Business Law & Contracts Archives - McGrath & Spielberger PLLC

Business Ownership Deals (Part 6 of Series): How Many Different Attorneys Need To Be Involved?

Posted on May 22, 2024May 22, 2024 by g83js92js91

Categories: attorney, Business Law & Contracts, lawyers, legal assistance, limited liability company, llc

The “owners” of a Limited Liability Company are traditionally referred to by attorneys as the LLC’s “Members”. It’s important to realize that (with some variation from state to state) there can be “Members” but also what may be referred to as “Economic Interest Owners”, and those are not the same thing. However, for the rest of this article and related articles, we’re just going to use the terms “Member” and “Owner” as synonyms, and Owner is going to mean someone who has full rights in the Company (mainly meaning having voting and economic rights).

A very common question we get asked at our law firm of McGrath and Spielberger is “What do I need to do to add an owner to my company?” The answer to that exact question is similar to the related question of “How do we transfer the ownership interests of a Member who is leaving the LLC?”

The process and legal mechanics of changes to business ownership are largely discussed in the first 5 parts of this series. In this article, we’ll focus on questions such as the following.

Can (or should) an attorney represent both a buyer and a seller?
Can an attorney serve in a neutral role, essentially working on the transaction without representing a particular party?
Does each party involved in the deal need their own lawyer / law firm?
Can the same attorney / law firm represent the LLC and also give advice to individual members?

As is the case in most things “legal”, the devil is in the details, “it depends”, and “changing one fact about the situation may change the answers”. Having said that, here’s how it generally works, based largely on the professional regulations which apply to lawyers (which differ somewhat from state to state and which are typically called the “Rules of Professional Conduct”).

Can (or should) an attorney represent both a buyer and a seller? NO. A single lawyer / law firm should not, and usually could not, represent the buyer and the seller.
Can an attorney serve in a neutral role, essentially working on the transaction without representing a particular party? YES. In fact, this is an underutilized scenario. Realistically, this can be a bit tricky or even awkward, but in many instances this works just fine and can save everyone significant time and money.
Does each party involved in the deal need their own lawyer / law firm? NO in the sense that nobody “has” to have an attorney at all (unless perhaps the Operating Agreement says otherwise). NO in the sense that a single attorney can usually represent parties who are aligned / have common interests. YES in the sense that an attorney should not, and typically could not, represent parties who have opposing interests (even if there is no “dispute”).
Can the same attorney / law firm represent the LLC and also give advice to individual members? YES, NO, MAYBE? The answer to this one is similar to (C) above. Many non-lawyers (and even some lawyers) may not always clearly grasp that “representing someone” and “giving advice” are essentially the same thing. For example, this is not terribly uncommon:
- LLC Member: “Hey Lawyer, I realize you don’t represent me, but can you just tell me if anything in this proposed Membership Interest Transfer Agreement is unfair to me?”
- Lawyer: “I’m sorry, I can’t give you that advice (which would more or less make you my client, or at least blur that line), since I represent a different party in this situation, whose interests may not completely align with yours.”
On the other hand, a lawyer typically would be allowed to represent (for example) the LLC itself and aligned owners, in particular owners who are not buying or selling. There are other combinations of parties who could be represented by the same lawyer in the same transaction / situation.

Another important aspect of this (not further explored here) is a “waiver of conflicts of interest”. In a high level sense, parties – to a certain extent – can waive some conflicts of interest or potential conflicts of interest. Doing so may allow a single attorney / single law firm to represent multiple parties when that perhaps could not happen without the conflict of interest waiver by those parties.

These sorts of LLC transaction issues are commonly dealt with by business law attorneys but can be tricky. Paying attention to these details, being careful, and planning ahead gets the best results for clients, which is what we do here at McGrath & Spielberger.

If you’d like assistance with business compliance services, please click here: https://mcgrathspielberger.com/business-compliance-services/.

Business Ownership Deals: Buying And Selling (Transferring) Membership Interests In LLCs – Part 5, Filings With The Secretary Of State

Posted on April 29, 2024July 9, 2024 by g83js92js91

Categories: Business Law & Contracts, business owners, business partners, limited liability company, llc

A very common question we get asked at our law firm of McGrath and Spielberger is “What do I need to do to add an owner to my company?” The answer to that exact question is similar to the related question of “How do we transfer the ownership interests of a Member who is leaving the LLC?” Of course, you can also have a situation in which a current Member is only transferring or selling some of that Member’s interests in the company.

