Should My New Texas Business Be Formed as an “S” Corp or an LLC?

While deciding which business structure will best serve your needs, always consider several key factors. For example, look at how many employees you plan on hiring and how much time you want to spend managing the company. You should also make sure you’re fully protecting your personal assets against future lawsuits and not incurring any excess taxes.

One excellent way to choose the best structure for your company is to meet with your Houston business law attorney. The two of you can discuss all that you might gain (or lose) by starting your company as either an LLC (limited liability company) or an “S” corporation.

Before noting some of the basic steps involved with forming an LLC and an “S” corporation, here’s a brief overview of the unique offerings and drawbacks of both structures.

What are some chief advantages and drawbacks of starting an LLC?

Depending on the size of your business and the types of goods or services you’re selling, you may prefer an LLC for the following reasons.

  • It offers a less formal structure. An “LLC” is also often easier to manage than an “S” corporation, especially when you have few employees. And you’ll never need to have any board meetings to tackle problems tied to issuing stock certificates;
  • You can readily change this business structure (once all proper paperwork is filed). If

you’re running an “S’ corporation, you’ll first have to arrange a formal board meeting before trying to change the business structure);

  • All members of an “LLC” do not have to be permanent residents or U. S. citizens;
  • You can more easily divide up who handles most of the daily work – while allowing others to just be investors. You can also simply divide up the profits based on each person’s initial investment and daily work contributions;
  • Disadvantages of an “LLC” compared to an “S” corporation. These can include having all the company profits subjected to self-employment taxes. Your growth may be limited since your business cannot issue any stock shares. Always ask your Houston business law attorney about any other potential disadvantages that may apply to your unique situation.

Why do some entrepreneurs prefer forming “S” corporations – despite the limitations?

  • Formality is viewed more favorably by some. Outside businesses often prefer interacting with companies that employ a more formal corporate structure;
  • You can often use this structure to avoid double taxation of income;
  • Profits are passed on to the shareholders (by way of their paid dividends). Therefore, the company does not have to pay taxes on those profits;
  • Possible drawbacks. All shareholders must be permanent residents or U.S. citizens. There can be no more than 100 shareholders. Added state filing fees may apply. Also, the IRS

tends to monitor “S” corporations very closely since some people try to improperly avoid certain taxes by wrongfully using this business structure.

What are some basic issues that must be addressed while forming an “LLC” in Texas?

  • Membership. You’ll need to decide how many owners or members you’ll have and if they’ll share all the managerial duties;
  • Naming your business. You must choose a unique name to avoid confusion with already existing companies;
  • File all required forms. You’ll need to start with a certificate of formation (Form 205) that must be filed with the Texas Secretary of State’s Office;
  • Registered agent. You must name a registered agent who can accept the service of process on behalf of your company;
  • You’ll need to create an operating agreement. It’s usually best to ask your Houston business law attorney to draft this document for you after you’ve

discussed the precise nature of your new business;

  • Fully satisfy all state and federal paperwork requirements;
  • Obtain all required state and local business licenses that may be required for your industry.

(Note: Some of these same steps may also be required while forming an “S” corporation below, regardless of whether they’re listed).

Here’s a brief review of key issues involved in starting an “S” corporation in Texas

  • The drafting of Articles of Incorporation. These must be filed with the Texas Secretary of State’s Office;
  • Stock certificates must be issued to all initial shareholders;
  • All applicable business licenses and certificates must be obtained in a timely manner;
  • You’ll need to file Form 2553 with the Internal Revenue Service. (Your lawyer can first check to be sure you meet all the qualifying terms for creating an “S” corporation).

Please feel free to contact one of our Murray Lobb lawyers so we can answer your questions about each of these business structures. We can also help you draft all the documents you’ll need to transact business throughout the year.

Shareholder Agreements Require Flexible Buy-Sell Provisions

There are many reasons why shareholders in closely-held corporations may need to quickly sell their shares to others. Therefore, it’s important when drafting a shareholder’s agreement to cover every basic aspect of buying and selling shares – in addition to the general administrative matters that must normally be addressed.

Depending on a corporation’s number of major shareholders and business pursuits, a flexible framework helps facilitate every goal. The following list sets forth some of the main terms that shareholder agreements should cover, separate and apart from the buy-sell provisions that will be discussed in greater detail below.

