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Archive for the ‘Corporate Law’ Category

Finding a Thief in your Midst

Wednesday, October 8th, 2008

You open up a business and hire people to help you. You do background checks and believe that you are hiring people who genuinely care as much about your company as you do. Unfortunately occasionally the worst happens and you discover that you have an imposter in your company. It may be a person who has suddenly started to steal from your company, or it may be someone who has been lying from the start about who they are and what they are capable of doing. You then face a quandary: what do you do with an imposter in your company?

Discovering the Truth
The first thing you need to do is to figure out what the truth is. You may believe one thing, your employees may believe another, and the truth may be somewhere in the middle. If you have any hope of getting the imposter out of your organization with the least amount of damage you need to find out what the truth is. In order to do this, you may want to start at the bottom.

Some people would immediately try to speak with the person that the suspicious person is closest to. Instead, try speaking first with people who are further down the food chain but who are still acquainted with the person and the situation. These are often the ones who will notice the most and who can help you to gain understanding about the whole picture. Once you have spoken with those furthest away from the situation, start moving your way closer to those who are close to the suspicious person. It should be done very casually, however, or you risk spooking the suspect.

Gathering Evidence
Before you speak with the person you are concerned with, you should gather as much evidence as possible. If, for instance, the interviews have gotten you any information, keep it in a file. You may want to hire a private investigator for this. Private investigators can run you a hefty fee, but if your company is being taken for hundreds of thousands of dollars a year, it may be a worthwhile sacrifice. A qualified investigator can often get information that you may not be able to get simply because they are an unknown person. Some ask to be “hired” in order to be able to get close to the suspects so that they can learn the truth for themselves.

Once you have discovered that your employee is an imposter, you need to speak with authorities. If you choose to confront the person yourself, chances are high that they will not be brought to justice. Bring all of the information you have to the police and to your lawyer so that you can learn what options you have available to you. Fraud is a crime punishable by sharp fees and court time and is not fair for anyone, so if you suspect that someone in your company is responsible for fraud, it is important that you contact the authorities.

How To Do Due Diligence

Wednesday, October 8th, 2008

Due diligence is a way for investors, partners, or entrepreneurs to make sure that everything that deals with a company is in order. It is a way to ensure that the company is making the profits that it says it is making and that everything that the management says is occurring actually is occurring. Some people believe that due diligence is devious, while others do not. You may have different roles depending on what part of the process you are involved in.

As the Investigator

If you are an investor or partner, you may want to make sure that everything is going the way it is supposed to be going before you choose to sink your money into a project. This is a good idea. There are a number of companies that are not real and exist only on paper for the sole purpose of stealing money from investors. Instead of believing something that an investor says, check it out for yourself.

The first step is to name someone as the coordinator. This person will be responsible for making sure that everyone is doing what they need to do. They will get together all of the materials and will put everything in order so that you can read it and understand it. It is also important to make sure that you have a team of people working under the coordinator who are qualified. For instance, you may want to have people who are qualified to analyze information, such as financial gurus and managers who have a great deal of experience. You will also need to decide if you want to do everything in the open or quietly. There are pros and cons to both, and it is up to you and your team to decide which is the best option for you.

The Company

If you are the owner of a company who is undergoing due diligence, it is vital that you make your employees comfortable. Explain to them what is going on (if you know) and encourage them to speak openly and honestly with any investigators who ask to speak with them. They are often the ones who will be the most worried about the process and it is important to keep them in the loop as much as possible.

Also, make sure that all of your information is available for anyone who is on the team of investigators. Getting together your financial information can be a great way to see where your company is at and to learn more about your company as well! Make sure you stay calm and that you work with the investigators instead of trying to hide things from them. If you are unaware of any investigation being done formally, even if you simply suspect, continue your day to day routine. As long as you and your staff are cooperative, the process should go smoothly on your end and should help out both sides.


Understanding Due Diligence

Wednesday, October 8th, 2008

The term due diligence may mean many things, as it is a term that has been thrown around a number of different industries. For the most part, however, due diligence is all about making sure that all of the information about a company is up to date and is available to look at. In many ways it is similar to an audit, only without government influence. Due diligence is usually done when potential investors or partners are trying to figure out if your company is a good fit for them.