This Part 5 of our ongoing series focuses on the filings that can or should be made with the Secretary of State as a result of a change in ownership / membership. See Part 1 of this series for a general overview of sale / purchase / transfer of company membership interests and the legal process, Part 2 for more information on the Purchase and Sale Agreement / Membership Interest Transfer Agreement, Part 3 regarding “Resolution” which should be a part of the membership interest (ownership) transfer process, and Part 4 for important information about Operating Agreement issues.

A transfer of membership / ownership interests in an LLC can, and sometimes should, result in new filings with the Secretary of State. The most common change, but not necessarily the only one, would be made by filing an Amendment to Articles of Organization. That Amendment could identify the changes in ownership structure. Similar information would be contained in the next-filed Annual Report, at least in states like North Carolina which require your typical limited liability company to file such reports.

Whether such an Amendment to Articles of Organization should be filed – and what exactly it should say – will depend on each specific circumstance. An Amendment document on file with the Secretary of State would be evidence of what information the Amendment contains.

An example of another appropriate filing with the Secretary of State would be for the LLC’s Registered Agent. (Click here for an explanation of Registered Agents.) If the Registered Agent has been an outgoing LLC Member, it would almost certainly be preferable to change the identity of the Registered Agent. That change is made by filing documentation with the Secretary of State, and of course the new Registered Agent (which could be our law firm, if the company is located in the Carolinas) has to have given permission.

These sorts of LLC filings are commonly worked on by business law attorneys. However, attorneys need to pay attention and have their brains and skill sets engaged even when performing straightforward work. Paying attention gets the best results for clients, which is what we do here at McGrath & Spielberger.

If you’d like assistance with business compliance services, please click here: https://mcgrathspielberger.com/business-compliance-services/.

Business Ownership Deals: Buying And Selling (Transferring) Membership Interests In LLCs – Part 4, Operating Agreement (“OA”) Changes

Posted on April 22, 2024July 9, 2024 by g83js92js91

Categories: Business Law & Contracts, business owners, business partners, limited liability company, operating agreement, series

A very common question we get asked at our law firm of McGrath and Spielberger is “What do I need to do to add an owner to my company?” The answer to that exact question is similar to the related question of “How do we transfer the ownership interests of a Member who is leaving the LLC?” Of course, you can also have a situation in which a current Member is only transferring or selling some of that Member’s interests in the company.

This Part 4 of our ongoing series focuses on Operating Agreement amendments and/or similar changes as a result of a change in ownership / membership. See Part 1 of this series for a general overview of sale / purchase / transfer of company membership interests and the legal process, Part 2 for more information on the Purchase and Sale Agreement / Membership Interest Transfer Agreement, and Part 3 regarding “Resolution” which should be a part of the membership interest (ownership) transfer process.

A transfer of membership / ownership interests in an LLC should result in amending the Operating Agreement (shorthand = “OR”) or the creation and execution of a new Operating Agreement. We’ll now address 3 different common scenarios, and keep in mind these are brief summaries, they are not intended to be a detailed or comprehensive listing of all relevant or necessary items / issues.

AMENDING THE WRITTEN OPERATING AGREEMENT. If there is a written, executed OA in place of reasonable quality, then an amendment document can be utilized. The Amendment to OA would at least summarize the situation and the changes, reference other key documents, be dated, and be executed by the LLC itself and each individual Member (including any new Members and any outgoing Members).
REPLACING AN EXISTING OPERATING AGREEMENT. There are times when replacing a past-written OA with a new one makes the most sense, including when there is a change in ownership. We’ll address this in more detail in a separate article.
CREATING THE COMPANY’S FIRST WRITTEN OPERATING AGREEMENT. Many LLCs do not have a written OA. In nearly every instance, the creation and execution of a written OA should take place in light of the change in ownership structure. Interestingly, depending on the circumstances and applicable strategical goals, sometimes it makes sense for that OA to come into existence: before the change in membership (which may then also require an Amendment to OA as discussed above); or concurrent with the change in membership; or after the change in membership. We may address those timing options, and why each could make sense, in a different article.

An Amendment to Operating Agreement is often 1 or 2 pages long. An entire Operating Agreement is typically between 10 and 50 pages long. Yes, you correctly infer that there is a wide variety as to how complex and detailed Operating Agreements can be.

An LLC Operating Agreement is typically a private document vs. something which gets “filed” with anyone. This doesn’t mean it is forever confidential, it’s just internal. The contents of an LLC OA could be agreed to be confidential by the parties, although that also does not guarantee it will never be seen by outside persons or entities.

The law does not require an LLC OA to be notarized or witnessed by any third parties. In concept, there could be a requirement within a certain limited liability company which does require it – but that would be uncommon.

