Keep this rule in mind whenever it appears in a contract.
 
When you are driving and you see the stop sign, you pay attention, right? Now have you ever wondered if when you read the clauses you stop at the section called "NOTICE"? This appears at the end of the contracts. If you don't pay close attention to it, it can have consequences. Often, this section is ignored by the parties to an agreement because it seems like repetitive and inoffensive text, with little content. Don't worry, I know that, starting today, when you finish reading this article, that will be a thing of the past.
 
So, what are notices so relevant for?
 
Let's see, in contrast to most contractual clauses, a warning clause is generally not something negotiated and is never intended to favor one side or the other. It is important to know that its fundamental function is to reduce possible differences by clearly distinguishing what constitutes a legally binding notice. Among the most common situations in which proper notice can be of crucial importance are the following:
 
Changing or assigning a contract. The sections of the general provisions at the end of a contract sometimes contain information about the parties' ability to change the contract or assign it to a third party. Normally, these provisions require the written acknowledgment of one or both sides. The notice clause will determine how these written consents are properly given. Evidently, it is in the interest of both parties that there should be no problems whatsoever in changing or assigning the contract, as both are relevant matters.
 
Violation of the contract. Non-performance and non-payment are largely based on the notice. A common method of dealing with a breach is to provide for a cure period. In this regard, let's imagine that John does not breach the contract by giving written notice to the breaching party. If the breaching party does not cure the breach within the period set out in the agreement, the non-breaching party has the right to terminate the agreement. Another situation where each party's notice provisions must be equally strong.
 
Acceptance or decline of an offer. Contracts stipulate that if one party (the offering side) sends a notice and outlines in it a specific proposal (offer notice) to the other part ("offeree party"), this proposal is deemed to be automatically accepted. But if the offeree party disagrees and delivers a notice of rejection (or counteroffer) to the offering party within a certain time. The offeror wants to be sure that it has validly delivered the notice of offer, just in case the offeree does not respond. 
 
Renewal deadlines. Normally a stipulated time is given concerning an agreement. That is the duration of the agreement. The parties put conditions on the table so that the agreement can be renewed if that is what is desired, by additional or successive terms. These are structured in such a way that the term is renewed on a mechanical basis. It is also possible for one party to disagree and properly deliver a notice of termination to the other party before a certain date. Alternatively, these clauses may provide that the agreement automatically terminates unless one party duly delivers a notice of the extension to the other party before the proposed date.
 
Canceling the contract. A contract may allow the parties to rescind the agreement in several ways. However, depending on the details, many termination provisions require that one party (or either party) may terminate the agreement by notifying the other party in writing. Some agreements allow a party to give notice of termination at any time, while others place a time limit or other restrictions on the notice.
 
Follow a consistent notice provision
When using a notice provision effectively, all notices should be required to be in writing and provide for all acceptable methods of delivery. 
Notices. Now, all notices or communications permitted by this Agreement must be: 1- Made in writing:
 
1- In writing
2- Delivered personally or sent by certified mail, fax, or e-mail (including PDF), to the party to whom such notice or communication is addressed, at such party's regularly controlled mailing address or e-mail address.

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It is essential to look like this:
 

To [Party 1]: [Company Name]
 [Address]
[Attention:____________]
 Telephone: (___) ___-____
 Fax: (___) ___-____
 Email: [__________@________]
 
To [Party 2]: [Company Name]
 [Address]
 [Attention:____________]
 Telephone: (___) ___-____
 Fax: (___) ___-____
 Email: [__________@________]

Now here we explain how any legal instrument shall be considered to have been delivered if:

1- On the day such notice or communication is personally delivered.
 2 - Three days after such notice or communication is sent by certified or registered mail prepaid.
 3 - After one business day after such notice or communication is sent by overnight courier.

4 - The day on which such notice or communication is sent by facsimile or electronically, provided that the sender has received confirmation of such facsimile or electronic transmission. 

A party may, for this Agreement, change its address, facsimile number, e-mail address, or the person to whom a notice or other communication is addressed by giving notice of such change to the other party following this Section [_].

Notice by Mail

Despite being atypically used in practice due to the advent of electronic communications, your notice provision should always include a method for the parties to communicate through postal services, provided that it is a reliable service that is generally trackable and authenticated.

