21/7/2016 0 Comments
If you follow business news, you may already be familiar with the lawsuit Top Agent Network, Inc. has brought against Zillow, a popular real estate platform/marketplace. The lawsuit was over the misappropriation of trade secrets that arose when Zillow was considering investing in Top Agent. Oral discussions took place where Zillow representative ensured Top Agent their sensitive trade and business information would remain confidential.
Now it’s important to note that Top Agent failed to have a written non-disclosure agreement, which would come back to haunt them. As it turns out, Zillow was given access to quite a bit of sensitive business information that only Top Agent members are normally given as they performed their due diligence to consider investing in Top Agent. Eventually, however, Zillow didn’t invest and instead launched its own similar service to Top Agent, prompting the lawsuit.
Here’s what’s important for business owners: a federal district judge found that because Top Agent failed to both identify the trade secrets they wished to keep confidential as well as to properly make known their intent to keep such information confidential, they had no argument Zillow knowingly misappropriated trade secrets.
How Top Agent Could Have Avoided This
The sad reality is all it would have taken was a brief written NDA statement and the decision would have been reversed in Top Agent’s favor. If you own a business with any sort of information you need to keep confidential, you absolutely must use an NDA or expect a similar fate if anyone ever misappropriates your confidential business information.
Oral assurances are open to interpretation, vague, and often fail to adequately provide the protection your business needs – as long as they included what they need to in order to provide such protection.
What Should Be In Your NDA
There is one key you need to understand about NDAs: they are certainly not a one-size-fits-all legal document that anyone can download and use and be protected. Each NDA must be customized for your specific business and trade secrets if you expect it to hold up in a court of law. Here’s a quick rundown of what you need to include to ensure you are protecting your business:
List out all specific trade secrets you want to protect – leave no room for doubt about whether or not something must be confidential or not.
List out what remedies you will have at your disposal should there be a breach of the NDA.
List out any exceptions of who information can be shared with (this may include a specialist in an industry like an account, attorney, or a contractor that should also be required to sign an NDA – if unsure, consult with your business attorney.
You’ll need to include all the standard contract provisions like which state laws govern it, what courses should be used for dispute resolution, and anything else your attorney recommends for your given industry or business.
Still Have Questions?
This isn’t one of those things you want to leave to chance. That’s why Yoel Molina spends so much time working with his small business clients to ensure they have the essential business contracts in place they need to protect themselves and ensure the long-term success of their business. If you have questions about your NDA, need help drafting one, or need solid legal advice and representation for your Florida-based medium to small sized business, the Law Offices of Yoel Molina would be glad to represent you. Give our office a call or email today and we discuss your specific legal and business contract needs.
LLCs are attractive to many small to medium sized businesses because they provide the best mix of the tax benefits of a partnership or sole-proprietorship with the liability protection of incorporating. This is because unlike normal corporations, an LLC is a pass-through entity where all profits & loss are considered the owners and reported on person income tax returns.
Additionally, while running and maintaining an LLC is more difficult than a simple sole-proprietorship, it’s far less complex and costly than full-blown incorporation so it’s idea for small to medium sized businesses. To understand more of why you may want to file your business as an LLC, consider the main features:
LLC Means Limited Personal Liability
As if they were shareholders in a corporation, owners of LLCs enjoy personal liability protection for any debt or claims against the business. Simply put, this means that if your business owes money for utilities or to a creditor or landlord and it cannot pay the obligation, your personal assets are protected. Should a lawsuit arise, only the assets belonging to the LLC would be at risk, hence the limited nature of the liability protection provided.
Exceptions to the Protection LLCs Provide
The protection that LLCs provide business owners is not 100% complete. This is true of S CORPs and C CORPs as well. Exceptions do exist. Specifically, the owner of an LLC can be found personally liable if:
They personally guarantee a loan or debt and the LLC defaults on it
They directly and personally cause bodily harm or injury to a third party
They do not pay the taxes they withhold from employee wages. They intentionally commit an illegal, fraudulent, or reckless act that results in harm to a third party or the company.
