Developing a Business Succession Plan is crucial to ensuring the ongoing viability of your business, regardless of whether you leave your business through retirement, sale or death. Having a plan in place helps ensure a smooth transition for you, your family, your employees, and your business. Business Succession planning is often done in concert with creating an Estate Plan.
A Buy-Sell Agreement controls what happens if one of the business owners leaves the company for any reason, including death, disability, disagreement (business divorce), or retirement. Important issues such as valuation of a Member’s interest, payout schedule, and rights of first refusal are just some of the aspects covered by this document. By addressing these issues in advance, a Buy-Sell Agreement helps owners avoid contentious and/or lengthy negotiations and potential litigation.
A Commercial Lease is the contract a business enters into with a landlord. Important terms in commercial leases include the contract term (number of years), permitted activities within the space, allocating responsibility for maintenance and repairs, acceleration clauses, personal guarantees, CAM expenses, insurance requirements, default, and remedy provisions. A poorly negotiated Commercial Lease can become a very large liability, especially if a personal guaranty has elimited limited liability protections. Striking the right balance of cost-sharing and risk allocation between landlord and tenant often requires an understanding of the intricacies of the commercial real estate market.
A Confidentiality Agreement seeks to prevent a party receiving confidential information from sharing that information without the consent of the disclosing party. Typical Confidentiality Agreements define what is and is not confidential information, obligations of the receiving party and remedies if the receiving party shares the confidential information. Upfront clarity, achieved through careful drafting of a Confidentiality Agreement, is one of the best ways a company can help ensure that important information remains confidential after it is disclosed in the course of business.
An Employee Manual serves as a way for an employer to communicate and document expectations for employees. Typical Employee Manuals include anti-discrimination policies, work schedules, standards of conduct, safety policies, media policies, procedures for filing a complaint, and vacation policies. A thoughtful and comprehensive Employee Manual explains company policies so that everyone in the workplace is on the same page and so that issues can be measured against objective, pre-existing standards. Since North Carolina is an employment-at-will state, Employee Manuels must be carefully crafted so as to not give unintended rights or benefits.
Employment Contracts help protect the founders by clearly defining rights and obligations for both the company and its employees. Employment Contracts can define salary, benefits, and job duties, as well as other aspects of the employer-employee relationship, such as ownership of intellectual properties created in the scope of employment, stock option agreements, and termination policies. Well-drafted Employment Contracts often help avoid or mitigate costly litigation and create clear expectations for all parties.
The choice of entity is a major decision when starting a new business. LLCs and corporations each have relative advantages, with important and varied legal and tax implications.
An Estate Plan helps ensure that your wishes are known and met as you near the end of your life and after your passing. An Estate Plan typically includes a will, general power of attorney, living will, and health care power of attorney. Trust documents and charitable giving are also commonly part of an Estate Plan. In addition to making sure your wishes are carried out after your passing, an Estate plan also allows your surviving family and friends to focus on the grieving process rather than administrative details during a difficult and emotional time. Estate planning is often done in concert with creating a Business Succession Plan.
A Licensing Agreement is a contract between an entity who owns intellectual property (licensor) and an entity who is granted the right to make use of that intellectual property, according to the terms of the contract (licensee). Typical terms include compensation (i.e., royalties), scope, exclusivity, contract length, quality control, renewal, and termination. Terms for Licensing Agreements vary widely, and a fairly drafted document can protect both parties while allowing everyone to benefit financially.
A Non-Compete Agreement prevents one party from competing with another for a specific period of time within a defined geographic area. When deciding whether to enforce a non-compete agreement, courts often look to a variety of factors, including the reasonableness of scope of activities prohibited, time period, geographic restrictions, and when the agreement was signed.
The Operating Agreement is the document that sets forth the framework for decision making and operation of LLCs, and is similar to bylaws for corporations. While the document does not need to be filed with the Secretary of State, it is often requested by lenders, investors, and potential business partners. For multiple-member LLCs, the Operating Agreement serves to memorialize agreements and understandings among founders. For single-member LLCs, the Operating Agreement is evidence that the company is deserving of limited liability protection, and positions the company for growth through either debt- or equity financing.
Other Formation Documents
In addition to choosing the type of entity, filing the appropriate paperwork with the Secretary of State, and an Operating Agreement or Corporate Bylaws, Other Formation Documents add to the complexity of starting a company. For an LLC, Subscription Agreements memorialize the exchange of initial capitalization for ownership between each founder and the company, while Membership Certificates function as the equivalent of corporate stock for LLCs. For corporations, Other Formation Documents often include the Action by Initial Consent of Incorporator, Initial Organizational Meeting by the Board of Directors, Stock Certificates, and Restricted Stock Purchase Agreements. Regardless of the type of entity, an Inventions Assignment Agreement usually should be signed by all founders, to avoid disputes over the ownership of any intellectual property used or developed by the new company.