Common Administrative Topics Set Forth in Many Shareholder Agreements

  • Voting rights. Always describe each shareholder’s voting rights and when they can be properly exercised;
  • Qualifications for serving as corporate officers. Basic requirements must be stated so that only fully qualified individuals can serve as corporate officers at any level;
  • Noncompete provisions. All parties involved with a corporation must agree to avoid compromising its trade secrets or later leaving and then trying to compete for its clients for a limited time;
  • Preferred groups to consult with when internal disputes must be resolved. Include the names of specific mediation or dispute resolution services that can be contacted and how the corporation should decide when such outside help is required;
  • Inclusion of anti-dilution provisions to protect stock values;
  • A description of major shareholders’ “tag-along” rights;
  • Registration rights must be explained and how they apply to certain restricted stocks;
  • Stock valuation procedures must be described and closely followed.

Once these and other crucial topics have been covered, you and your Houston corporate law attorney should discuss the best buy-sell provisions suited to your corporate structure.

Basic Buy-Sell Provisions – Events That Often Trigger Their Use

Your shareholder’s agreement should always include a very detailed explanation of how shares should be sold when one of the following events takes place.

  • The death of a shareholder;
  • The termination of an employee shareholder – whether “for cause” or without cause;
  • The disability of a shareholder;
  • A shareholder’s retirement

When trying to draft the best buy-sell procedures to address these situations, it’s often wise to sit down and review your corporation’s main concerns and interests with your lawyer.

Should the Selling of Shares Be Mandatory — or Provide Parties with Greater Choice?

When trying to answer this question, you may want to provide different answers, depending on whether the sales are to the corporation itself, other shareholders – or to third parties.

  1. Should your corporation be given the first right to purchase (or redeem) the stocks? If you and the controlling officers of your corporation wish to include this provision in your shareholder agreement, be sure to first consider the possible capital gains tax issues involved;
  2. Do you want to automatically offer the available shares to other general shareholders if the corporation isn’t interested in redeeming the shares after a set deadline? If so, it’s important to indicate if majority shareholders will have the first opportunity to buy the shares;
  3. Are you willing to allow outside third parties to buy the newly available shares? If so, you must decide in advance the types of criteria that such buyers must meet.

Other Key Issues Involved with Drafting Your Buy-Sell Provisions

  1. Setting the proper price to be paid for the stocks. In general, if the available shares are to be purchased by the corporation or one of its current shareholders, you should have already created a clear formula in your shareholder’s agreement for determining the current, proper valuation of the stock. However, if the shares are to be sold to an outside third party, that outsider’s offer will normally be determined by the current market price for the type of shares involved;
  2. How should the price be paid? Most corporations will benefit from establishing a basic buyout procedure within its shareholder agreement so that these common transactions can be handled according in a very clear, pre-determined manner. Since lump-sum payments are usually not preferred, you will need to decide if you prefer such options as:
  1. A buyer-financed buyout
  2. A seller-financed buyout, or
  3. Some type of financing arrangement involving insurance or a trust

Since a corporation’s success is often determined by the terms and quality of its shareholder’s agreement, please feel free to contact our firm so we can provide you with our general legal advice or help you draft a new agreement. 

General Steps to Take While Preparing to Sell Your Business

Selling your company at the proper time can provide you with greater freedom and added income as you pursue other business or personal goals. Whether you’re a sole proprietor who can move forward alone — or someone who must confer with business partners or a corporate board of directors, there are basic steps you can follow that can help streamline the process.

As you further contemplate this move, give serious thought to timing and be ready to explain why you’re making specific choices to prospective buyers; They’re sure to ask why you’re selling your company now. Also think about whether you should hire a professional business broker, especially if you don’t want to manage the sale on your own and are concerned about locating the best potential buyers.

Each of these key topics are discussed further below.

Are you prepared to tell qualified buyers why you want to sell your business now?

If sales are dropping or you’re currently losing a sizable portion of your customer base, you may want to postpone the sale for six months or a year. During that time, you may be able to rebuild the company and make it more viable.

Of course, business owners often want to sell their companies for many other reasons, including the following ones.

