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.

Should You Work as a Sole Proprietor?

Many professional real estate agents, accountants, landscapers and website designers are among those who regularly handle their business as sole proprietors. It’s often the easiest way to start  working — although you should always check with your city and county to be sure you’re meeting all their requirements.

Before offering your goods and services to others, it’s wise to also speak with your Houston business law attorney to find out if another legal structure like a limited liability company (LLC) or small corporation might better suit your needs.

Chief Advantages of Running a Sole Proprietorship

  • You alone call all the shots. It’s up to you to make every important decision without having to answer to any partners or investors.
  • There is far less paperwork for you to file than if you formed a limited liability company (LLC), a partnership or a corporation. (However, those other legal structures usually provide better protection for your personal wealth and business assets.)
  • Your daily management tasks can remain simpler if you don’t need to hire any independent contractors or employees. Sole proprietors often have very straightforward duties tied to bookkeeping and filing taxes.

Potential Drawbacks of Working as a Sole Proprietor

  • Your business may have to temporarily shut down if you become ill or briefly incapacitated. This can readily happen unless your spouse or another responsible party is able and willing to complete your current assignments, fill all open orders – and handle any urgent business matters.
  • If other people sue you, they can often reach all your personal and business assets to satisfy any judgments entered against you.
  • If you need additional investment money, you have no partners or other immediate parties who can help supply the funds that are required.
  • You’re less likely to have an adequate support network of business mentors and consultants — unless you carefully developed one ahead of time.

To help you answer other initial questions you may have about working as a sole proprietor, additional information is set forth below. There’s also a brief reference to the new Tax Code signed into law in December 2017 that may affect many sole proprietors.

First Steps That Can Help You When Setting Up a Sole Proprietorship

  • Visit business websites popular with entrepreneurs. This may help you answer some key questions and become aware of new issues. Useful sites include the Small Business Development Center Network (NTSBDC) and the Small Business Administration (SBA).
  • Choose the best business name available. Decide whether you want to simply work using your own personal name or a professional business name. You can ask your lawyer to help you find out if specific DBAs (“doing business as”) names are already taken. You can also pay minimal fees to conduct preliminary searches on the Texas Secretary of State’s website.Decide whether you need to obtain a sales tax permit from the Texas State Comptroller’s Office. This depends on the nature of the products you’ll be selling.
  • If you’ll be working in Harris County, you’ll probably need to obtain an EIN (Employer Identification Number) for handling your tax filings. You may also need an EIN when opening a separate bank account for your business.
  • Consider hiring any workers you need as independent contractors. Keep in mind that it’s much safer (for liability purposes) for sole proprietors to only hire independent contractors.  If you still decide to hire actual employees, you must give serious thought to buying a general business liability insurance policy. If you have that when an employee sues you, they usually cannot reach your personal assets. Also, be aware that if you’re working out of your home and one of your employees falls and gets hurt there, your homeowner’s insurance policy will usually not cover that type of injury.
  • Decide whether you want to work out of your home, an office, or while sharing rental space with other entrepreneurs.
  • Be prepared to change your business structure to an LLC or other form when your business needs or liability concerns change.
  • If you decide to stop doing business, make sure you follow any pertinent laws involved with providing notice to all current customers and/or employees.

Changes in the New Tax Code Passed in December 2017 That May Affect You

Be sure to ask your Houston business law attorney how the new tax code changes may affect you as a sole proprietor. This may depend on whether you’re running what is considered to be a “pass-through” business.

Creating a Valid Limited Partnership in Texas

Few activities are as rewarding as setting up a new business when you’re ready to start selling your goods or services to the public. However, it’s important to understand the distinct benefits and drawbacks of the various business structures you can choose from. While some people prefer to run a sole proprietorship, others believe they’ll be better served by either creating a partnership, limited liability company or corporation. If you’re uncertain which structure may work best for you, it’s important to meet with your Houston business law attorney for early guidance and advice.

This article focuses on the formation of a Texas limited partnership (LP) and how its structure and requirements are unique compared to those of a limited liability partnership (LLP).

How Can Specific Business Structures Affect You & Your Company?

The structure you choose directly bears on the taxes your partnership may have to pay, the paperwork that must be filed with the state before you can begin transacting business, how you can raise money to finance your activities, and your own personal liability for debts owed by the partnership.

How Do Texas Limited Partnerships and Limited Liability Partnerships Differ?

