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In the case of a breach, default, or wrongdoing by one of the parties, an indemnification provision allocates the risk and expense
A hold harmless provision, also known as an indemnification provision, is a phrase in a contract that transfers possible costs from one party to the other. In a mutual indemnity agreement, both parties agree to reimburse the other for losses incurred as a result of the indemnifying party's breach of the contract. Only one party gives this indemnity in favor of the other in a one-way indemnification. The major benefit of an indemnification provision is that it protects the indemnified party against losses incurred as a result of third-party claims arising out of the contract. In general, indemnification agreements are highly negotiated (and frequently disputed) terms. They are commonly employed in agreements where the risks of non-performance, breach, or wrongdoing by one party are considerable. For example, agreements involving the transfer of intellectual property rights frequently include a seller's indemnification clause to protect the buyer against the potentially enormous liabilities associated with a third-party infringement case. What Does an Indemnification Provision Look Like in a Contract? An example of a basic mutual indemnification provision is shown below. Keep in mind that any indemnity must be suited to your individual requirements. "Each party promises to indemnify, defend, and hold the other party harmless from and against any loss, cost, or damage of any kind (including reasonable outside attorneys' costs) arising out of the other party's breach of this Agreement, carelessness, or willful misconduct." Depending on your circumstances, you may want to insert additional language. An indemnification, for example, can be limited to certain third-party claims (such as those involving a breach of warranty) or to only those cases in which a lawsuit has been filed or a final judgment has been rendered. "This indemnification shall not cover any claims in which the indemnifying party fails to give the indemnifying party prompt notice, but only if and to the extent that such failure seriously impairs the defense," for example. If you're the one providing the indemnity, make sure the clause is as clear as possible in order to protect against the exact risk it's supposed to guard against. What is an Indemnification and How Does It Work? Assume you engage a writer to create a speech for you on a work-for-hire arrangement. Instead of presenting an original speech, the writer integrates sections from another person's speech, who then sues you for copyright infringement, claiming that his intellectual property was used without his authorization. A representation and warranty that the work product produced under the contract is original is included in your agreement with the writer. It also includes a normal indemnity clause, which guarantees to hold you blameless from any losses or damages, including attorney fees, suffered as a result of any breach of the contract. The writer would be bound under the indemnification to manage the legal defense of the other writer's intellectual property infringement case against you, as well as to reimburse all losses and expenses incurred as a result of the infringement claim. The Indemnification Agreement's Scope Read an indemnification agreement carefully before agreeing to it, and make sure your responsibilities are confined to your own mistakes or misbehavior. The term "to the extent arising out of" in the sample indemnity above essentially establishes this limitation. By contrast, the term "in any way arising out of or related to" is significantly broader, and it could put you in danger of being held liable for the actions or inactions of others. Also, before agreeing to a contract, consider if you are competent in handling the defense of any third-party lawsuit. You might also restrict your right to seek compensation to a certain time frame. When agreeing to cover the attorneys' fees of the indemnified parties as a reimbursable expense, be cautious because courts rarely allow them to be recovered unless the contract expressly allows it. Essentially, every word of the indemnification must be thoroughly scrutinized. For instance, defending against "all reasonable claims" is preferable to defending against "all claims." You might also ask for a limit on the total amount you'll have to pay the indemnified party (such as a maximum that can not exceed the total amount due under the contract). Is it Possible to Enforce Indemnification Provisions? In general, indemnification clauses are enforceable. However, there are certain exceptions. Indemnifications that oblige a party to indemnify another party for any claim, regardless of fault ('wide form' or 'no fault' indemnities) have been held to be in violation of public policy in most cases. Punitive damages indemnity provisions are also prohibited in several states. Before creating an indemnification, double-check all applicable legislation. Furthermore, courts have frequently found that a plaintiff cannot recover damages under an indemnity clause if the damages are an unexpected and improbable result of the other party's breach, negligence, or misconduct (unless the indemnifying party can establish that it was aware of the relevant circumstances). Indemnifications should always be written clearly, as courts frequently rule in favor of the indemnifying party where there is ambiguity. They should be comprehensive enough to adequately address the parties' concerns while being reasonable and equitable in all aspects to ensure their enforceability. Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more!