  • They’re eager to retire and simplify their lives – letting go of business activities.
  • They have current disputes with partners, co-owners or corporate board members, so they would just like to move on. Obviously, you’ll need to reference these issues in a very tactful yet honest manner if you have no other reasons for selling.
  • The sole owner (or another party) is facing a serious illness or impending death.
  • You want to keep working — but in a less stressful capacity. Be ready to share this in as upbeat a manner as possible – while being open and honest about the pressures of running the business.
  • You’ve developed a keen interest in a different business field and are eager to get your new venture up and running.

These are just a few of the reasons why people often choose to sell a business. Whatever you decide to tell prospective buyers – be as honest as possible since a failure to disclose current problems is unethical and could damage your reputation in the community.

If your business is losing value, be prepared to tell potential buyers (after carefully qualifying them) how they might reverse that trend. You can also explain why they may still want to simply purchase all your valuable vehicles and equipment.

Decide whether you should sell the business yourself – or hire other professionals

  • Legal advice can prove crucial. You’ll also need help drafting the various legal contracts and documents required to support a sale.
  • You’ll want to work closely with your accountant. All your business and tax records must be fully updated.
  • A business appraiser can prove very helpful. This individual can help you determine a fair asking price for your company.
  • Even a brief consultation with a business broker can benefit you. This person knows how to locate a healthy pool of potential buyers. This process can prove extra challenging if you do not want to run any public advertisements.

Be prepared to locate or create various documents while trying to complete a viable sale

You must be prepared to share all your basic financial statements and records for the past three or four years. It’s also crucial to create a comprehensive list of all your company equipment and fixed assets tied to your business accounts. (Be prepared to spend the necessary fees to repair all valuable vehicles, equipment and other goods involved with the final sale).

It’s also important to create a detailed list of your ongoing sales transactions and the names of the companies that currently provide all your company’s most critical supplies. Copies of all current contracts and leases should also be made available so qualified buyers can review them.

Be prepared to carefully decide which buyers may be the most dependable ones

Many business owners prefer to sell their companies to close family members, trustworthy employees, friends or current customers. You’ll need to choose wisely, especially since this type of sale often takes from six months to two years. 

Of course, never disclose private information about your business to potential buyers until after they’ve each agreed to sign non-disclosure agreements and qualified for financing plans that meet your requirements.  Be prepared to negotiate carefully – or ask your attorney to handle the negotiations on your behalf.

If you’re ready to sell a business – or just want to learn more about all the various legal and practical steps referenced above, please contact one of our Murray Lobb attorneys. We look forward to answering all your questions.

The Key Stages of Buying a Home in Texas

Even if you’ve bought a home in the past, it’s always wise to hire an experienced lawyer and real estate agent to help you buy a house in Texas. Contract clauses often change and you’re likely to need special provisions added to your formal offer and purchase agreement to fully protect your interests.

After contacting your Houston real estate lawyer, you’ll need to select a qualified real estate agent. When searching for one, ask close friends for recommendations if they’ve recently bought a home in one of your target areas. You can also search for an agent by visiting the Texas Real Estate Commission website —  and Trulia.com and realtor.com.

What follows is a general overview of the key stages of finding and purchasing a home in Texas when you’ve hired qualified professionals to help you.

Determining if it’s the right time to buy – what your needs are — and what you can afford

Always take time to decide if it’s really the right moment for you to purchase a home. You must be able to afford a monthly mortgage, homeowner’s (and title) insurance and the other expenses that go with buying a home and making repairs. Once you’re sure you want to buy now and know what you can afford to pay, contact several highly recommended real estate agents (who have brokered properties in your preferred area) and interview them over the phone or in person.

After checking each candidate’s references and hiring the most knowledgeable and pleasant one, you’ll be ready to start conducting your search for the right home.

You’ll first need to discuss your preferred price range and the preferred parts of town where you would like to buy a home. Be sure to note the property features that are “must haves” or “deal breakers” for you. Of course, remaining flexible is important so you can avoid missing the chance to buy one of the best homes available.

Where will you and your agent find the listings that you’ll want to see?

In addition to visiting publicly advertised “open house” events in your target areas, you and your agent can also view many available properties online. Savvy sellers often offer online visual tours of their homes to help attract prospective buyers — who can then request showings.

You can also visit the Multiple Listing Service (MLS) online and then discuss the properties that you like most with your agent. If your agent is well established in the area, you may even become privy to some private listings before others learn about them. Websites like trulia.com and realtor.com should also provide lists of many homes still on the market.