One of the main distinctions between an LP and an LLP is that a limited partnership has only one general partner whose liability is unlimited – and all the other partners have limited liability. As might be expected, the partners assigned limited liability only have limited control over how the company or business is run.

A limited partnership is required to operate in keeping with its oral or written partnership agreement. As is true regarding most business matters, it’s always best to capture any agreement this important in written form. Although you do not have to file a copy of the partnership agreement with the state of Texas, you do need to provide a “certificate of formation” to the Texas Secretary of State’s Office.

Some businesses prefer to limit the general partners’ liability by creating a limited liability partnership (LLP). Those forming this type of business structure must provide the Secretary of State’s Office with a properly completed registration form.

Additional Key Facts You Should Know When Forming a Limited Partnership (LP)

  • Each LP is governed by Texas Business Organizations Code (BOC) Title 4, Chapters 151, 153 and 154. Specific details governing the contents of the required certificate of formation are set forth in the BOC Title 1, Chapter 3, Subchapter A;
  • Every LP will have one or more general partners – as well as one or more limited partners. In addition to individual people, partners can also be corporations, partnerships and other types of legal entities;
  • Taxation. Keep in mind that limited partnerships are subject to paying a franchise tax. You can learn more about your partnership’s tax status by contacting the Tax Assistance Section of the Texas Comptroller of Public Accounts. (Be sure to research other possible federal government tax issues by visiting the Internal Revenue Service website at www.irs.gov);
  • In your certificate of formation, your LP must provide the Secretary of State’s Office with a fully unique name for your partnership that’s distinctly different from any other one currently in existence;
  • A registered agent (who has fully consented to serve in this role) and a registered office must be set forth in your certificate;
  • The name (and address) of each general partner must be provided in your certificate. Every general partner must sign the certificate of formation.

While this is not intended to be a comprehensive listing of every requirement for properly filing an LP’s certificate of formation, it should clearly indicate that you must provide highly accurate and detailed information. Once the Texas Secretary of State files your certificate, your LP should become legally recognized. However, since certain questions may be raised about the certificate’s contents, it’s always best to have a lawyer help you fill it out and then review it before it’s filed.

Lawyers in our office are always available to help you determine the best formal structure for your business – and to help you file all required paperwork with the Texas Secretary of State’s Office.

Starting a New Business: Avoid These common Mistakes

Starting a New Business: Avoid These Common Mistakes

Few activities in life are more challenging and exciting than starting a new business. So, if you’re determined to succeed, always accept advice from those who’ve been where you are now and know what often works best. Careful early planning can pay you back many times over later when your properly marketed goods and services motivate satisfied customers to tell others about your unique offerings.

By making the hard choices described below during your start-up phase, you can avoid many errors that often prevent hard-working people with great ideas from carving out a highly profitable niche in today’s marketplace.

The Key Early Decisions New Business Owners Must Make

  • Choose your co-owners wisely. Always look beyond each person’s academic degrees and decide if their experience is strong enough to withstand the challenges of running a business. Clearly define each owner’s responsibilities and how you’ll regularly monitor each other’s performance. Consider requiring every major stakeholder to undergo professional personality testing so you’ll know if you can each offset the specific strengths and weaknesses of one another that high-stress situations often reveal.
  • Fully track all money being spent and coming in. Be sure to hire a competent, in-house accountant. Agree in writing how all funding will be spent.
  • Have your lawyers draft one or more standard form contracts that fully protect your company’s rights. They should be thorough, but not so burdensome or one-sided that customers will refuse to sign them.
  • Meet early on with your trustworthy Houston business law attorneys. Carefully listen as they describe the various business structures that might best suit your company and the different tax consequences that accompany each one. Learn all you can about the state and federal employment laws and regulations you must follow. Ask for help drawing up your first employee handbook (spelling out all employee benefits) and decide if your employees should all sign “at-will” employment offer letters. Obtain advice on choosing the best available name for your company. Inquire about having everyone sign NDAs (non-disclosure agreements) protecting company secrets. And learn all you can about properly handling sexual harassment issues and claims of discrimination;
  • Create a flexible business plan with reasonable goals. This should normally be drawn up after you’ve decided on your business structure (such as a “C” corporation or “LLC”) and created a written operating agreement that clearly defines all key partners’ general duties and responsibilities, financial contributions, and liabilities. Be sure everyone knows that added responsibilities may be added to each person’s assigned tasks as unexpected needs arise. You should also agree in writing whether you must obtain help through arbitration or mediation services when internal problems cannot be readily resolved;
  • Hire the best employees you can afford. Just as you need to choose co-founders with proven records of making ethical business decisions, you also need highly flexible employees who are told up front that they may need to “wear many hats” as new duties must be assigned.
  • Check out your competition ahead of time and properly fund adequate marketing of your goods and services. Never assume all your company’s offerings are completely unique. Fully handle all due diligence tasks in a timely manner so you can hopefully determine how your competitors have been successfully reaching the very customers you hope to win over. Be sure the market (or location) you’re targeting can handle all the current competition – and make adequate plans to distinguish your brand from all the others.