Why It Is Important
Due diligence is extremely important for both sides of any business situation. For the potential investor, it is a great way for them to learn exactly who a company is and what they are all about. They can learn information about their financial situation as well as about their personnel, contracts, marketing, production, and management situations, as well as many other things that would be important to a potential investor or partner. It is also an excellent way to prevent someone from swindling you, as many investment opportunities are not really opportunities but are scams that are designed to relieve some of your cash from your bank account.

If you are a valid company then due diligence can be a great thing! To begin with, it helps you by getting everything in order for your company. Many companies who undergo due diligence discover that they learn more about exactly who is working for them and what is going on than those who never have to partake of it. It also makes things easier for you when it comes to investors, as they can feel much more comfortable working with you if you have come clean about everything in your company.

What is Required?
What is required for due diligence? It depends on how detailed you want to get. Some companies put together their financial package along with their marketing strategies and claim that they have done due diligence. Others, however, take things a step further, which may be a good idea. They speak with employees who work at the company and tie together documents with people’s memories in order to get a true picture of what exactly goes on at the company. If you are an investor, you may want to speak with as many employees as possible, but remember that memories can be faulty, so back up everything you can with documentation. Also remember that sometimes employees will say one thing to your face because they know they are being judged while they say another behind your back, so always take everything you are told at face value.

Sometimes due diligence is done right out in the open, by a company or by someone who is looking to invest in the company. Other times, however, it is done on the sly, with the company that is being investigated none the wiser about the investment. If you choose to do due diligence on the sly, make sure that you comply with the Fair Credit Reporting Act.

Articles of Incorporation

Thursday, June 5th, 2008

If you have made the decision to switch your company to a corporation, you will need to file Articles of Incorporation with the state agency where you are planning to headquarter your corporation, or in lieu of a state agency, whatever regulatory agency in your area that looks after corporations. Your articles of incorporation are essentially an official announcement to the rest of the world that your company is now a corporation and has limited liability. While the requirement governing the articles of incorporation varies from state to state and from jurisdiction to jurisdiction, most of them require the same information to be disclosed.

First off, you have to name your corporation. In most cases, you will have to pick a corporate name that is completely unique in the United States, but some jurisdictions allow you to use similar names, as long as it is unique in that particular area. You will also have to include some kind of sign that your company is in fact a corporation by including the word corporation or incorporated in your official name so there is never any confusion. There is also a degree of regulation on the name you pick so that it doesn’t insinuate that your company does something it doesn’t or is affiliated with someone it isn’t.

The next part of the articles of incorporation usually talks about the people involved in the company in question. You will be asked to identify the owner, the president, the CEO, CFO and the members of the board of directors. In most cases, you don’t need anything very specific here, simply names and titles.

You will also need to specify if your company plans on going public and offering stock or if you will be a privately held company without stock.

There will also be a section where you will be asked if your corporation is only in existence for a period of time or for perpetuity. The way the laws governing corporations work in the United States is that your corporation exists as long as you continue to renew the necessary paperwork each year.

In some areas, a corporation is required to issue a statement of purpose, or a short paragraph explaining why it is being formed. Often times, a general, template paragraph is issued here unless you are forming a non-profit with a specific goal other than making money.

If you are forming a non profit, you will have to state that you are and exact wording must be used for you to qualify as tax exempt in the eyes of the Internal Revenue Service.

If you have decided to file as a stock corporation, you will need to issue details on your stock, how much of it you are making available to the general public and for how much.

Finally, you will have to include the address and information on your corporate headquarters and who the official director is. The articles of corporation are an essential part business life in the 21st century.

Corporate Bylaws

Thursday, June 5th, 2008

A corporate bylaw is basically a rule that helps to govern a corporation. Just like municipal bylaws that help govern a city, a corporate bylaw can not contradict local, state or federal laws in any way or they are invalid. Every corporation has their own set of bylaws in which to operate by.