Fax

A method of communication that is much less frequently used than e-mail, many business communications are still carried out by fax, either from the traditional fax machine or from an online fax-by-mail service.
 
E-mail Communications

As the majority of modern business notices are made by e-mail, the notice provision should include an electronic transmissions clause that addresses e-mails, PDFs, and any other newly available methods of electronic delivery. The e-mail address provided by each party should be kept up to date and checked routinely.

Effectiveness of the notice

The purpose of the remainder of the notice provision is to give the parties as much specificity as possible concerning each mode of written notice so that both the sender and the recipient understand in full once the notice has been legally sent and properly served under the contract.

Yoel Molina, Esq. (aka "Mo")

Thank you for your interest! If you have any questions or would like to contact us, you can do so via Tel. (305) 548-5020 or email: fd@molawoffice.com

What involves a legally binding agreement?
 
Probably you are not familiar with the fact that this is something that is with us on a daily basis, both in our personal and business life. Yes, as you read, contracts are defined today as a legally binding agreement, and they accompany us like a guardian angel. Now, getting into the topic, we should know that a businessman or administrator of the matter, is in constant interaction with the contracts of his workers, whether they are suppliers, banks, wholesalers, contractors, insurance companies, as well as with his clients.
 
Now, what makes the difference here? Basically, the particularity of a contract, which is fundamental for the commercial activity, is that it obliges the parties to commit to each other. You may wonder, what happens when one of the parts breaks the terms of the contract? When this happens, and one of the two sides violates its obligation, the other has the full and sole right to claim the resulting damages. As I now have your attention, then, right here we will see what are the basic requirements that a legally binding contract must possess, the contract as a document and the operation of the "contracting".
 
Are there any requirements for a contract?
 
There are several requirements for a contract (whether written or oral) in order to be legally binding. Here is a summary of each of them.
 
Consideration. Remember when we were kids and we played with our cousins and we were told that we had to borrow each other's toys? This can be summed up in the same way. In this case, compromise is everything, each of the parties has to compromise or lend something of value to the other. Otherwise, if there is no exchange, then there is definitely no contract.
 
Offer and acceptance. A firm or clear contract offer must be in place. Let's imagine:
Peter: Do you want to buy this?
And a direct acceptance.
Vanessa: Absolutely, yes!
 
Legal finality. Any purpose of the agreement must not infringe the law. In other words, Peter cannot execute a loan agreement that receives more interest than is permissible under usury laws or else a services agreement for the hiring of someone to rob a bank.
 
Competent parties. A contract is an act in which the parties are aware of what they are doing. In this sense, there is an alleged ignorance about what children and the mentally ill do which makes the execution of contracts under certain conditions unfeasible.
 
Reciprocal assent. This requirement is also known as "meeting of the minds". The intent of the contracting parties is to be bound by their agreement and they must accept the essential terms.
 
Beyond these overall guidelines, both federal and state laws are able to establish a number of obligations for certain types of contracts. As an illustration, certain client contracts must meet special requirements, and others must be in a written form.

A contract = a document
 
We use the word "contract" to designate a written agreement, often comprising several or possibly all of the following elements:
 
1. Preliminary content (often referred to as provisions of principle).
2. Definitions of key terms
3. The obligations of each party (and the conditions that may give rise to obligations).
4. assurances on various aspects of the agreement (sometimes phrased as warranties, representations or covenants).
5. The statement of the intent or purposes of the agreement.
6. Common provisions.
7. A section for signature
8. Attached documents or annexes.
 
The contract in its process form
 
At this point, after analyzing the above, let's imagine that from now on, we have to visualize the word contract as a noun, and at the same time, let's see it as a verb. Sounds strange, doesn't it? Let's think about it this way, when you are going to hire someone, keep in mind that the process will be divided into three simple steps. Below, we explain each step:
 
Step one: Contemplating the deal. Peter and Vanessa evaluate the potential deal and risk.
 
Peter: Do I trust this person? He also doubts about the future and thinks: Will I regret this price in two weeks?
 