What other initial tasks can a realtor help you handle?

After you’ve met with a mortgage broker and located several properties that meet your needs, your realtor can prepare a written offer for the seller. Prior to making an offer, be sure to ask your agent if the seller has any recent home inspection reports to share with you. If none are available and you still want to make an offer on a house, your agent can make obtaining an acceptable home inspection report one of the contingencies in the home purchase agreement that must be met before you’ll purchase the house.

You’re now ready to go over the legally required disclosures that Texas requires property owners to make to parties offering to buy a home. Repairs currently needed must be detailed – along with notes about all recently completed ones. If you haven’t already received a thorough (recent) home inspection report, you really should obtain one now — so you won’t be suddenly surprised by major plumbing or other serious home repairs in the future.

Should certain repairs be needed – and you’re still willing to buy the house – your real estate agent can negotiate these matters with the buyer on your behalf. Also, you must have a title search run on the house. You don’t want to buy property with any troubling liens, easements or other encumbrances that can greatly limit your ability to fully enjoy the use of your new home.

At this point (if not already done), you should purchase title insurance so that if any future claims are made against the property by third parties, you’ll be able to properly protect all your legal interests.

Once all these matters have been fully negotiated between your agent and the seller, you’re ready to move forward into escrow.

What basic, final tasks should be handled right before — or during — escrow?

Your lawyer will make sure that the home purchase agreement contains all the necessary clauses required to protect your interests before escrow closes. If it hasn’t already been done, you should also have the home appraised to make sure your offered purchase price is reasonable and fair.

Next, all new home inspection reports should be carefully analyzed, and all financial arrangements finalized. On closing day, you’ll go to the title agent’s office to sign all the documents and pick up the keys to your new home. As the buyer, you’re not responsible for paying your real estate agent’s fees – they are covered by the seller.

After closing day, your Houston real estate attorney can check to be sure that the title to your new home has been properly recorded in the correct local government offices – and then provide you with official copies of the newly recorded title deed for your records.

Please contact Murray Lobb so we can provide you with the clear advice you’ll need while buying your new home. Since we have the necessary experience to address any problems that may arise, we should be able to minimize any stress for you. Your lawyer will remain available to answer all your questions as you prepare to move into your new home.

IRS Clarifies “Employee” Versus “Independent Contractor” Test

The IRS recently issued clarifying guidelines to help employers determine which workers should be treated as independent contractors or employees. The government naturally wants accurate decisions to be made since they determine when it’s paid certain taxes on each worker’s wages.

The main deductions that should be subtracted from all employees’ paychecks include those for Social Security, Medicare, unemployment and income taxes. When a business has work done by an independent contractor, that person must pay all those taxes in the form of self-employment tax.

What remains the general standard for deciding if a worker is an independent contractor?

If an employer reserves the right to only direct control over the result of the work – and cannot tell a worker exactly what to do and how to handle the assignment – then that worker will usually be legally viewed as an independent contractor.

However, deciding what constitutes specific directions for completing a given task can still fall into a gray area.

Fortunately, there are three basic analytic categories that can help employers accurately determine when workers are properly classified as “employees” or “independent contractors.”

What are the three main categories of analysis for deciding a worker’s correct status?

The IRS indicates that employers should carefully examine the following three aspects of how they relate to workers to determine their proper work status.

  1. Behavior control. An employer may have behavior control over a worker even when it does not exercise it. For example, when such control is involved, it may include telling a worker which specific tools to use and where those supplies should be purchased. Under those circumstances, the worker should be considered an employee. Conversely, the less control over a worker’s behavior, the greater the chance that the person is working as an independent contractor.

If there are strict guidelines for determining the quality of the work provided, there’s a strong chance that the worker is an employee. When the worker is provided a bit more leeway in terms of quality control – there’s a stronger chance that the person is an independent contractor.

Of course, the two parties will usually need to agree to some basic quality standards, regardless of whether the worker is an employee or independent contractor. Finally, if periodic training or ongoing training is required of a worker – that increases the chances that the worker should be treated as an employee.

