prepare a succession plan if you have a business.

If you have any questions, please give us a call.

I have several clients that are presently stationed overseas, but they keep a house within the state, and intend to return here.  Since they “intend to return” to the State of Texas, and have an address that they claim as their residence, even though they are currently living overseas, then Texas is the state of their residence.

We prefer to meet our clients in person, since that usually allows us to communicate more clearly with one another, and make sure that we understand exactly what they would like.  However, that is not always practical.

As discussed, some of our clients are overseas and unable to meet in person.  We also have clients that reside in small towns in Texas that really do not want other people in their town to know their business, which sometimes includes the attorneys working in that town.  We also have clients that are family or friends of other local clients that want to prepare their documents, but don’t know anyone where they live, and would like to use someone that their family or friends trust.  Some just live in rural areas where there are no attorneys, or because of a physical aliment are unable to come in to visit an attorney and are too far away for the attorney to visit.

When we are unable to meet our clients face to face, we can still communicate by telephone and email to help them prepare the documents that they need.  Meeting face to face is always preferred, but the client’s needs can be met using other forms of communication.

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You corporate book holds the documents that you will need to protect yourself if someone ever files suit and tries to go against you personally (trying to pierce the corporate veil) claiming that the corporation is your alter ego or a sham or fraud.

If you are one of the folks that just filed the paperwork with the Secretary of State and paid your filing fee and created a corporation, with nothing more, you might find that you don’t really have the protection that you thought you had.

It is not too late.  If you need assistance preparing Bylaws, ordering a corporate book, issuing shares, and preparing your Minutes from the Annual Meetings of Shareholders and Annual Meetings of Directors, please give us a call.  We can help.

What this proposed House Bill does is say that if you file suit in a case, and you lose, that you will be required to pay the other side’s attorney’s fees, litigation costs, travel expenses and expert witness fees.  It also says that if the attorney that is representing you is handling the matter on a contingency fee basis, that the attorney may also be responsible for paying the other side’s attorney’s fees, litigation costs, travel expenses and expert witness fees too.

As a small business owner myself, I am certainly sympathetic to a business that is sued, and even if they win their case, they have incurred attorney’s fees defending themselves.  So without any additional consideration, it would seem “fair” that if you win your case, the other side should pay your costs, right?

However, you need to think about it a little deeper.  Let’s pretend that you were injured or that someone owed you money for some work you did for them and they didn’t pay you.  Let’s also pretend that you sued them, and for some reason a judge or jury ruled against you (which can happen even if you are 100% right).  It could cause you financial ruin.  You may have to pay not just the other side’s attorneys fees, but all those other additional costs of litigation, like expert witness fees.

There are already laws to punish folks that file frivolous law suits.  Just because you lose doesn’t mean it is frivolous, and should cause you financial ruin.

How many people would file suit against a major car company for defects in the vehicles that may have killed their loved one knowing that if they lost the case, potentially millions of dollars would be owed by them to the car companies?  Not many, I bet.

But it goes further than that.  Most folks I know don’t have the money to pay an attorney their hourly rate in a personal injury case.  If they are injured, they are probably hard pressed to just pay their bills.  So for that reason, some attorneys will take on cases on a “contingency fee” basis, meaning that if they don’t win and collect, their client owes them nothing.  The attorney’s fee, if any, are taken from the collection alone, so it all depends on the outcome of the case.

You also see this a lot with small businesses.  Many businesses hire attorneys to handle their collections on a contingency fee basis, because they can’t afford to pay the attorney straight time to sue the business that didn’t pay them, especially when there is a chance they may not be able to collect on a judgment if one is taken.

In this proposed legislation, if the attorney has a “financial interest” in the matter (meaning that they have a contingency fee or a fee based on the case’s outcome), then the attorney may also become liable to pay the other side’s fees if they lose.  So what do you think that will do?  If the attorney doesn’t want to expose themselves to liability also, the only way to do that is refuse to handle any matter on a contingency fee basis.

If attorneys stopped handling cases on a contingency fee basis, and would only take straight time payments to handle a lawsuit, then only the very wealthy would be able to afford to bring law suits.  You may have a right to bring a case to trial under the Constitution, but financially would never be able to exercise that right.

The proposed bill takes it even a step farther.  Let’s say that if you win, and the other side loses.  If your attorney is handling the matter on a contingency fee agreement with you, then that fee agreement for legal services may not be considered in the determination of the amount of reasonable and necessary attorney’s fees.  If your attorney can’t get paid, how many cases do you think they can take on?

In personal injury matters, or those arising out of Tort Law, the defendant NEVER has to pay the plaintiff’s (injured party’s) attorney’s fees and costs.  That means that this law will only apply to plaintiffs.  Only you, and not the party that hurt you, will risk financial ruin if you file suit.

Does that really seem fair to you?  Big business and insurance companies may be able to afford it, but can you?

If not, then write your state legislators and state senators.  Tell them that you want to preserve your right to have your day in court that is protected by our Constitution.

One reason is that a single member, member managed LLC is very easy for tax purposes.  Unless you select otherwise, it is taxed as a disregarded entity, so taxes are paid just like you were a sole proprietor.  The business profit is counted as your own personal income, and you just prepare a personal tax return as usual.  (If there is more than one member, you will need to prepare a partnership tax return, and the income shown on the Schedule K will be listed as income on your personal tax return. Again, unless you select otherwise, it is treated as a pass through entity, and the profits are passed through to the members, just like a partnership.)  While you do need to file a margin tax return with the state, most small businesses only need to file a no tax due return.

Another big benefit of an LLC is that it protects its members from personal liability for business debt.  That means that if you have not personally guaranteed a debt, such as for an office lease, only the assets of the LLC will be liable to pay the business debts, and not the individual members.  (This protection will not protect or shield a member from their own personal malpractice, however.)

The LLC form is also beneficial in that it generally will protect the LLC assets from the personal debts of its members.  If someone took a personal judgment against one of the members of the LLC, the judgment creditor could not just take the members LLC interest and take control of the business.  Judgment creditors are only entitled to take an assignment interest in the LLC, which means that if any money is paid out, they can hold their hand out to get some, but they have no right of management and control, and cannot force a distribution.  It is only an economic interest they can hold.

Another reason that a single member, member managed LLC is so popular is that it is the easiest business form to maintain.  It does not require the same formality of conducting annual meetings and maintaining annual minutes, like a corporation requires.  While it is not technically required, our office always recommends that minutes be maintained, even if they are rather informal.  By maintaining minutes, it shows that you recognize that the entity is a separate “person” from you under state law.

If you would like to see a comparison between LLCs and corporations, click here.

If you have questions about LLC’s, please give us a call or email.