Step two: Getting the deal done. Throughout this phase, Peter and Vanessa set out to reach agreements and conditions, formalizing it within a written contract or something that confirms the agreement, i.e. a receipt, or a purchase order.
 
Step three: Execution and performance. When the contract is in effect, and both parties, in this case Peter and Vanessa, are inexcusable to fulfill their mutual obligations. If Vanessa fails to perform, Peter can sue for breach of his agreement.

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.

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Learn all you need to know about starting a business in Florida, from licenses and permits to taxes and insurance

1. Choose a Business Idea
Take some time to brainstorm and study company ideas. Consider your personal interests, talents, resources, availability, and the reasons why you want to start a business at this point. You should also think about the possibility of success in terms of your community's interests and needs. More information on how to assess company ideas may be found in this post.

Consider writing a business plan once you've chosen an idea to assess your prospects of generating a profit. You'll have a better grasp of the beginning expenses, your competition, and money-making techniques if you make a strategy. Before offering financial help, most investors and lenders will need to see your company plan.

2. Decide on a Legal Structure
The most common legal structures for a small business are:

• sole proprietorship
  
• partnership
  
• limited liability company (LLC), and
  
• corporation.
  

Limited partnerships and S corporations are examples of special variants of several of these arrangements. Consider which business organization form provides the liability protection you need as well as the optimum tax, financing, and financial benefits for you and your company. 

3. Choose a Name
If you're forming an LLC or a corporation, you'll need to make sure your name is distinct from that of other businesses already registered with the Florida Department of State (DOS). Do a business entity search on the DOS website to see if any names are accessible. You can't reserve a name until you've registered your company with the state.

Is your company a sole proprietorship or a partnership with a business name that differs from the legal name of the owner (in the case of a sole proprietorship) or the surnames of the individual partners (in the case of a partnership)? If that's the case, you'll need to register a fake name with the DOS. You have the option of registering online or on paper.

If you intend to conduct business online, you should consider registering your company name as a domain name. For additional information, see Choosing and Registering a Domain Name. Furthermore, to avoid trademark infringement concerns, you should do a federal and state trademark search to ensure that the name you wish to use is not identical to or too close to one that is currently in use. For additional information, see How to Conduct a Trademark Search.

4. Create Your Business Entity in Florida

• Sole proprietorship: You don't need to submit any organizational paperwork with the state of Florida to start a sole proprietorship. See How to Form a Sole Proprietorship in Florida for additional information.
  
• Partnership: You don't need to file any organizational paperwork with the state of Florida to form a general partnership. All partnerships should have a formal partnership agreement, even if it is not legally necessary. If there is ever a disagreement between the partners, the partnership agreement may be quite useful. See How to Form a Partnership in Florida for additional information. You must file a Statement of Qualification with the Florida Department of State to create a limited liability partnership (typically utilized by professionals). See How to Form a Limited Liability Partnership in Florida for additional information.
  
• LLCs: In order to form an LLC in Florida, you must submit Articles of Organization to the Florida Department of State. For service of process, you'll also need to select a registered agent in Florida. Additionally, while it is not needed by law, you should draft an operating agreement to lay out the fundamentals of how your LLC will run. The operating agreement hasn't been submitted to the state.
  
• Corporations: You must file Articles of Incorporation with the Florida Department of State to form a corporation in Florida. For service of process, you'll also need to select a registered agent in Florida. You should also write bylaws to outline your corporation's internal running regulations, even if it is not legally necessary. The state does not need bylaws to be filed. S Corporations must also submit IRS Form 2553, Small Business Corporation Election, with the Internal Revenue Service.
  

5. Apply for Licenses and Permits
Tax Registration. You must register with the Department of Revenue (DOR) to collect sales tax if you plan to sell products in Florida. On the DOR website, you can register online or on paper using Form DR-1, Florida Business Tax Application.

EIN. You must get a federal Employer Identification Number (EIN) from the IRS if your firm employs workers or is taxed separately from you. Even though you aren't legally obligated to have an EIN, there are many commercial reasons to do so. Banks frequently require an EIN to create a business account, and other firms with whom you do business may also require an EIN to make payments. An EIN may be obtained by filling out an online application. There is no charge for filing.