The LLC OA – including any properly agreed upon amendments – are typically part of the formal proof of the issues covered in the OA. This means that membership / ownership listings (including changes) in such documents are excellent proof of who owns how much. Anyone who is a signor to an OA or related Amendment should have a tough time later claiming to be unaware of the content of such documents or to deny that they agreed to the content.

LLC Operating Agreements and their Amendments are commonly worked on by business law attorneys. However, attorneys need to pay attention and have their brains and skill sets engaged even when performing straightforward work. Paying attention gets the best results for clients, which is what we do here at McGrath & Spielberger.

Business Ownership Deals: Buying And Selling (Transferring) Membership Interests In LLCs – Part 3, The Company Resolution

Posted on March 26, 2024March 27, 2024 by g83js92js91

Categories: business, Business Law & Contracts, limited liability company

See Part 1 of this series for a general overview of sale / purchase / transfer of company membership interests and the legal process and Part 2 for more information on the Purchase and Sale Agreement / Membership Interest Transfer Agreement. This Part 3 focuses on the “Resolution” which should be a part of the membership interest (ownership) transfer process.

Key decisions by and for a limited liability company should be – and sometimes must be – voted upon, with the vote outcome and resulting decision permanently recorded in writing. When such votes and decisions result in a fundamentally important action being taken, it is proper to have an “LLC Resolution” document created and executed. (Technically, a decision not to take action can also be memorialized in an LLC Resolution.)

An LLC Resolution document can be made up of the elements in the bullet point list below, which is a basic list and example; of course, each situation is different. A transfer of membership / ownership interests in an LLC should result in an LLC Resolution as part of that legal process. Some basic elements of LLC Resolutions:

header / title
the formal name of the LLC
names of the parties to the Resolution
background / context
a description of the circumstances which led to the decision
what, exactly, have the parties to the Resolution now resolved to do?
date of the Resolution
names and signature lines for the parties to the Resolution

An LLC Resolution is typically a private document vs. something which gets “filed” with anyone. This doesn’t mean it is forever confidential, it’s just internal. The contents of an LLC Resolution could be agreed to be confidential by the parties, although that also does not guarantee it will never be seen by outside persons or entities.

The law does not require an LLC Resolution to be notarized or witnessed by any third parties. In concept, there could be a requirement within a certain limited liability company which does require it – but that would be uncommon.

The LLC Resolution is typically part of the formal proof that a company and its members followed the rules to decide whether to act on a major issue and then in fact do so. It also serves to be a clear-cut, summary type statement of what was agreed upon and is being done. Anyone who is a signor to that Resolution should have a tough time later claiming to be unaware of what was decided or to deny that they agreed to the decision.

Most experienced business law attorneys can handle an LLC Resolution without too much trouble – and that would typically be part of a larger set of work the attorney is handling for the company. However, attorneys need to pay attention and have their brains and skill sets engaged even when performing straightforward work. Paying attention gets the best results for clients, which is what we do here at McGrath & Spielberger.

Business Ownership Deals: Buying And Selling (Transferring) Membership Interests In LLCs (Part 2)

Posted on March 4, 2024March 4, 2024 by g83js92js91

Categories: Business Law & Contracts, business owners, business partners, limited liability company, llc

The Purchase / Sale / Transfer Agreement Itself

See Part 1 of this series for a general overview of sale / purchase / transfer of company membership interests and the legal process. This Part 2 focuses on the contract between the parties involved in the transaction, typically the Seller (Transferor) and the Buyer (Transferee), with the limited liability company itself often being a party to the agreement as well.

The agreement between the parties involved in the transaction is often called the “Membership Interest Transfer Agreement” or “Membership Interest Purchase and Sale Agreement” and states the terms of the agreement between the parties transferring ownership interests amongst each other. It’s important to note that the LLC itself may also want to be or need to be a party to such agreements.

Is this business contract a private document or does it become a public record? Typically, a Membership Interest Purchase and Sale Agreement is a private document and does not get “filed” or “recorded” anywhere. That doesn’t mean it can’t be ordered produced by a court, and of course there are other situations in which it must be or should be produced to certain government agencies or other private third parties.

What are the goals and purposes of a Membership Interest Transfer Agreement? There are many, and to some extent they will vary from situation to situation. The most common, most fundamental goal and purpose is to set forth in specific, clear detail what the

Here are some key issues which should definitely be covered in a Membership Interest Purchase and Sale Agreement, and of course this is not a complete list.