  1. Financial control. Does the worker have to personally cover the majority (or all) of the expenses tied to completing the work? These might include the purchase and maintenance of proper computers, printers, fax machines, scanners and other required equipment. If the worker is covering all those expenses, he or she should probably be classified as an independent contractor.

Stated differently, when a worker has many unreimbursed expenses, that person is usually an independent contractor — not an employee. Independent contractors are also those who retain the right to continue obtaining additional work from other parties. As for the payment for services, independent contractors are usually paid a flat fee – although that arrangement can vary in some cases.

  1. How the employer and worker each perceive the nature of their relationship. When the parties have not negotiated any employee benefits like vacation pay, sick pay, a pension plan and stock options – the worker is usually an independent contractor. While a written contract signed by the two parties can indicate how they view their interactions, it’s not always the only evidence the IRS and the courts will review when classifying the work relationship. All relevant documents and communications may need to be examined.

The main consequence for an employer who misclassifies a worker is that the employer may be required to pay all employment taxes currently owing for that worker – as opposed to requiring the worker to cover them.

What unique emphasis is placed on these three categories in the updated guidelines?

As for behavior control, employers really shouldn’t be telling the independent contractor the exact sequence of events for all tasks to be performed or exactly how they should be handled.

Regarding financial control, only independent contractors can experience a profit or loss while handling assigned tasks. Employees whose expenses are generally covered will usually not experience any profit or loss while completing assigned tasks on a given schedule.

As for how the parties view their work relationship, a fully executed contract can be controlling when other conclusive details aren’t available. However, as briefly noted above, the parties’ communications can usually provide clear indications of whether they’re interacting as employer-employee or employer and independent contractor.

The key bottom line for employers who don’t want to only work with employees – is to allow their independent contractors considerable flexibility while completing tasks – while respecting professional standards acceptable to both parties.

Please give our law firm a call if you need any help determining which workers are employees or independent contractors. We can also help you better understand the many different types of classifications that govern a wide range of employees you may want to hire – and the tax consequences for hiring those who fit in each group.

Our firm always remains available to help you draft many different types of contracts that can serve all your business needs.

Final Rule on Overtime Released by Department of Labor

May 18, 2016 – The U.S. Department of Labor has released its final rule on overtime under the Fair Labor Standards Act. The Administration estimates that the new rule will extend overtime protections to 4.2 million Americans who are not currently eligible under federal law. Once effective, the rule will raise the salary level from its previous amount of $455 per week (the equivalent of $23,660 a year) to $913 per week (the equivalent of $47,476 per year) in 2016. The rule will also raise the compensation level for highly compensated employees from its previous amount of $100,000 to $134,004 annually. The final rule also establishes a mechanism for automatically updating the salary level every three years, with the first update to take place in 2020. These changes take effect on December 1, 2016. The final rule may be viewed here:  https://s3.amazonaws.com/public-inspection.federalregister.gov/2016-11754.pdf.

The final rule does not make any changes to the duties test for executive, administrative and professional employees, which affects the determination of who is exempt from overtime. Administrative employees who do not meet the special provision for administrative employees will be eligible for overtime if they earn below the salary level set in the final rule and they work more than 40 hours in a week. 

In response to the new overtime rule, employers have the option of:

A. Paying time-and-a-half for overtime work;

B. Raising the workers’ salaries above the new threshold;

C. Limiting worker’s hours to 40 per week; or

D. Some combination of the above.

How Wage Garnishment Laws Affect Many Texans

Although wealthier Texans may build up significant savings and retirement accounts by middle age, most residents must keep working far longer to meet their individual and family needs. And if unexpected family or medical crises occur creating new financial emergencies, some people may face wage garnishments. Fortunately, Texas offers strong protection against many types of creditors.

Here’s a brief review of the most common types of wage garnishments pursued in Texas, basic terms you’ll need to know regarding this field – and references to special concerns you may need to discuss with your Houston business law attorney to fully protect your rights.

Important terminology related to attaching employee wages

  • Wage garnishments. In Texas, this term is often used interchangeably with “wage attachments” and refers to court orders directing employers to withhold certain amounts of money from employee paychecks to satisfy certain debts;
  • Administrative garnishments. These usually refer to federal government back taxes or student loans now in default – and they do not require a court order to be activated. Once debtors have student loans in default, they’ll normally be contacted by the U. S. Department of Education and told which collection agencies will be collecting their debts. (Note: Students loans can almost never be discharged by a bankruptcy filing);
  • Disposable earnings. This refers to the amount of money you have left in your paycheck after all mandatory deductions have been made for federal taxes, disability insurance, union dues, unemployment insurance, nondiscretionary retirement deductions, workers compensation and health insurance.