General business licenses. The majority of Florida firms must acquire a general business license, also known as a business tax receipt, which is linked to a municipal business tax. A business tax receipt is obtained and renewed through the county or, in certain circumstances, the city in which your firm is located. For further information on how to file, go to the websites for your county and city.

Professional and occupational licenses. People who operate in a variety of areas, as well as certain types of enterprises, are covered. For additional information, see the state's website's Get a Business License section.

6. Pick a Business Location and Check Zoning
You'll need to choose a site for your company and look into local zoning laws. Take the time to assess the costs of running your business in the chosen location, including rent and utilities, before committing to a site. You may use your business plan to see if you can afford your preferred location in the early stages of your firm.

It's critical to double-check that the location is designated for your sort of business. Review your local ordinances and contact your town's zoning or planning department to find zoning restrictions for your town or city. More advice on choosing a site may be found in our post.

Running your business out of your house is a viable option to building a new site. Check your local zoning rules again if you decide to start a home-based business. In addition, check your lease (if you rent your house) and homeowners association regulations (if applicable) to see whether any of your home enterprises are prohibited.

7. File and Report Taxes
Owners of certain types of businesses will not owe state tax on their company revenue since Florida does not have a personal income tax. For additional information on state business taxes in Florida, see Florida State Business Income Tax.

Sole proprietorships. They file personal federal income tax forms and pay federal taxes on company income.

Partnerships. Partners pay federal taxes on partnership income.

LLCs. The money earned by LLC members is taxed at the federal level. Furthermore, if an LLC is taxed as a corporation under federal law, the LLC must also submit a state corporation tax return. Florida LLCs must also file an annual report with the Florida Department of State. For additional information, see Florida LLC Annual Filing Requirements.

Corporations. Dividends paid by the corporation must be taxed at the federal level. On his or her personal state tax return, a shareholder-employee with a salary must also pay federal income tax. Furthermore, the corporation must pay Florida corporate taxes. Finally, companies must submit an annual report to the Florida Department of State.

There are federal income and employer taxes in addition to Florida taxes. Check out IRS Publication 334, Small Business Tax Guide, and Publication 583, Taxpayers Starting a Business.

8. Obtain Insurance
Business insurance can safeguard your firm and your personal assets from the consequences of unforeseeable events like personal injury claims or natural disasters. An insurance agent can assist you in evaluating the various coverage alternatives, such as general liability insurance, which protects your company from claims of physical injury or property damage.

9. Open a Business Bank Account
Whatever sort of business you start, you should create a separate business account to make tracking your revenue and spending easier. A separate bank account is required for various company forms, such as LLCs and corporations, in order to preserve liability protection.

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Make sure you grasp the possible benefits and risks of Bitcoin and cryptocurrencies before diving in.

Cryptocurrencies have risen from relative obscurity to constantly dominating the headlines of our most well-known trade and finance media publications as a result of the spasmodic oscillations in Bitcoin's exchange rate over the last two years.

Here is some background information for anyone unfamiliar with Bitcoin and other cryptocurrencies (such as Litecoin, Ripple, or Ethereum). A single Bitcoin was worth around $1,000 at the beginning of 2017. The value of one Bitcoin has reached an all-time high of almost $20,000 at the end of 2017. This means that if you had put $100 into a Bitcoin in January 2017, you could have cashed out around $2,000 in December 2017, a 20x return on investment. Following its peak in 2017, Bitcoin (and other cryptocurrencies) saw a precipitous drop, with prices as low as $3,179 per coin in December 2018.

What is Cryptocurrency?

So, what exactly does the phrase "cryptocurrency" imply? In a nutshell, cryptocurrency is a decentralized, worldwide computer network that uses virtual/electronic currency. Its infrastructure is based on blockchain technology, a recently established electronic ledger that records virtual currency transactions instantly, automatically, and publicly. In general, each blockchain's ledger is an evolving record of all the transactions that every computer in that blockchain's network keeps track of at the same time and in the same place. Every time a computer adds a line to its own copy of the shared ledger, the addition is replicated by every other computer in the blockchain. Once a transaction has been confirmed, it will (theoretically) remain in the ledger indefinitely, unalterable, and inerasable.