They do not properly separate the affairs of the LLC from their personal affairs as they should to receive separate legal status. This is extremely important to be careful about. There are a number of specific things you can and should do at all costs to protect you LLC from being found as non-existent by a judge in a court of law. These include:
oKeep all of your personal finances and accounts completely separate from your LLCs. If you have employees, make sure you get a federal ID# as well.
oIn all your business matters, behave as legally, ethically, and fairly as you can. Never misrepresent or conceal information concerning your tax obligations, finances, business relationships, etc.
oUse a written operating agreement for your LLC to give its existence as a separate legalentity credibility.
oKeep your LLC adequately funded to ensure it continues to meets financial and tax obligations that you can foresee.
Acquiring Even More Protection with Business Insurance
Because there are gaps in what LLC protection covers, a great way to improve your protection of your personal assets is to acquire business insurance designed to fill in the gaps of the coverage LLCs provide. This is essential for businesses where concerns like malpractice exist.
Additionally, if a court ignores your LLC protection, insurance will still cover you. However, it won’t protect you from unpaid debt. Therefore, once again, it’s important to keep your LLC as well funded as possible to ensure it is on top of its debt obligations.
Management Structure in an LLC
In a typical LLC, all owners participate equally in all aspect of the business. This structure is referred to asmember management. On the other hand, manager management, is an LLC structure where one or more owners are non-managing and simply share in the profits. This happens in situations where perhaps a family business sees one partner retire, or where one partner is an investor.
The essential difference is that only those named as manager can vote in management decisions in a manager management LLC. Though this may be a convenient form of LLC, there are specific state and federal regulation concerning sales of securities to keep in mind.
LLC Tax Obligations
One of the most attractive features of an LLC is that it is not a separate tax entity from its owner. Meaning, unlike a corporation which pays taxes before the owner is paid and taxed again, taxing only happens one time. Instead, the profits and losses of an LLC pass directly on to the owner(s) who report and pay their tax obligations each quarter based upon their individual share of the LLCs P&Ls.
Even though an LLC has no tax obligations, LLCs that are co-owned have to file IRS FORM 1065 annually. This is the same form that partnerships must file and basically sets out each member’s share of the overall LLC profits (or if it is the case, losses). This form helps the IRS ensure LLC co-owners and partnerships correctly report income.
Creating an LLC
Forming an LLC requires two crucial steps:
1.Filing an Articles of Organization with the LLC branch of your state government. This office is often within the corporations division of the secretary of the state, though it varies from state to state. The fee for this ranges depending on where you are from $100 - $800. Though you can form an LLC with co-owners, it is possible to file an Articles of Organization with a single individual. In most states, this is a simple one-page form that only calls for a few simple details about your LLC (address, name) as well as contact info for the person to receive legal papers for the LLC (typically referred to as the LLC’s registered agent).
2.Additionally, your LLC needs an operating agreement that stipulates the rights, entitled percentages, responsibilities, and shares each owner will receive. This is not a document you file with the state. Rather it is the document you use to ensure you remain compliant and receive the full protection your LLC is designed to provide.
Dissolving an LLC
One of the crucial tasks of your LLC Operating Agreement is to protect your business from the abrupt ending it would face if a member decides they want to end the LLC. Without an agreement stipulating agreed to provisions for how to dissolve an LLC in the event on or more parties wants out, they can just leave and force remaining members to fulfill debts, divide assets, and either make a new LLC or move on. An agreement typically includes buy-sell clauses designed to prevent just this that include specific
details on what to do in the event a co-owner retires, passes on, or decides to move in a different direction.
Still Have Questions?
An LLC is a great way to provide personal asset protection for all kinds of small and medium sized businesses. By providing the tax structure of a sole proprietorship/partnership with the liability protection of a corporation at only a fraction of the work, it may just be the right step for your business.
If you are considering incorporating or becoming and LLC and would like some sound legal advice from someone who knows the law and the concerns of small and medium sized business owners in Florida, look no further than the Law Offices of Yoel Molina. With years of experiences helping businesses owners throughout the state achieve peace of mind by finding the right protection for their personal assets, Yoel has the understanding, insight, and legal expertise needed to do the same for you. So give our office a call, we’d be glad to discuss your legal business needs and concerns.