While the suggestions shared above should help you, always be ready to consult with others as you broaden your web of industry experts and colleagues. If you need to raise more capital for your business, keep in mind that it’s often wise to befriend employees at companies currently funded by the specific venture capitalists you hope to meet with in the future.

Always Place a High Value on Customer Feedback – Readily Making Changes as Needed

No matter how good your in-house experts may be, your customers can often offer you invaluable information about how you may need to periodically change specific products or services. You should also ask them for their ideas on how you might improve your marketing efforts. Consider offering fee discounts to current customers if they’ll undergo brief interviews about your company. You might also simply ask customers to complete brief online surveys about your products and services.

If you’ll meet regularly with your co-founders and openly discuss problems as soon as they arise, chances are your new business will succeed.

Steps Required to Dissolve a General Partnership in Texas

Steps Required to Dissolve a General Partnership in Texas

Even when business partners get along well with each other and succeed, a time may come when they may develop new interests, decide to retire or move elsewhere for business or pleasure reasons. While the Internet and modern communications make it possible to still run businesses with partners scattered around the globe, it’s still quite common for partnerships to break apart or take on new members when others leave.

Do You Need a Written Partnership Agreement in Texas?

Normally, Texas law doesn’t require general (or “at-will”) partnerships to create a written partnership agreement. However, it’s always best to draft one so that when the entity breaks apart (or any partner leaves), you’ll know exactly how to pay off all partnership debts and distribute the remaining assets among everyone.

When general partnerships don’t have an agreement, then Texas law expects the partners to govern their “wind-up” activities in keeping with our state’s default partnership laws.

Here’s a broad overview of the tasks that you and your partners must handle as you dissolve your partnership. Should you have any questions at this early stage, it’s always wise to schedule an appointment with your Houston business law attorney.

First Steps to Take When Preparing to Dissolve Your Partnership

Schedule a meeting so everyone can discuss how your written partnership agreement requires you to dissolve the partnership. During this meeting, you must take a vote to determine if all parties still holding majority rights (or financial interests equal to or greater than 50% of the partnership assets) favor dissolving it. Next, ask this same majority to vote whether they’re ready to draft and sign a written resolution stating that the partnership will now wind up all its affairs and be dissolved.

At this point, all partners who want to keep working together under a new partnership agreement can indicate this desire to everyone else – and offer to buy-out the partnership shares of those who are leaving.

Handling Debt Payments and Winding Up All Remaining Matters

Every current partner should expressly agree to complete certain tasks approved by all those winding down the partnership’s affairs – and to refrain from negotiating any new business that could potentially obligate all partners after the dissolution.

As referenced above, those leaving the partnership are free to sell their shares in it to others, in keeping with their original partnership agreement (or the state’s laws governing such transactions when there is no written agreement). To help the partnership pay off existing debts, all partners can vote on which current partnership assets (if any) may be sold for cash.

The laws governing the pay-off of all partnership debts are set forth in our state’s Uniform Partnership Act. It basically states that you must pay off all your creditors first – before paying back each partner for all past capital contributions to the partnership.

Are There Any Remaining Wind-Up Steps You Must Address?

  • Paperwork filing with the state. In Texas, there’s no need to file anything when dissolving an at-will (general) partnership;
  • Providing notice to all creditors, customers and other parties. It’s customary to send out notices through the mail to all your business contacts so they’ll know that your partnership is being dissolved as of a certain date. However, there’s no law which requires this to be done. You can also just simply publish a notice about the dissolution in your local newspaper;
  • Updating all out-of-state registrations. To prevent your partnership from owing any more fees to other states where you’ve registered for the right to do business, you need to formally notify the correct offices via certified mail that you’re dissolving your partnership;
  • Paying all taxes that are owed. Although Texas doesn’t require you to obtain a tax clearance before winding-up your partnership, you must make sure all taxes owed have been paid before dissolving it. This step includes filing a final federal tax return for your partnership in keeping with Texas law.