Users can transfer and receive cash via the Internet on a peer-to-peer basis thanks to the blockchain, which eliminates the need for a middleman such as PayPal, Mastercard, or a traditional financial institution. It's also worth noting that, despite all of the media attention paid to Bitcoin, it's only one of over 1,000 different types of cryptocurrencies available to users.

You can buy cryptocurrencies with money that has been put in a standard bank account. You can then use your cryptocurrency to conduct business with other users who accept this payment method. Naturally, the method also works in reverse, allowing you to change your crypto into ordinary paper money that can be placed in your bank account.

Potential Benefits of Using Cryptocurrency

Using cryptocurrencies as a payment method has advantages both theoretically and practically. Instead of being bound by their bank's hours of operation, users can conduct bitcoin transfers 24 hours a day, seven days a week.

A blockchain is intended to ensure complete transparency. While financial records have traditionally been held in a single location (such as a server, a courthouse, or a temple) or managed by a central authority, blockchain ledgers (under some type of cryptographic seal) are distributed to everyone and belong to no one. No one can edit the ledger because it is shared and monitored by every computer on the blockchain; in fact, if you try, the underlying software would reject it. Each new block in the chain is effectively an amalgamation of all previous transactions, including all the information included in the previous one, all the way back to the first—the so-called genesis block—which is a real embodiment of full transparency.

Because each participating node in the global computer network shares the currency ledgers, cryptocurrency transfers have minimal (or no) transaction fees and are less prone to identity theft and fraud. Furthermore, users can easily send funds globally due to the decentralized structure of the currency exchange, and it is currently difficult for any business or government to arbitrarily take or freeze any of these funds.

As bitcoin continues to pervade the financial landscape, the number of people and businesses willing to accept it as payment for goods and services is rapidly increasing. Because customers cannot reverse payments, businesses may find cryptocurrency to be an appealing choice. Clients must rely on the business owner to reverse a payment via a direct refund in the event of a disagreement. Furthermore, bitcoin transfers do not need the exposure of personal information, which helps to protect computer databases and sensitive data from hackers. Finally, Bitcoin supporters such as David Johnson, the founder and CEO of Latium, have stated that the value of Bitcoins can only rise because the system is designed to cap the number of Bitcoins in circulation at 21 million (due to limited supply).

Potential Risks of Using Cryptocurrency

While many people see cryptocurrencies as a safer and more efficient means to do business, some financial experts have highlighted and emphasized its concerns. Cryptocurrency's value fluctuates depending on global economic performance, current events, user optimism and demand, and other intangible market factors, just like any other investment. Some economists interpreted Bitcoin's sudden spike in value in 2017 as a bubble fueled by existing media hype and growing vendor ardour. These experts were completely correct in their financial foresight; cryptocurrencies have always been unpredictable, particularly during the Bitcoin meltdown of 2018. Their valuations can vary dramatically from day to day—or even hour to hour—making it difficult for even the most seasoned, skilled, and risk-loving investors to stay calm and retain their investments. Financial gurus remind us every day that any boom in the exchange rate of Bitcoin and other cryptocurrencies could cease on any given day, just like any other investment.

While it is theoretically true that a blockchain's ledger cannot be erased or manipulated, this does not rule out the possibility of one's online bitcoin wallet being hacked or stolen—this happens all the time. Furthermore, the blockchain has earned a reputation for being completely private as a result of cryptocurrency's frequent use in malicious dark web transactions. This, however, would be a naive assessment. Every transaction is recorded in the ledger and is visible to all. Each blockchain transaction is inherently anonymous or pseudonymous, but there are a variety of techniques to damage that anonymity.

Other common risks associated with cryptocurrency investing include the following:

• Cryptocurrencies (with Tether being one possible, yet highly controversial, exception) are entirely virtual and not backed by any real-world assets, like gold bars, for example. As such, Bitcoins are completely unsecured, and you cannot carry them around in your pocket.
  
• Credit cards can offer more substantial buyer protections than Bitcoins because cardholders can file claims and chargebacks.
  
• If you lose some or all of your cryptocurrency due to hacking or some online malfunction, you'll likely have no recourse which leaves your funds somewhat vulnerable at all times.
  