Types of debts often leading to wage garnishment

Texans are very fortunate compared to citizens of other states since Texas only honors a very limited number of garnishable debts.

  1. Unpaid child support and alimony (in arrears)
  2. Current court-ordered child support and alimony
  3. Government debts owed to the IRS (back taxes) — and all related fines and penalties
  4. Unpaid student loans (in arrears)

Note:  In light of Article IV of the U. S. Constitution, Section I (requiring each state to honor the “public acts . . .  and judicial proceedings of every other state,” certain other limited creditor debts referenced in judgments obtained outside of Texas may also be garnishable.

Be sure to speak with your Houston business law attorney whenever you receive any notice of an order to garnish your wages.

Fixed garnishment limitations that benefit Texas debtors

  • Total amount that can be garnished (based on all court orders). This is equal to 50% of your disposable earnings;
  • Percentage allowed for tax debt. This varies, based on your current deduction rate, the number of your dependents and other factors;
  • Student loans. The Department of Education can normally only garnish up to 15% of your disposable income from each paycheck;
  • Spousal support. The most your wages can be attached for this obligation is either $5,000 or 20% of your average monthly gross income – whichever is less.

Priority of wage garnishment orders

Although unusual factors might be able to change the list below, employers must normally prioritize their payment of garnishment orders in the following manner.

  • Unpaid child-support
  • Spousal support
  • Back taxes
  • Student loans

Texas employers are not allowed to discriminate against employees with wage garnishments

This has long been a concern of many employees since handling wage garnishments can take up a considerable amount of an employer’s time. Texas doesn’t allow those with wage attachments to be treated unfairly when it comes to hiring, promoting, demoting, reprimanding and firing (among other actions).

How creditors can still reach your money – apart from using wage garnishment

Even if your wages cannot be reached, regular creditors can still gain access to your money by obtaining court orders to freeze one or more of your financial accounts – and place liens on certain types of real property you own.

Please contact our law firm with any questions you may have about the proper handling of court orders to garnish wages — or any other types of administrate tasks regarding employees.

Buying a New Company:  Conducting Due Diligence

Depending on the nature and size of the business you’re interested in buying, the process of completing due diligence can be straightforward or complex. Fortunately, the basic steps you’ll need to follow are rather standard.

After your lawyer has negotiated a Letter of Intent (LOI) with the seller –  covering each party’s duties and responsibilities involving confidentiality, exclusivity and other matters – you’ll be ready to begin the due diligence phase of possibly buying the company.

The Main Reasons for Performing Financial Due Diligence

This process is partially designed to help determine if the initial evaluation placed on the business is fair and if the company is both stable and viable. Time must also be set aside to review all current contracts and potential legal and regulatory liabilities.

Some of the specific aspects of the business you’ll want your Houston business law attorney and personal accountants to carefully review and examine are set forth below.

  • All accounts receivable and payable
  • At least the last three years of the company’s tax filings
  • All current payroll obligations
  • Most or all the major banking transactions for the past year or more
  • The full nature and extent of any outstanding loans on the books

As this initial list of matters indicates, this process can take many months with some businesses. Normally, the parties negotiate the timetable for completing all due diligence examinations in their Letter of Intent (LOI).

Special Inquiries You Must Include Regarding Other Financial Matters

Hopefully, your review of all the financial accounts won’t turn up any troubling questions that can’t be answered. However, since a small percentage of business sellers may be dishonest, your due diligence team must carefully watch out for certain types of “red flags” or irregularities. These can include some of the following concerns.

  • Missing funds
  • References to non-existing accounts
  • Improperly filed tax returns
  • A varying degree of bad debt that’s regularly written off
  • Unstable profit margins

Your lawyer’s due diligence inquiry must also include carefully reviewing all current contracts with other businesses or corporations.