Should you have any specific questions about dissolving your partnership – or making sure that you’re handling all tax matters properly – please contact our law firm so we can provide you with all pertinent legal advice.

An Overview:  Winding Up Texas Corporate Activities

An Overview:  Winding Up Texas Corporate Activities

Corporate officers can choose to formally “wind-up” all business activities when many different factors change. For example, when smaller corporations are involved, key parties may simply want to retire or pursue new goals. In other situations, market trends may change so significantly that corporate officers may want to choose more advantageous business structures. Regardless of why any specific Texas corporation decides to go through the termination process, basic legal steps must be followed carefully.

Since this process can involve different statutes, including detailed sections of the state’s Business Organizations Code, it’s always best to confer with your Houston corporate law attorneys. They’ll readily understand the termination process that the Texas Secretary of State’s Office expects each corporation to complete. (Of course, in some instances, a corporation may be involuntarily terminated for various reasons – including the failure to file annual reports).

Here’s a look at some of the steps you must be ready to take based on our state’s governing laws and the specific realities involved with your business. Although other states may speak of “dissolving” corporations, Texas usually refers to “winding up” corporate matters.

The Texas Business Organization Code’s Two Main Ways to “Wind Up” Activities

  1. The board of directors adopts a resolution. It should state that they are recommending that the corporation “wind up” its activities — after submitting this proposal to all the shareholders. At a properly convened meeting, the shareholders must then vote on this proposal. In general, a two-thirds majority of the shareholders must approve this decision before the winding-up process can begin;
  2. All shareholders must sign a “consent” document. Once this has been done, the “consent” document must be entered into the corporate records. This approach is most common when smaller corporations are involved. Great care must be taken to cover all key termination matters within this consent agreement.

Once this early internal activity has been concluded, numerous other steps must be taken to properly conclude all corporate business matters.

Common Additional Steps Required to “Wind Up” Your Corporation

  • All known parties with claims against the corporation must be served with notice of the current intent to terminate the corporation’s existence;
  • Every necessary corporate lawsuit must be properly initiated and concluded;
  • All corporate property must be properly collected and sold – depending on whether its value is owed in some manner to the shareholders;
  • All corporate liabilities must be properly discharged – including the payment of any taxes owed to the IRS or the state of Texas.

General Tax Issues and Obtaining Required Certificates

While your Texas corporate attorney may be prepared to handle all your corporation’s tax payment issues involved with the “winding up” process, you may also want to confer with a tax attorney.

Keep in mind that your corporation must obtain a “certificate of account status” from the Texas Comptroller of Public Accounts — and a final federal tax return must be properly filed once all corporate finances have been finalized.

Filing a Certificate of Termination

After you’ve obtained a certificate of account status from the Texas Comptroller of Public Accounts, you’ll need to file Form 651 (a certificate of termination) with the Secretary of State’s Office. Once this step has been taken and approved, your corporation’s existence has legally ended.

Added Issues That May Need to Be Addressed

Keep in mind that the information provided above was simply intended as an overview of the Texas corporate “winding up” process. Your attorney will be able to provide you further advice about whether additional paperwork is required. Fox example, certain Texas laws governing corporate mergers may or may not apply to your situation.

Please feel free to contact our law office with any questions you may have about possibly terminating your Texas corporation – or any other business entity. We can provide you with the advice you’ll need to properly handle all required stages of this process.

A Basic Understanding of Trust Documents

A Basic Understanding of Trust Documents

Although many people still request Wills from their attorneys, it’s now often best for tax purposes to have the bulk of your estate transfer to others through one or more trusts. To better understand how trusts work, you first need to understand that there are living trusts and testamentary trusts.

Living trusts, also known as “inter vivos” trusts, are created during the grantor’s (or requesting party’s) own lifetime. By contrast, a testamentary trust is created within a Will and doesn’t become legally enforceable until after the grantor has died. As your estate planning attorney will tell you, there are two types of living trusts – those that are revocable and those that are irrevocable.

Revocable trusts let you maintain control over the trust assets, allowing you to revoke or change the trust’s terms whenever you believe it’s necessary. Should you instead create an irrevocable trust, the law no longer views the assets in the trust as yours – therefore, you normally cannot make any changes to the trust without the trust beneficiary’s consent.