• Scammers and hackers are notorious for using phishing tactics to lure Bitcoin holders into visiting malicious websites. Any cryptocurrency investor should be exceedingly conscientious about not interacting with, or disclosing any personal or confidential information to, any persons or websites that set off red flags.
  
• The future costs and benefits of using cryptocurrency might be subject to unpredictable government regulations. This will require investors to pay close attention to the legal and political landscapes of their respective jurisdictions.
  

How to Buy and Sell Cryptocurrency

If you've evaluated the benefits and drawbacks of bitcoin and decided to take the plunge, the simplest method to get started is to sign up with a third-party wallet service provider. In general, you can purchase whatever amount that fits your budget, even if it's only a fraction of a coin. Some of the most popular bitcoin exchange websites include Coinbase and Gemini.

Signing up for these services is similar to registering for any other website. Simply enter your email address and establish a password to get started. You'll need to connect your standard bank account, credit card, or debit card to buy cryptocurrency. To secure your account, these sites should require you to utilize two-factor authentication, but avoid utilizing SMS or your phone number throughout this process. Criminals may steal from your cryptocurrency wallet using only your name and phone number, according to cybersecurity experts. To verify your account, use Google Authenticator or a security key (such as a YubiKey).

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Learn about the advantages and disadvantages of bringing investors into your company.

Unlike a lender, who provides you with funds to operate your business temporarily, equity investors purchase a portion of your company. For better or worse, they become your co-owners and share in the fortunes and misfortunes of your business.

Here are the benefits and drawbacks of raising funds from equity investors, as well as the many forms of equity investment available

Investors' Rights

As co-owners of your company, your investors will have some say in the way you run your company. They will:

• probably be able to vote to elect your board of directors
  
• have a legal right to be informed about all significant business events, and
  
• be able to sue you if they feel their rights are being compromised.
  

On the other hand, investors can bring helpful business experience with them that can strengthen your company.

Investors' Return on Investment

Investors in your company frequently incur the risk of losing their entire investment with no certainty of reimbursement. To mitigate this risk, investors frequently want big rewards if the company succeeds. For example, an investor may demand a large share of the company's profits and, in order to ensure that profits are made, may want your compensation capped.

There's no formula for determining what's fair to both you and the investor; terms are always flexible. Finally, you and your investors must decide what you are both comfortable with.

Your Ownership Structure

If you're thinking about bringing in equity investors, you'll need to figure out which ownership structure is appropriate for you and your investors.

General Partnership

If you get other people to invest in your sole proprietorship, it will automatically turn into a general partnership. This means that your stock investors will be general partners, and each of them will be individually liable for the company's obligations and liabilities, whether or not they participate in its management. 

Many investors will wish to protect themselves from personal liability for business debts, especially if they aren't going to be involved in the day-to-day operations. If this is the case, you should think about various ways to arrange your company.

Corporation

Because companies provide shareholders with limited responsibility protection for business obligations (known as limited liability), a shareholder who does not engage in corporate activities or decision-making is practically immune from liability for corporate debt or action.

A shareholder who helps operate the firm can be held accountable to third parties for his or her own acts, such as making defamatory statements or recklessly operating equipment, but not for corporate debts or the activities of corporate personnel.

Not everyone picks a corporation as their company entity because it entails a lot of paperwork in the beginning and ongoing, as well as some significant start-up expenditures. Read How to Form a Corporation for further information on how to form a corporation.

Limited Partnership

Your investors will have limited personal liability for business obligations if you form a limited partnership and make them limited partners. As long as the limited partner does not get actively involved in the firm, the limited partner's personal liability is identical to that of a corporate shareholder.

Every limited partnership must have at least one general partner who is personally responsible for the company's debts. That will almost certainly be you, so consider your risk tolerance before forming a limited partnership.

Limited Liability Company

Forming a limited liability company (LLC) and selling membership interests in the LLC to your investors is another possibility. LLCs have grown in popularity in recent years because they combine the restricted personal liability of a corporation with the tax advantages of a partnership. Read LLC Basics for further information on limited liability companies.

Compliance With Securities Laws

Corporate shares, limited partnership interests, and (typically) passive LLC membership interests are all considered securities under the law. The issuing of these securities to investors is governed by federal and state securities regulations.