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If a legal dispute emerges, the parties to a contract can agree on the payment of attorneys' fees and charges
When a legal problem emerges and people go to court to resolve it, the basic rule is that each party to a lawsuit is responsible for their own legal bills. When two people or businesses sign a contract, they can stipulate that the losing party in a legal dispute must pay the winning (or "prevailing") party's attorneys' fees and costs. Continue reading to find out how to include an attorney's fee provision in your contract. What Does a Provision for Attorney Fees Look Like? An example of the wording of a standard attorney's fee provision is as follows: Attorney's Fees. These are a type of legal fee that is paid to an attorney. The successful party has the right to recover reasonable expenses and necessary disbursements, as well as attorneys' fees, incurred in executing this Agreement from the losing party. A provision for attorney's fees can be found in a variety of contracts, from leasing agreements to consulting agreements. What Costs Are Included? Filing fees, expenses for serving the summons, complaint, and other court papers, fees to pay a court reporter to record depositions (pre-trial interviews of witnesses) and in-court testimony, and fees to pay the daily stipend of jurors are all examples of "costs." Photocopies of court papers and exhibits are frequently included in the price. Keep an eye out for one-way attorney fees clauses. Attorneys' fees are granted to the side who wins the action under a mutual provision, such as the one described above. This is reasonable and promotes cases to be resolved quickly. A "one-way provision," on the other hand, allows only one of the parties, usually the one with the better bargaining position, to earn attorneys' fees. One-way provisions, regardless of which side they favor, create an unequal playing field when it comes to settling conflicts. California, for example, has recognized this inequity and immediately converts a one-way attorneys' fees contract clause into a reciprocal provision. Attorneys' Fees Provisions: Judicial Enforcement You shouldn't assume that just because your contract has an attorneys' fees provision that the clause will be enforced if a lawsuit emerges and one party seeks reimbursement for their legal bills from the other. Courts have the authority to review contracts for fairness and to modify their terms if they determine that this is the most equitable approach. If a judge determines that enforcing a requirement that one party pay the other's attorneys' fees would be unjust or that one of the parties was coerced into signing the agreement, the demand may be canceled or the amount of fees to be paid changed. However, if a judge finds that an attorney's fee clause is reasonable and was negotiated by two parties with equal negotiating power, the judge is likely to uphold it. Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more! 6/1/2022 0 Comments Corporation BasicsPersonal accountability for company debts is limited by corporations, but managing them requires effort.