The full names of the parties; the full name of the LLC should be listed even if the LLC is not a party.
The date the transaction is effective.
The ownership structure before the transaction and what it will be after the transaction.
What items of value are being exchanged between the transacting parties (most often, Member A is selling ____% of the company’s membership interests in exchange for $_____).
What responsibilities / liabilities each of the parties has and doesn’t have as a result of the transaction, and the timing of the same.
○ For example, if Member A is selling all Member A’s interests, does Member A retain any responsibility or liability after the date of the transaction?
○ What happens if the new Member is subjected to negative consequences related to a new legal claim for events which occurred before becoming a Member, especially if Member A helped cause the claim?)
That the transaction has been approved, to the extent necessary, by other Members and/or the limited liability company itself.
Signatures of the parties (and sometimes of relevant other persons or entities).

We also point out that there are arguments to be made that the selling / transferring Member’s spouse (if there is one) should join in the Membership Interest Purchase and Sale Agreement.

Finally, we observe that if it’s a purchase / sale situation and the selling Member is not receiving all the purchase price up front, there are additional important items to add to the Membership Interest and Purchase Agreement and the use of a well-qualified attorney becomes even more important.

Look for more parts of this series to come!

Business Ownership Deals: Buying And Selling (Transferring) Membership Interests In LLCs (Part 1)

Posted on February 9, 2024March 4, 2024 by g83js92js91

Categories: Business Law & Contracts, business owners, limited liability company, llc

We’ll discuss which of these documents are public records filed with the Secretary of State vs. private records in a different article.

Whether you’re selling part of your LLC in North Carolina, buying into a limited liability company in South Carolina, or transferring membership to a family member in Tennessee, the steps are going to be similar. Of course, this article is not specific legal advice and you need to consult an attorney about the specifics of your situation.

The agreement between the parties involved in the transaction. This might be called the “Membership Interest Transfer Agreement” or “Membership Interest Sale and Purchase Agreement” and states the terms of the agreement between the parties transferring ownership interests amongst each other. It’s important to note that the LLC itself may also want to be or need to be a party to such agreements.
The LLC resolution. For key issues and situations, limited liability companies should generally hold votes or otherwise make decisions according to the law and the Operating Agreement and memorialize (record in writing) the issue and the outcome. In other words, what was decided / approved, if anything? An LLC decision to approve the transfer of ownership interests should be memorialized in a document called a “Resolution”.
Operating Agreement: amendment or new agreement entirely? The changes in the LLC’s ownership structure should result in the Operating Agreement being formally amended. Sometimes the company doesn’t have a written Operating Agreement, meaning one needs to be created. In certain other instances, a change in membership structure for the limited liability company could or should result in a brand new Operating Agreement even when there was a written one in existence.
Filings with Secretary of State. Some changes in company ownership will require new, updated, or different documents to be filed with the Secretary of State. Other instances should trigger such documents.
IRS filings. We aren’t going to attempt to get into the many twists and turns of when changes in an LLC’s ownership may require X, Y, and/or Z changes with the IRS – just be aware that could need to occur.
Beneficial Ownership Information Report filings / compliance with the Corporate Transparency Act. This article is not going to delve into this issue in any detail, although others will. Just be aware that changes to LLC ownership could require (updated) Beneficial Ownership Information Report filings.

This is not necessarily an all inclusive list; the more complex the ownership structure is and/or the more complex the changes are, the more likely there would be additional formal steps to take.

Also keep in mind the many business-oriented and practical changes and updates which can be required because of a change in ownership structure.

Other interesting questions related to business owner deals are “Can (or should) just 1 attorney do all this work? Does each party involved in the deal need their own lawyer? Can the attorney represent the LLC and also give advice to individual members?” We’ll address those sorts of issues in a different article.

Most experienced business law attorneys can handle this sort of work. It’s not always that complicated from an attorney perspective, but it takes time and dedicated effort, and the attorney needs to keep the brain engaged instead of lapsing into cruise control. Paying close attention helps the client get the best results.

Why Are Legal Agreements so Long and Complicated?

Posted on January 11, 2024January 11, 2024 by g83js92js91

Categories: arbitration, arbitration clause, Business Law & Contracts, Dispute, jurisdiction

Most people (including business owners) want (or think they want) “just a very basic contract – 2 pages, not 10 pages”. There could be many reasons for this; they often include one or more of the following.

(1) They themselves want to be able to understand the contract.
(2) They think the legal fees for the agreement will be less expensive that way.
(3) They don’t want to “scare the other side away with an intimidating legal document.”
(4) On average, human beings have shorter and shorter attention spans and less desire and ability to focus on details – this includes some lawyers.

Of course, what a “basic contract” is varies from situation to situation and party to party.