Learn about the obligations of securities laws before selling an investor a stake in your company.

Exemptions. Fortunately, there are a number of generous exclusions that allow a small corporation to offer a limited number of investors with an interest in the company without having to go through a lot of red tape.

If you aren't exempt, think about it. If your company doesn't qualify for these exemptions, you'll have to follow the securities laws' complicated disclosure requirements, such as publishing an approved prospectus to potential investors, and register the securities. In this situation, unless a large sum of money is involved, it may be too difficult to complete the transaction.

On the side of disclosure, there was an error. Investors may accuse you of offering misleading assurances, even if you qualify for exemptions from the securities disclosure regulations. To analyze an investment, potential investors should always consult their own financial and legal counsel. The main line is that, while each investor will estimate their own level of risk, you should provide them with all essential facts so they can make an informed decision.

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As anyone who owns a business knows – contracts are an indispensable tool to get things done and protect your business interests. However, if you don’t know anything about the laws that govern contracts, you may be doing more harm than good when you put pen to paper. Let’s talk through some of the basics of contracts and the law to make sure you have a good understanding of what’s at stake.

What Is a Contract?

This is basically a legally-enforceable agreement between parties (two or more) that obligates both parties to fulfill particular things as specified within the contract. By party, this can mean a person, country, company, corporation, etc. What you want to keep in mind is that two things are always implied when the word contract is used:

●That there is an agreement made (something for something)

● The agreement is legally enforceable

What Laws Pertain to Contracts?

One thing about contracts is that the laws that govern them are determined by the state where the agreement between the parties was made. There may actually be a couple of types of state laws that govern the contract as well – depending on what type it is (e.g. property lease, sale of goods). For example, these are two types of law:

1. The Uniform Commercial Code or UCC: These laws govern contracts used for the sale of goods. The UCC is a standardized set of guidelines that oversee commercial transactions. While the code is not law itself, most states have adopted all or part of the code as law.

2. The Common Law: Other business contracts may be governed at least in part by “common law.” This includes all contracts like employment contracts, leases, etc. Each state has their own common law made from court decisions within the state over the years.

How is a Contract Created?

Any time an offer is made and accepted after a sufficient amount of “consideration,” a contract is legally valid. Let’s examine what these terms mean in the context of contracts:

1. An Offer: the terms of this offer must be clear and certain, and the party to whom such an offer is made must reasonably expect the offering party capable of the offer.

2. Acceptance: This is a clear expression from the party receiving the offer that they accept its terms and agree to it.

3. Consideration: There must be some gained and something obligated for all parties involved for the contract to hold. There must be an exchange of some kind of value.

What Happens when a Contract is “Breached?”

Anytime a dispute arises over a contract, one party may feel another party is failing to adhere to the terms of the contract they are obligated to adhere to.

This is considered a breach and can result in legal action by the non-breaching party in an attempt to remedy the situation, which can happen in a number of different ways depending on the type of contract and breach.

How Are Contracts Enforceable Under the Law?

In the event that there is a breach of contract, the most common way to attempt to remedy the situation is to use a lawsuit through the court system.. However, there are other options for dispute resolution before turning to out-and-out litigation. These alternatives are mediation and arbitration.

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What are the consequences of using a convertible note instead of a conventional promissory note to borrow money for your company?

Convertible notes are promissory notes with a secondary business purpose other than debt representation. Convertible notes have all of the features of a standard promissory note, such as an interest rate and a security promise (if applicable).

The difference is that under a convertible note, the lender (also known as the creditor or holder) has the option to convert all or part of the outstanding debt into the corporation's shares in specific situations

When Would I Use a Convertible Promissory Note?

It is commonplace for corporations to use convertible notes in business dealings. Here are a few likely scenarios:

• You've found a lender willing to lend money to your company, and because the lender believes in the company's future success, it wants the opportunity to convert the outstanding debt into stock, exercise its shareholder rights, and share in any future upside.
  
• Your firm has an existing loan, and while it is expanding, it still lacks the liquidity to make loan repayments on time, if at all (in other words, the company is in payment default). In certain situations, the lender may choose to negotiate with the company to replace the existing note with a convertible note, which would allow the lender to become a stockholder with more direct control over the company's management.
  