Key Concerns Involving Executory Contracts

  • When are they each due to expire? (This is important since this information can affect the company’s current valuation and other issues). For example, if current supplier contracts are ending soon, you may soon find yourself having to pay far more for critical supplies;
  • What’s the status of all customer contracts? You need to be sure all funds owed to the company are being collected regularly and all goods and services promised are being delivered in a timely manner. Failure to carefully monitor all contract terms can cost you valuable customers and open you up to major legal liabilities;
  • Are all Service contracts being carefully monitored? Nearly every business is dependent on outside service vendors to keep their manufacturing and other equipment working properly. Likewise, contracts are often in place to secure the professional services of lawyers, accountants, computer repair technicians and others. You must make sure the company is properly honoring all these contracts and renegotiating them in a timely and responsible manner;
  • Are all current leases being properly maintained? Companies can’t afford to accidentally let leases lapse on buildings or other property that are essential to their daily operations.
  • Employee Agreements? Do current employees have employment agreements with non-compete clauses? These must be carefully examined because they cannot be assigned if you are only buying the assets.

Due diligence can also extend beyond merely reviewing key financial documents and contracts. It should also include a detailed review of all actual or threatened litigation and regulatory investigations.

Your Lawyers Must Review All Current or Likely Lawsuits & Regulatory Challenges

Each of the following issues must be examined regarding all current or anticipated litigation. They may prove crucial if you decide to still buy a specific company since you’ll probably need to request contractual indemnity for all future liability (and litigation expenses).

  • How costly might each case eventually prove to be? In other words, what potential liabilities are involved?
  • Has the business received formal notice that any of its operations may be operating in conflict with any state or federal statutes or regulations?

You must be willing to sit down with your lawyer and the target company’s current legal counsel to sort through all these legal and regulatory concerns since they directly bear on the business’ current valuation and the wisdom or folly of buying it.

While the due diligence concerns referenced above are not intended to be fully comprehensive, they should help you understand many of the critical matters that must be examined. Once you make it through this due diligence stage, you can then either decline to buy the company or move forward into the “closing” or final transactions phase.

Please feel free to contact our law office so we can help guide you through the various stages of due diligence as you try to decide whether you should buy a specific company.

Tortious Interference with Inheritance:  Not a Valid Claim in Texas

The Supreme Court of Texas states in its Archer v. Anderson opinion (published in June 2018) that “there is no cause of action in Texas for tortious interference with inheritance.” This ruling was based on the court’s holding that there are other adequate, valid remedies for pursuing inheritance-related claims without doing so under this specific tort that conflicts with Texas probate law.

The basic facts set forth in the Archer case.

Stated succinctly, Archer v. Anderson involved a man named John R. “Jack” Archer who had married and divorced four times and never had any children of his own. In a 1991 Will, Archer left the bulk of his estate to his brother and his six children (a generous sum was also left to charities). Seven years later, Jack Archer suffered a stroke that left him very confused, disoriented and delusional.

Multiple parties soon stepped in at different times, trying to coerce Mr. Archer into changing his estate plans. Guardianship proceedings were also pursued. Eventually, the Archer family sued Jack Archer’s attorney, Ted Anderson, for breach of fiduciary duty, legal malpractice, and intentional infliction of emotional distress. (They also sued others on Mr. Archer’s behalf).

Anderson passed away in March 2006 and Jack Archer died one month later. After Jack’s 1991 Will was probated, the Archers received their bequests under it. (Many other complex events also transpired, eventually leading both sides to file appeals that were addressed in this Supreme Court of Texas opinion).

Tortious interference with an inheritance has never been formally recognized in Texas.

The Supreme Court of Texas clearly notes that neither its predecessors on the bench – nor the State’s legislature – have ever formally recognized the claim of tortious interference with inheritance. However, over the years, various parties have repeatedly argued that such a claim was basically implied in other cases.

How should Texans respond and protect themselves based on this ruling?

Parties who believe that their contractual right to inherit from someone has been thwarted by a third party due to fraud, undue influence, issues involving testamentary capacity, or drafting irregularities — can still petition a court for help. A probate court could set aside certain gifts based on the offering of proper evidence – and might also correct a wrongful act by imposing a constructive trust so that no one will be unjustly enriched.

Of course, however parties proceed, they must be ready to cover court costs and attorney fees on their own.

To further combat fraud, it’s crucial for all family members to stay very actively involved with their elderly or disabled loved ones.