While there are many different types of trusts and ways to set them up, the following ones are among those commonly requested by clients.

Frequently Requested Trusts

The Charitable Lead Trust. This type of trust can be created during the grantor’s own lifetime or upon that individual’s death. It provides for a type of annuity to be given to a charity for life or for a specific term of years. If there are any remaining trust assets, they are passed on to non-charitable beneficiaries when the trust terminates.

The Credit Shelter Trust. Many married couples with children often choose this type of trust because the surviving spouse can maintain full rights to the trust assets until his or her death. At that time, the trust benefits can then pass to the children. This trust is also commonly used because it allows the creator to escape estate taxes when passing the trust assets on to heirs.

The Irrevocable Life Insurance Trust. When you move your life insurance out of your estate by having this type of trust created, it’s no longer part of your taxable estate. The funds are then readily available to help pay for any possible estate costs or for other immediate cash needs of your beneficiaries.

Generation-Skipping (or Dynasty) Trusts. Grandparents often like to set these up because they’re designed to allow grantors to give tax-free money to beneficiaries who are two or more generations their junior.

The Qualified Terminable Interest Property (Q-TIP) Trust. If you’re in a second or third marriage and you and your current spouse had children during earlier marriages, you’ll want to learn more about this trust. It helps you not only leave your surviving spouse with income, it also lets you leave specific assets to your various children.

The Qualified Personal Residence Trust. You can use this to remove the value of either your main residence (or a vacation home) from your estate. It’s especially wise to create this type of trust regarding a property that’s very likely to increase in value over time.

The Special Needs Trust.  Many families have at least one member who suffers from some type of serious physical or mental disability. When you set up this type of trust, its terms can be restricted regarding how the assets can be used – thereby still allowing your loved one to qualify for certain types of government benefits.

As this article indicates, there are many different types of trusts that offer distinct advantages and disadvantages. Please feel free to contact our firm with any questions you may have about the specific types of trusts that may best suit your goals and preferences.

Sexual Harassment: How Should Witnesses Respond?

Victims and witnesses of sexual harassment often feel robbed of their sense of safety and peace of mind. After all, when someone is sexually harassed in an overt and physical manner, an actual assault and battery may have occurred. Sexually harassing others is a coward’s game, arguably born of narcissism or self-hatred – coupled with a desperate grab for perverse power.

However, many eyewitnesses aren’t sure what they should do. Some of them worry that if they simply turn away and pretend they didn’t see anything, they may be enabling the abuser. Yet how can safety be restored when no one will report these offensive acts? Fears of retaliation and other related issues are discussed further below.

Few people ever “win” in these situations — even employers often feel trapped since they have a duty to maintain safe work premises.

What Do Co-Workers Fear Most When They Witness Sexual Harassment?

Several studies and surveys have revealed that victims of sexual harassment – and those who witness it – often fear the same repercussions. Their most common concerns are set forth below.

  • Public or private shaming of the victim (or witness). Harassers often enjoy the turmoil they know they’re creating for others. In many ways, they’re like arsonists who take an initial pleasure in both setting a fire and then watching from afar to see everyone scurry around trying to minimize the damage.
  • Retaliation. While American laws exist to minimize the effects of retaliation, the fact remains that, once a harassing party decides to “silence” an accuser or witness, that person’s career may be permanently damaged.
  • Failing to adequately describe the offensive behavior. Since abusers often have few moral constraints on their behavior, they may have taken great pride in at least partially hiding their offensive acts – purposefully making it harder for witnesses or accusers to step forward.
  • Uncertainty about whether – as witnesses –they should first speak with the harassed victim before or after contacting human resources. Sadly, there are no foolproof steps for safely handling this type of matter. One of the most pragmatic and safest first steps forward is to consult your employer’s handbook on reporting such behavior.