• You need to personally loan more money to the firm as the owner/majority stockholder, and you want that debt recorded in an agreement between you and the company. A convertible note would be a better alternative in this scenario than a conventional promissory note since it would allow you to convert the debt into more stock, increasing your stake in the company. Always contact your accountant or tax counsel before providing money to the company, whether in the form of a convertible note or otherwise.
  

Prepayment

A convertible note, like a conventional promissory note, must deal with the question of prepayment. Having the option of making prepayments without penalty is usually in the best interests of the company. However, as with any loan, prepayment would prohibit the lender from getting the agreed-upon future interest payments. Furthermore, in the case of a convertible note, a lender may refuse to accept prepayment if it believes the firm has potential and would prefer to keep its options open to become a future stakeholder. Prepayment is a topic that must be discussed between the lender and the company, and it must always be addressed in the convertible note's terms.

Treatment of the Note

For accounting purposes, the outstanding balance of the loan is classified as debt, not equity, until the lender converts the note into company stock. This means that the lender normally has no stockholder rights, such as voting rights, distribution rights, and so on, until the note is converted.

Triggers for Conversion

The terms of the convertible note can provide that the loan is converted into stock based on a variety of triggering events, which can include the following:

• Upon an event of default by the company (such as nonpayment of principal or interest, bankruptcy, liquidation, or a sale of the company).
  
• Automatically on the maturity date of the loan, assuming that the loan has not yet been paid in full. In such cases, the note would be converted to stock based on the outstanding balance of principal and interest under the loan.
  
• The lender's delivery of a conversion notice to the company at any time, for any reason.
  
• Upon the company's achievement of a specified dollar valuation stated the terms of the note.
  
• Upon the sale of the company to a third party resulting in a new majority shareholder.
  

The ability of the holder to convert the note into business equity is a significant issue that the company (as borrower) and the holder must carefully consider. Given that stock ownership is typically the primary means for a party to exert control over company management while also earning a profit, the holder will desire as much flexibility as possible when it comes to conversion circumstances. Similarly, the borrower will want to get as many conversion delays and/or constraints as feasible.

Note that in the event of a liquidation, debt holders receive priority over equity holders in the distribution of remaining cash and assets, posing a danger to the creditor. As a result, if the debt is converted into stock, the holder will lose priority if the company is dissolved or declares bankruptcy.

Methods of Conversion

The next stage is to determine how many shares the debt is convertible into when the holder initiates a conversion. This is obviously important not only to the lender, but also to the remaining stockholders, who want to be as diluted as possible. In the calculation of outstanding debt, all methods of conversion commonly include accumulated and unpaid interest. The type of stock into which the note is convertible (whether common stock or a series of preferred stock) must also be agreed between the lender and the corporation. Keep in mind that the computations below may not always result in complete numbers of shares being issued to the lender, resulting in fractional shares. The convertible note's terms should state whether fractional shares should be rounded up to the next whole share or treated differently.

The following are various options for calculating the conversion of outstanding debt into shares of the corporation:

• The most straightforward technique is to set a predefined price per share (typically reduced in favor of the lender) that will be used to determine how many shares the holder should get depending on the existing debt.
  
• The shares can be converted using a predetermined formula that takes into consideration the company's valuation on the date of the conversion notice, the actual conversion date, or any other date agreed upon by the parties.
  
• In the event that the firm is sold, the shares can be converted using a specified formula that takes into consideration the buyer's offer price per share (calculated at a discount to the lender). Keep in mind that in this case, the buyer will have gone over the terms of the convertible note as part of its due diligence and will be aware of the company's requirement to issue extra shares to the lender as part of the acquisition. This could be a deal breaker for potential purchasers. In any case, disclosing the details of the convertible note to the buyer as long ahead of the sale as practicable is always a good faith practice. Otherwise, the buyer's ignorance of this issue could have negative ramifications for the selling shareholders or the transaction's overall sustainability.
  

Adjustments for Stock Splits or Recapitalization

Note that the terms of the convertible note, including those for conversion, should be subject to change in the event of stock combinations, stock splits, or recapitalizations, unless doing so would be detrimental to the firm (as the borrower) or you (as a potential lender).

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