In most cases, a corporations’ original set of bylaws are spelled out in the Articles of Incorporation, a document filed with the state or local corporate regulatory agency that announces a company is becoming a corporation and why. This is much like a first draft of an ever changing essay, as the corporate bylaws can be updated on a regular basis.

Depending on the jurisdiction, the corporate bylaws can be changed during any meeting of the board of directors, or they sometimes require a vote by the shareholders. This is often done at shareholders meetings and recorded in the official minutes for that meeting. Depending on the rules under which the corporation has been founded, you may need a certain percentage of shareholder votes plus a percentage of the board of directors to change a corporate bylaw. These rules are usually set forth when the company issues its articles of incorporation.

It wasn’t that long ago that most corporations issued a constitution and a list of corporate bylaws, but that is considered a somewhat antiquated way of doing things now and most corporations simply stick to a list of bylaws to reduce confusion. The list of bylaws essentially outlines the basic tenants and beliefs that the corporation will be run under. It can be a combination of business rules and ethics, as well as a general list of proper ways to deal with fellow employees and a pledge to honesty and integrity at all times. A violation of bylaws is often sighted as reason for termination of select employees from mail room clerks to presidents and CEOs. Bylaws are also often sighted if a company is accused of any kind of impropriety or if they should happen to declare bankruptcy and a regulatory agency can point to incidents where members of the board of directors knowingly and willfully violated their own corporate bylaws for personal gain.

When two companies merge, one important task that the two companies must engage in is to either combine the two sets of bylaws that the companies function under or choose one set of bylaws over the other. It would be next to impossible for two companies to compete under the same corporate umbrella with two different sets of bylaws that could theoretically compete with each other.

Whenever there is a change made to a corporate bylaw, an official record must be kept and most jurisdictions require that change to be filed with either the state or the regulatory agency that watches corporations in that area. Employees at every level will be notified and in some cases, they might even get a vote. Corporate bylaws are a very important part of today’s rapidly changing business culture.

Corporate Minutes

Thursday, June 5th, 2008

While keeping accurate and formal minutes may not seem like that big of a deal, if your corporation should ever run into trouble, your minutes can constitute important evidence of what went on during shareholder meetings and meetings of the board of directors that can often clear important people of wrongdoing. Minutes are considered to be an official record of what went on and are as vitally important to proper record keeping as having accurate books. Let’s take a look at some of the finer points of keeping proper corporate minutes.

Although rules and regulations vary from place to place, some jurisdictions consider minutes to be a required part of being a corporation. Some jurisdictions actually require that minutes be filed every month or at least once per year with the proper regulatory agency in the name of transparency and corporate good will. Of course, altering or doctoring minutes is incredibly simple and is often done to protect trade secrets, but this can lead to widespread accusations of impropriety should those minutes ever be needed to be read in court or by anyone outside of the corporation.

The penalty in these jurisdictions for altering, doctoring or simply not filing minutes can be quite strict. With the recent spate of corporate scandals like Enron, Adelphia and Worldcom, regulatory agencies from coast to coast are expressing a new interest in corporations filing accurate and unadulterated minutes.

Most people are familiar with the idea of keeping minutes during a meeting of the board of directors for a major corporation, but it is also required in many areas to keep minutes for shareholders meetings, as well, especially during the one annual meeting that all corporations have with shareholders, although some corporations have more than one. The minutes from one of these shareholder meetings usually reflect changes to the corporation such as electing new officers to the corporation, adopting or changing any policies that affect the whole corporation, creating committees within the corporation and assigning them responsibilities, the selling and issuing of stock to the public or for use inside of the corporation itself, the sale of company assets or the change of company assets in any way, shape or form, looking at, approving or turning down mergers of any kind, changing employee benefits or pension plans, approving or denying any types of loans for the corporation and starting or ending joint ventures. These are just a handful of the issues that corporate minutes can cover if they are brought up at a shareholders meeting, so you can see why regulatory agencies would be interested in reading them if something goes wrong.

Writing minutes also has its own particular format, much like writing shorthand. First, the minutes should show where the meeting took place and how long it was, who was there, who spoke and about what. Each company can have their own minutes format as long as all of the necessary information is included. Often the minutes will be typed up and distributed to everyone who needs a copy, including the government.