You may also want to contact your Houston employment law attorney for further advice on how to proceed. If the harassing party knows that you witnessed the offensive behavior – your job and future promotions may already be at risk. It’s always wise to quickly find what your best legal options and choices are — based on your specific circumstances;

  • Concerns that retaliation may ruin your career (at least temporarily). This is a very valid concern. After all, abusers will often stop at nothing to hide their behavior since they greatly enjoy it, view it as a privilege – and think any punishment would be unfair. The true stories about how Hollywood producer Harvey Weinstein went about trying to silence his accusers (and possibly, the witnesses to his abuse) are shocking. However, victims and witnesses who report most types of sexual harassment can still win major lawsuits that can compensate them for their suffering and restore their careers.
  • Uncertainty about whether reporting the abuse may take a permanent emotional or psychological toll on them. Numerous studies have indicated that women suffer extensively when they report sexual harassment at work. Since their truthful reports are often not believed, their loss of positive self-esteem can cause serious problems with both depression and even PTSD. Furthermore, if the person reporting the gross behavior has ever previously been sexually harassed or abused, the long-term psychological damage of the newest abuse can take decades to resolve.

You Must Decide Which Steps Forward Best Suit Your Circumstances

Besides speaking to a lawyer, here are some other steps you believe you should consider taking.

  • Carefully study your employee handbook sections addressing sexual harassment. Decide if you feel comfortable doing what’s advised.
  • Keep a journal. Record the dates on which you take any steps to try and address the problem, who you’ve spoken with – or met with – and their responses to you. Note all perceived acts of apparent retaliation, if any. (Be aware that you may later need to turn over a copy of this journal to others if a lawsuit is filed).
  • Make a copy of any written reports or complaints that you decide to file. You must seriously consider asking a lawyer to review anything of this nature first;
  • Confide in one or two long-term, trusted mentors about your situation – people who do not work where you do. This may prove crucial if you need to find a new job while pursuing litigation.
  • Ask your employer for an immediate copy of any reports being placed in your file about your current complaints.

Always keep in mind that if you personally do decide to report the sexual harassment that you’ve witnessed, you’re playing a critical role in trying to resolve a very serious problem.

Our firm is always available to discuss any workplace problems affecting you. These can include sexual harassment, unfair pay issues, denied promotions, various forms of discrimination, wrongful termination — or any other matter that’s unfairly denying you the right to achieve your full potential.

Does the Issuance of a 1099-C Discharge Debtors from Liability?

Does the issuance of a 1099-C discharge debtors from liability? The answer is no, the issuance of a 1099–C does not discharge debtors from liability from the subject debt. The filing of a Form 1099–C is a creditor’s required means of satisfying a reporting obligation to the IRS; it is not a means of accomplishing an actual discharge of debt, nor is it required only where an actual discharge has already occurred.

The fact situation is simple and straightforward. A creditor who has loaned money to a debtor makes an internal decision to “write off” of the debt on its books. At that point in time, the creditor is required by IRS regulations to report the write-off.

While only a handful of courts across the United States have addressed this issue, most have arisen in the context of a bankruptcy. Almost every court that has addressed the issue and the few reported decisions in Texas have concluded that the issuance of a 1099–C does not discharge debtors from liability of the subject debt.

The most thorough analysis of the issue and most cited opinion is In re Zilka, 407 B.R. 684 (Bankr. W.D. Pa. 2009), a bankruptcy decision from Pennsylvania. The Court in In re Zilka found four separate independent legal basis upon which to hold that the issuance of a 1099–C does not discharge debtors from liability. The four legal bases are as follow:

1. The IRS requires the issuance of a 1099-C. 26 U.S.C. § 6050P(a) provides, in pertinent part, that “[a]ny applicable entity which discharges . . . the indebtedness of any person during any calendar year shall make a return . . . setting forth . . . the name, address, and TIN of each person whose indebtedness was discharged . . .  [as well as] the date of the discharge and the amount of the indebtedness discharged.” The information return just referred to is a Form 1099–C.

However, “a discharge of indebtedness” is “deemed to have occurred . . . if and only if there has [been] an identifiable event described in paragraph (b)(2) of this section, whether or not an actual discharge of indebtedness has occurred on or before the date on which the identifiable event has occurred.” 26 C.F.R. § 1.6050P–1(b)(2) sets forth eight identifiable events that can trigger the filing and issuance of a Form 1099–C, among which is “(G) [a] discharge of indebtedness pursuant to a decision by the creditor, or the application of a defined policy of the creditor, to discontinue collection activity and discharge debt.”

2. The IRS does not view a Form 1099–C as an admission by the creditor that it has discharged the debt and can no longer pursue collection. In an IRS Information Letter issued in October 2005 it addressed concerns regarding the impact of a creditor’s compliance with the Form 1099–C reporting obligation and the continuing liability of a debtor on the subject debt. The IRS assured a concerned creditor that filing a Form 1099–C satisfies the reporting requirements of the statute and implementing regulations, neither of which “prohibit collection activity after a creditor reports by filing a Form 1099–C.”