The majority of individuals are aware that creating a company gives "limited liability," which means that your personal culpability for corporate obligations is restricted. What you may not realize is that forming and operating a business entails more than just completing a few paperwork. To manage the more difficult corporation tax return, you'll need to keep solid records, and you'll need to follow corporate formalities like decision-making and record-keeping to keep your restricted liability. In a nutshell, you must be well-organized What is a Corporation? A corporation is a separate legal business entity from its owners, which means it owns property, pays taxes, and enters into contracts on its own. A corporation's ownership and management structure differs from those of other commercial organizations. A corporation's owners are shareholders (also known as stockholders), who purchase shares of stock to gain a stake in the company. Shareholders elect a board of directors, which is in charge of running the company. Limited Personal Liability One of the primary benefits of forming a company is that the owners' personal assets are safeguarded from the firm's creditors. For example, if a court decision declares that your business owes a creditor $100,000, you cannot be forced to pay the obligation with personal assets such as your home. Because only corporate assets may be used to pay off business obligations, you'll only lose the money you put into the company. Exceptions to Limited Liability Limited liability may not be enough to safeguard an owner's personal assets in particular situations. A corporation's owner may be held personally responsible if he or she:
This is the most significant exception. Courts have the power to decide that a company does not exist and that its owners should not be protected from personal accountability for their actions in certain situations. This might happen if you don't follow standard company procedures, such as:
Liability Insurance Incorporation should never be used as a substitute for adequate company insurance. Although creating a company protects your personal assets, you need to insure your business assets to safeguard them from litigation and claims. Many of the dangers that come with running a business may be mitigated with good liability insurance coverage. If you own a clothes store, for example, proper business insurance should cover the costs if someone slips and falls in your store. In addition, insurance can protect you in situations where the limited liability option is ineffective. For example, if you personally hurt someone while conducting business for the organization, such as by causing a vehicle accident, liability insurance would typically cover the accident, allowing you to pay the bill without having to utilize corporate or personal assets. However, insurance will not assist if your company fails to pay its bills: commercial insurance does not generally cover personal or corporate assets from unpaid business obligations, regardless of whether they are personally guaranteed. Paying Corporate Income Tax If a corporation's owner works for the company, he or she gets a salary and potentially bonuses, just like any other employee. The owner, like normal workers, pays taxes on this income, declaring and paying the tax on his or her personal tax return. After paying out all wages, bonuses, overhead, and other expenditures, the corporation pays taxes on whatever earnings are left in the firm. To do so, the corporation files its own tax return with the Internal Revenue Service (IRS), Form 1120, and pays taxes at a specific corporate tax rate. For companies, the Tax Cuts and Jobs Act introduced a new single flat tax rate of 21%. This replaces the previous law's business tax rates, which ranged from 15% to 35%. Alternatively, company shareholders can file Form 2553 with the IRS to elect "S corporation" status. This implies that for tax purposes, the company will be taxed as a partnership (or LLC), with business gains and losses "passing through" to the owners' individual tax returns. Forming a Corporation You must file "articles of incorporation" with your state government's corporations division (typically part of the secretary of state's office) to create a corporation. The filing fee is usually around $100. Articles of incorporation are typically brief and simple to prepare for most small businesses. Most states give you a basic form to fill out, which generally only asks for the name of your business, its address, and the contact information for one person connected with the business (often called a "registered agent"). Some states additionally require you to include the names of your corporation's directors. You must also prepare "corporate bylaws" in addition to submitting articles of incorporation. While bylaws are not required to be filed with the state, they are significant because they establish the fundamental rules that govern the ongoing formalities and decisions of corporate life, such as how and when to hold regular and special meetings of directors and shareholders, as well as the number of votes required to approve corporate decisions. Finally, you must give stock certificates to the corporation's first owners (shareholders) and keep track of who owns the company's ownership interests (shares or stock). Retaining Corporate Status To keep the corporation's position as a distinct entity, corporations and their owners must follow specific procedures. Corporations must, in particular;
Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more! Fiduciary duties, or trust obligations, are owed by officers, directors, and occasionally even investors
Fiduciary responsibilities, or trust obligations, arise when you structure your firm or organization as a corporation. Corporate directors and executives have always had fiduciary responsibilities to the corporation and its investors. Boards of directors set business policy and select and allocate specific responsibilities to corporate executives. Your for-profit or nonprofit corporation's everyday activities are carried out by corporate officials such as a chief executive officer or president, chief financial officer or treasurer, and a corporate secretary. Fiduciary obligations may apply to controlling stockholders with a majority stake in or control over corporate business operations in certain situations, but not to other ordinary shareholders. A director, officer, or controlling shareholder who breaches a fiduciary responsibility may face personal legal culpability. Corporate articles of incorporation and bylaws, as well as state statute legislation and court rulings, may have an influence on a person's fiduciary responsibilities to a corporation. The following are the most important fiduciary responsibilities due to a business and its investors. Fiduciary Duty of Obedience Officers and directors of a corporation have various obligations, which the fiduciary duty of obedience recognizes. Officers and directors must carry out their responsibilities within the limits of their given power under the law and the appropriate corporate governing instruments in order to fulfill this responsibility. This obligation may be of particular significance for nonprofit companies, as officers and directors are expected to carry out their responsibilities in accordance with the philanthropic goals of the organization. An office or director may, for example, breach their duty of obedience by failing to follow donor pledge limitations or allowing nonprofit resources to be utilized for non-charitable reasons. Fiduciary Duty of Loyalty A corporation's officers and directors owe a duty of loyalty to its shareholders. They are required to prioritize the corporation's well-being and best interests over their own personal or professional goals. Disloyalty can take many forms, including conflicts of interest, attempts to compete with the firm, and covert gains from corporate business activities. Officers and directors are prohibited from surreptitiously diverting or profiting from company opportunities under the corporate opportunity theory. Officers and directors, for example, may hear of a lucrative development opportunity being presented to their real estate business in a private manner. Officers and directors must not profit covertly from this circumstance or use it to undermine the company's interests. In certain states, officers and directors are allowed to take advantage of certain possibilities provided the company has waived its interest in such deals in its governing papers or if the board of directors has received adequate previous disclosures. Officers and directors who violate this obligation may be sued and ordered to pay up their hidden earnings to the business. Fiduciary Duty of Care Officers and directors in a business setting are required to operate with care and attention while working on behalf of their company. They should act with reasonable caution in carrying out their responsibilities in order to serve the corporation's best interests. If an officer or director fails to take reasonable or ordinary care under the circumstances, he or she may be held personally responsible. A lack of due care may be demonstrated, for example, when an officer or director fails to conduct a reasonable examination of a corporate subject, attend board meetings on a regular basis, or appropriately oversee personnel, resulting in the corporation's detriment. The business judgment rule states that an officer or director cannot be held responsible for business choices made in good faith and with reasonable care that hurt the company's interests. Erroneous business judgements will be deferred by the courts if the officers or directors did not exhibit extreme carelessness in their review and decision-making process. Many people would be hesitant to serve as officers and directors if this regulation did not exist, and business professionals may be hesitant to take commercial risks that might benefit a company in the long term if this rule did not exist. Fiduciary Duty of Good Faith and Fair Dealing This fiduciary responsibility is intertwined with the responsibilities of care, loyalty, and obedience. Officers and directors are required to handle corporate duties with honesty, good faith, and fairness under this responsibility. This ongoing responsibility pervades their everyday work and the company's operations. Fiduciary Duty of Disclosure Officers, directors, and shareholders must be honest in their business discussions in order to identify substantial risks and make informed choices. Before obtaining board or investor approval of large corporate business transactions, such as mergers with or acquisitions of other firms, full and fair disclosure of important information is required. Officers and directors should report any possible conflict of interest that may develop between their personal interests and those of the corporation as part of their obligations of loyalty and care. Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more! A contract's parties can attempt to assign risks and minimize responsibility.