Employee Agreement

Thursday, June 5th, 2008

The world of corporate America is quite familiar with the employee agreement, also known as an employee contract. They are used from every level of employment, from the mail room to the board of directors. They are often governed by the corporate constitution or corporate bylaws, or sometimes both. Many people don’t realize that they are even signing an employee agreement when they are hired but they are often embedded in the average employment application or they are signed on the first day of work when most people fill out tax forms and other paperwork. Let’s take a look at what goes into the average employee agreement.

In most cases, an employment agreement is a brief contract that simply outlines the basics of a job, what you’ll make and what you have to do to get fired. It is only when the job begins to add zeros at the end of the salary that the average employment agreement begins to multiply in pages. When you think about a professional athlete’s employment contract that he or she has with a pro sports team, images of dictionary sized contracts that stretch for hundreds of pages come to mind with clauses to cover every conceivable instance that could come up. Employment agreements like these only exist for the highest of high rollers, but they are a necessary part of corporate life in the 21st century.

One part of an employment contract that many people overlook is the part spelling out benefits, not just wages. For some companies, this part of the contract is simply copied and pasted from a template to reflect what all employees at that level receive as benefits, but if you are a CEO or if the position you have is completely unique, that part of the contract will have to be crafted by hand and made especially for that person.

There can also be a part of your employment agreement that takes about reimbursement of expenses. Again, this isn’t a part of a contract that a mail room employee would have to worry about, but if your job is going to be taking you to the far reaches of the globe, you will want to have the procedure for things like this written directly into your contract.

Sometimes, employees can have special clauses written directly into their employment contract that are needed because their job is utterly and completely unique. Of course, crafting individual contracts can be a great expense to any corporation, even if you have your own team of on-staff lawyers, so, in most cases, templates are used whenever possible.

Employment contracts can also have special clauses or conditions inserted in them by the employer. Things like performance guidelines or personal conduct requirements can be written in and are usually quite legal although they can obviously be challenged by an employee if he or she feels that they are unfair.

The world of employment agreements is an interesting one that is constantly changing and evolving.

Service Contract

Thursday, June 5th, 2008

Just like the name suggests, a service contract is an agreement between one company and another or between one company and a freelance individual to perform a particular task or job over a set period of time for a set amount of money. A service contract can be just as simple as that, or, if the contract is for an extended period of time or for a large amount of money, the contract can balloon up in size so that every conceivable base is covered along the way. Let’s take a look at how service contracts work.

The driving force behind the lengthy service contract is simply protection. The company issuing the service contract simply wants to ensure that their interests are protected, no matter what, and it is those words that can turn a simple 2 to 3 page contract into an encyclopedia. A basic service contract starts with the names of the parties involved, and the dates in which the service contract is valid. The next section of the contract explains what the job in question is, how it is to be done and under what terms. Often times the time frame in which the job can be completed is repeated here for emphasis. The next part of the contract will go over the financial terms of the deal, including the budget for the project and the pay allotted to the company or individual performing the services in question. The final part of the contract is simply where both parties sign. It can be as simple as that, but in most cases, it isn’t.

On more complicated service contracts, there will often be expanded sections that go into great detail about the work that is being done so that there aren’t any second guesses once work gets under way. This section can be as long or as short as both parties agree for it to be. Many contractors prefer to have this part of the contract be quite long as to eliminate any kind of confusion later on.

Some service contracts name investors that are part of the financial terms. This only really happens when the financial terms are huge and one payee can’t cover the total cost. One newly added part of most service contracts is a separate or embedded section on confidentiality and non disclosure. With this part of the contract, the companies agree not to share or disclose what could be any kind of trade secrets or even national security issues. It is almost impossible to find a service contract these days that doesn’t have at least one section on privacy or confidentiality.

Finally, some service contracts contain a section on non-competition. A non competition clause requires that a company or individual can’t work for a competing company for a set amount of time. The idea is that the company being used in the service agreement now has too much vital information that can be passed on to the competition. Service agreements are a common part of today’s business world.