Some contracts are longer than they need to be and more detailed than they need to be, with very little benefit to the extra content. However, most of the time the “details” which cause some to think the contract is “too long” are important *or could become important*.

Don’t drive without a seat belt, randomly hoping that everything goes perfectly – let the lawyer help you with common sense, reasonable protections.

Here are a few straight forward, real world examples of contract topics which many clients might assume are unnecessary, accompanied by reasons that content can be important and should be considered for inclusion. This is not an all-inclusive list.

Business Contracts – Be Very Careful With Changes To Your Legal Agreements

Posted on January 5, 2024August 22, 2024 by g83js92js91

Categories: arbitration clause, Business Law & Contracts, lawsuits, Uncategorized

One of the most frequent problems we business lawyers at McGrath & Spielberger encounter is when changes were made to a section of a legal agreement but the parties (or even their lawyers) failed to realize that said change should have resulted in other content being adjusted.

We sometimes call this a failure to harmonize the contractual changes, and further below are a few clear-cut, real world examples.

If you’re not an expert, or close to it, you’re not going to know enough to avoid these sorts of mistakes. We all have “swiss-cheese” knowledge (holes in our understanding), especially in fields which are not our own.

Just hire a sufficiently qualified professional to protect you by detecting and/or avoiding these sorts of mistakes in your business agreements.

How Do You Expand Your Company Into North Carolina From Another State?

Posted on April 22, 2022May 5, 2022 by g83js92js91

Categories: business law, Business Law & Contracts, Charlotte, Jason A McGrath, Jason McGrath News / Media, North Carolina, small business

As a business law attorney, one of the most frequent questions I am asked is some variation of “How do I transfer or expand my out-of-state company to North Carolina?” I’ll address the most common scenarios and the reasonable options available. I’m using South Carolina as the “other” state for example purposes, since we also practice in SC. However, the same general process is true regardless of which state your company originated in.Scenario B: “I live in South Carolina, which is where my company is and will be based, but I want to expand my region of operations to include North Carolina. What should I do and how do I do it?”

Option 1: keep your South Carolina LLC open and register it with the State of North Carolina as a foreign business authorized to transact in North Carolina. You’d obtain a “Certificate of Good Standing” or similar from Florida. You then provide that to the Secretary of State for North Carolina as part of your North Carolina Application for Certificate of Authority (to conduct business in North Carolina). Assuming you are approved by NC, you’re now good to go to conduct business in both states, or either state, and you can have your principal place of business in either state. You will likely be required to pay annual fees to each state and file taxes in each state, which are important factors to consider.

Option 2: start an affiliated company or subsidiary in North Carolina. In certain specific instances, you may keep your South Carolina LLC open, and instead of registering it with North Carolina, you’d prefer to create and register a separate but related business entity in North Carolina. This is typically referred to as a “subsidiary” or an “affiliated company”. You will likely be required to pay annual fees to each state and file taxes in each state, which are important factors to consider.

Additional notes. Under any of the above options, you’ll have to have a registered agent with a “continuous presence” in NC. Many law firms (like mine) agree to provide that service for a small annual fee, but your company’s “RA” doesn’t have to be a business lawyer or law firm. Of course, we also provide the very services needed to transfer your business overall.

These actions can be accomplished without an attorney, but you should at least consider consulting with an attorney any time you make a significant change to your business entity. Good luck!

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Arbitration Fees – How Much do Arbitrators Cost?

Posted on August 26, 2021April 25, 2022 by g83js92js91

Categories: arbitration, arbitration'contracts, Business Law & Contracts, Continuing Series, contract law, contracts, Jason A McGrath, NC Rules of Civil Procedure, North Carolina, series, small business

Business law Attorney Jason McGrath shares some information about how much you should expect to pay in fees to an Arbitrator in this short video.

https://youtu.be/_mJseLaXzM0

Here are some of the key points contained in this informational video:

Arbitrators typically charge fees similar to what lawyers charge.
Does the Arbitrator require a minimum amount when the arbitration is scheduled? This may be called a cancellation fee or a retainer fee. The arbitrator may require this to offset a loss if the arbitration cancels.
Arbitrators can sometimes be bargained with to lower fees but normally these are set fees.
Arbitration fees (which are mostly made up of the Arbitrator’s fees) are often split evenly between the parties, but this can be altered by contract, law, or court order.

You should get advice from an attorney to assist in handling litigation issues like arbitration.

This is part of a continuing series of video blogs on contract law and arbitration – you can find the first part of this series on our blog or on our YouTube Channel.

If you need legal services in North Carolina, South Carolina, Georgia, Florida, Ohio, or Tennessee we invite you to fill out our confidential client form for possible legal assistance.