Contract disclaimers allow contract parties to absolve themselves of certain obligations, but "as is" contract stipulations often warn buyers that they will be responsible for any faults with the product or property they are purchasing. This article covers the fundamentals of disclaimers and contract provisions What Are Disclaimers? Disclaimers are statements in which a vendor or manufacturer expressly disclaims responsibility for specific outcomes. Here's how you might come across them: Assume you're seeing a commercial for a new treatment that claims to treat dandruff, hair loss, foul breath, and discoloured teeth. The commercial sounds great until it says, "Your results may vary," or that the maker isn't responsible if, for example, your hair turns blue or your organs fail. The manufacturer has denied any responsibility for the unfavorable outcomes. Disclaimers are a technique of separating yourself from contractual or other legal responsibilities. Manufacturers employ them, along with other forms of exculpatory measures like indemnity agreements and liability limitations, to reduce risks when the outcomes of specific behaviors are unknown. Because consequential damages can be difficult to forecast and neither party wants to be on the hook afterwards, the parties may include a disclaimer in their contract giving up the right to seek them. You can't claim to know everything. Some duties are unavoidable due to the fact that they are not allowed to be avoided by law or public policy. A provision disclaiming a certain type of warranty, for example, may be unenforceable. As a result, you might require legal guidance to figure out which duties can be disclaimed and which can't. A contract may also require a disclaimer. A manufacturer of a product, for example, may force resellers to include a specific disclaimer on the product. Assume that a financial accounting business licenses the material of its website to a tax-preparation website. The tax website must display the following disclaimer whenever the material is uploaded as a condition of the license: "We're giving you financial data, not financial advice. If you require financial assistance, you should consult with an accountant." Statements like these, like all disclaimers, may be unenforceable if they contravene the law or public policy. Contractual Provisions As Is All purchases were made as-is a century ago. Because all sales were final, the buyer was required to thoroughly check each purchase before making it. Caveat emptor was a long-standing legal principle that stated, "Let the buyer beware." However, as consumer goods became more intricate and difficult for ordinary people to inspect properly during the twentieth century, rules demanding that goods and services be merchantable were adopted (in good condition and able to do the task for which they were sold). The "implied warranty of merchantability" is the term for this obligation. When property is offered "as is," the implied warranty does not apply, and the customer accepts the products in their current state. Similarly, the implicit warranty does not apply if the buyer has examined or refused to examine the products before entering into the contract, as long as the claimed faults would have been exposed upon examination. Your rights may be affected by how you sign a contract
There are a variety of ways to sign a contract nowadays, including faxed and electronic signatures (both covered below), as well as the old-fashioned method of using paper and ink. Whatever path you use, it's critical that all parties are properly listed – that is, the signature section should represent the type of company (corporation, sole proprietorship, etc.) as well as the authority of the individual (vice-president, general partner, etc.) Failure to do so could result in serious consequences. Some of the details for listing entities and signing authority are explained here. Individuals and sole proprietors are the most common types of business owners. If you're running a one-person firm and haven't incorporated or formed a limited liability corporation, you're a lone proprietor. If you or the other party is a lone proprietor, you can simply sign your names because, unlike a corporation or partnership, a sole proprietorship is not a separate legal body. Both spouses should sign the agreement if the business is a married couple doing business as a sole proprietorship. Partnerships. When two or more persons run a business but haven't incorporated or formed a limited liability corporation, it's called a partnership. Partnerships can exist without a formal agreement specifying that they are a partnership; yet, the law frequently believes that many parties working together as a corporation are general partners. If one of the parties is a partnership, the agreement shall be signed on behalf of the partnership by a general partner. Because limited partners do not have the capacity to bind the partnership, they should never sign agreements. Only one of the partners must sign. The partnership's name, as well as the name and title of the person signing on the partnership's behalf, should be listed in the signature block. EXAMPLE: Dan, a marketing consultant with IC, agrees to conduct market research for The Argus Partnership, a Michigan partnership. One of the general partners is Carlos Sanchez. He executes the following agreement on behalf of the partnership: Carlos Sanchez The Argus Partnership A Michigan Partnership By: ____________________ General Partner Corporations. A corporation is a sort of commercial entity that is sanctioned by state law and established to limit the owners' personal liability. If one of the parties is a company, the agreement must be signed by someone