When few people keep in touch, numerous parties claiming to be friends or caregivers can find both cruel and hidden ways to steal from elderly or disabled people’s estates. (If you haven’t already done so, be sure to read The New Yorker article entitled, “How the Elderly Lose Their Rightsand AARP’sFraud in the Family.”

Please feel free to contact Murray Lobb so we can help you with all your estate planning needs. We can also provide you with legal advice on how you should proceed if you believe anyone is currently trying to defraud you (or a loved one) of any estate funds.

How Should You Respond to Potentially False I-9 Documentation?

At present, the federal government expects companies to carefully examine all I-9 documents presented by job applicants and to ask questions about required paperwork that looks like it may have been altered. Once you receive proper documents that look valid, you must keep your copy of the completed I-9 form on file, ready to share it with ICE (Immigration and Customs Enforcement) upon request. In some cases, you may be given only three days’ notice to produce these documents for all your employees.

To help employers fulfill their duties, ICE provides general guidelines that describe how all I-9 document reviews should be handled. These guidelines are further referenced below, along with topics you should address with your human resource staff to help them avoid accidentally discriminating against applicants and employees while simply trying to obtain fully updated, accurate documents.

What federal law established the need to obtain I-9 documents from job applicants?

Congress passed the Immigration Reform and Control Act (IRCA) back in 1986. It requires employers to obtain job applicant documents that validate each person’s right to work in this country. This task is handled by fully completing a Form I-9 document for each job applicant. To help establish their legal status, applicants can produce such items as:  a driver’s license, a Permanent Resident Card, a US passport, a birth certificate and a Social Security card.

Can some I-9 documents be acceptable even when they initially look questionable?

The simple answer to that question is “Yes.” However, you should always keep notes in your file concerning any odd documents that you first believed might be false – and keep a copy of them. As ICE notes on its website, there are times when a worker may show you documents indicating different last names – and that may be acceptable if the job applicant can provide you with a reasonable explanation for the varied listings.

While employers must be respectful and open-minded while handling required I-9 tasks, they should be acting in agreement with previously established, written employee guidelines clearly noting that all new hires and established employees can be fired for providing any false job applicant documents. When you haven’t already created such written guidelines and acceptable standards of employee conduct, you may later find yourself accused of discriminating against an applicant or employee based upon his or her immigrant (or special ethnic) status.

This type of scenario often unfolds when an employee informs you after being hired that one or more documents given to you before being hired was fraudulent or invalid. This tends to occur when the employee is trying to provide you with newly updated, valid documents.

This specific type of issue was presented to the Department of Justice (DOJ) back in 2015. Unfortunately, instead of issuing an advisory opinion, the DOJ simply noted that employers should already be prepared to handle these types of issues — based on established employee conduct guidelines. Otherwise, they risk being sued for one of at least four employment-related forms of discrimination.

Is it true that some employers have been heavily fined for I-9 violations?

Yes. One of the largest fines recently imposed by the Office of the Chief Administrative Hearing Officer (OCAHO) involving I-9 irregularities was against Hartmann Studios. That company was required (in July of 2015) to pay $600,000 in civil penalties. (That amount had been reduced from the original penalty sought of $812,665.) When Hartmann was undergoing a new inspection back in 2011, the company employed over 700 workers.

While that large sum of money is quite high, it’s important to recognize that Hartmann Studios was unable to provide any I-9s for some of its employees who had been terminated and needed an extension of time to produce documents for others.

What steps can our office (or company) take now, to make sure were fully complying with all current I-9 document guidelines?

If you haven’t already done so, give serious thought to signing up for the US government’s
E-Verify program that can help you properly process all your I-9 documents. By visiting this government website, you can learn more about how this program works. Your usage of this service may help establish your good-faith attempt to properly handle all I-9 duties.

You may also want to ask your lawyer if you should require all newly hired (and established) employees to sign a form that clearly indicates their awareness that they may be immediately fired for their dishonesty if you ever learn that they’ve provided you with any fraudulent I-9 documents. If you do this, you’ll need to strictly apply this standard.

Please contact our Murray Lobb law office so we can answer any other questions you may have about properly handling all I-9 documents. We can also provide you with advice on drawing up a general employee handbook — that also fully alerts all employees to the possible consequences of supplying your company with fraudulent I-9 documents.