with the capacity to sign contracts on the corporation's behalf. This authority is assumed to be held by the corporation's president or chief executive officer (CEO). The corporation will not be legally obligated by the contract if the individual signing does not have authority. A corporation's signature block should include the company's name as well as the name and title of the individual signing on the company's behalf. EXAMPLE: Carmen Mendez, Inc. enters into joint venture negotiations with a competitor. Linda Smith, the corporation's president, signs a contract. The signature block in the contract should look like this: Linda Smith Kiddie Krafts, Inc. A California Corporation By: _____________ President Limited-liability corporations (LLCs). A limited liability company (LLC), like a corporation, is a type of business entity that limits the owners' personal responsibility and is governed by state law. Members are the owners of limited liability firms. Members have the option of hiring others to run their business (called managers). A member or management should sign an agreement with a Limited Liability Company. EXAMPLE: Molly is hired as a freelance programmer by AcmeSoft LLC, a limited liability firm, and she signs a contract. Tom Tucker, the company's manager, signs the agreement on AcmeSoft's behalf. The signature block in the contract should look like this: Tom Tucker AcmeSoft LLC A California Limited Liability Company By: ______________ Manager Dates. Include the date when you sign an agreement, and make sure the other party does as well. You do not have to sign on the same day as the other party. Changes to the Agreement that are final. It is sometimes necessary to make last-minute revisions to a contract before it is signed. If you prepared the agreement on a computer, it's easiest to make the modifications on the computer and then print a new agreement. It is not, however, legally required to prepare a new agreement. Rather, the revisions might be scrawled or typed onto all existing copies of the contract. If you adopt this method, make sure that everyone who signs the agreement also signs their initials as close to the alteration as feasible. If neither of the parties who sign the complete document initials each modification, doubts about whether the change was part of the agreement may emerge. Copies of the Agreement are available. Each party should keep a signed copy of the agreement; if signing ink, make at least two copies. Check that each copy has all of the necessary exhibits and attachments. Both of you should sign both copies, and each of you should keep your signed original. Agreements that can be faxed. Fax machines are commonly used by businesses to communicate. The agreement is signed by one side and sent to the other, who signs it and faxes it back. If no party disputes that the faxed signature is a fax of an original signature, it is legally adequate.If the other party argues that a faxed signature was forged, proving its authenticity may be difficult or impossible, given how easy it is to fake a faxed signature with modern computer technology. However, because forgery allegations are uncommon, this is usually not an issue. Even so, it's a good idea for you and the other party to exchange signed originals via mail or air express after the fax. Electronic signatures are a type of electronic signature. Electronic contracts and signatures are just as valid and enforceable as traditional ink-on-paper contracts. The Electronic Signatures in Global and International Commerce Act (ESGICA), passed by Congress in 2000, addressed the uncertainty that had previously hampered e-contracts. An electronic contract is a contract that is created and "signed" entirely electronically, without the need of paper or other tangible copies. For instance, suppose you draft a contract on your computer and email it to a business associate, who responds with an electronic signature expressing acceptance. Because an electronic contract does not allow for a traditional ink signature, people indicate their electronic signatures in a variety of ways, such as typing the signer's name into the signature area, pasting in a scanned version of the signer's signature, clicking a "I accept" button, or using cryptographic "scrambling" technology. There are other methods for creating an electronically "signed PDF'' document, and you can look into them using your favorite search engine. Coded cryptographic signatures can also be used to create electronic signatures. A video on creating electronic agreements is available. After the agreement has been signed, it is possible to change it. There are no contracts written in stone. If circumstances change and you both agree to the changes, you and the other party can always modify or amend your agreement. Only a written amendment signed by both parties should be used to update an agreement. The amendment should declare that it supersedes the original contract and that it contains all of the revisions. Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more! |
AuthorYoel “Mo” Molina, I am a lifelong resident of Miami, Fl. I am a graduate of Miami Senior High, Class of 1992, Georgia Institute of Technology, B.S. 1997 and University of Maine School of Law, J.D. 2001. I have been practicing law in Miami Since 2001. I am a former training prosecutor in the Miami-Dade State Attorney’s Office. I have experience in jury trials, appeals, and administrative hearings. I have appeared before judges across the State. My experience ranges from civil litigation matters, collection matters, foreclosure, business and corporate, contracts, real estate, leases and employment matters.. Archives
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