3. That a Form 1099–C does not constitute an admission by the creditor that it has discharged the debt and can no longer pursue collection thereon is consistent with the fact a creditor can issue a corrected Form 1099-C if a recovery of some or all of the monies owed by the debtor subsequently occurs. In another IRS Information Letter issued in October 2005, the IRS responded to a creditor that it “does not view a Form 1099–C as an admission by the creditor that it has discharged the debt and can no longer pursue collection.”

4. The issuance of a Form 1099–C does not constitute one of the means of discharging debt pursuant to the Uniform Commercial Code, § 3.604 governs Negotiable Instruments. Section 3.604 of the Tex. Bus. & Comm. Code, Discharge by Cancellation or Renunciation provides that:

• A person entitled to enforce an instrument, with or without consideration, may discharge the obligation of a party to pay the instrument:

(1) by an intentional voluntary act, such as surrender of the instrument to the party, destruction, mutilation, or cancellation of the instrument, cancellation or striking out of the party’s signature, or the addition of words to the instrument indicating discharge; or

(2) by agreeing not to sue or otherwise renouncing rights against the party by a signed record.

The most recent Texas court to address the issue was Capital One, N.A. v. Massey, No. 4:10 CV–01707, 2011 WL 3299934 (S.D. Texas Aug. 1, 2011) wherein the United States District Court for the Southern District of Texas “adopt[ed] the view that a 1099–C does not discharge debtors from liability” because the form is “issued to comply with IRS reporting requirements” and the IRS does not view it “as a legal admission that a debtor is absolved from liability for a debt.”

Lasting, pursuing collection of a debt that has been written off and reported on a 1099-C does not violate Tex. Fin. Code § 392.304(a)(8) which prohibits the collection a debt that was “discharged and/or extinguished against them.”

All Stock Purchase Agreements Must Include Key Provisions

Every stock transfer is important, regardless of its size. Therefore, your corporation must draw up a comprehensive stock purchase agreement to govern all such transactions. If you fail to do so, shares of stock could easily wind up in the hands of company outsiders whose interests are at odds with those of most shareholders.

Corporations usually choose to prevent this type of problem by including a “right of first refusal” in their written agreements so that their shareholders’ interests remain fully protected. As the term implies, the corporation itself (or one of its current shareholders) will always have the right to try and purchase all shares being sold before an outsider can try to buy them. This is just one of the many basic provisions your Houston corporate law attorney will address when drafting a stock purchase agreement for you.

The following information covers some of the other basic provisions that should normally be included to fully protect your most important corporate interests during sales of stock.

Added Legal Protections Offered by Professional Stock Purchase Agreements 

Even when a buyer and seller know each other well, it’s always best to capture all the terms governing their sales transactions in writing. In addition to describing different warranties, your lawyer may suggest that you also cover some of the topics set forth below in your stock purchase agreement.

  • Details about the parties and the specific stock being sold. For example, you’ll need to state the names of the seller and buyer, the number of shares being sold, and the current dollar value of each share of common stock. The date of the transaction should also be noted, along with a statement that the seller is conveying all ownership of the endorsed stock certificates to the buyer. It’s also customary to note that the seller will pay all applicable taxes on the sale;
  • Proper warranties and representations should be included. It’s important to state (1) that the corporation is legally entitled at the time of the sale to transfer ownership of the stock and that the corporation itself is in good standing with all governing agencies; (2) that the seller is currently the valid owner of the stock and has the right to fully convey all rights in the shares to the seller; (3) that all federal, state and local laws and guidelines intended to govern such transactions are being followed; and (4) that all critical facts have been disclosed regarding the transaction;
  • In some cases, you may want to state that the buyer will pay in two installments. When this happens, a percentage of the purchase price is paid upon both parties signing the stock purchase agreement. On a second date set forth in the agreement, the remainder of the purchase price is paid for the shares (when the contract is fully executed). It’s always preferable to have at least one witness sign the agreement in case either party later tries to challenge the entire transaction in court;
  • Clear definitions should be provided in the opening paragraphs of the agreement. These should always include a description of how the corporation currently pays stock dividends to shareholders. A paragraph should also clearly indicate which dispute resolution or mediation groups may be consulted if any problems arise later concerning the sale of the shares;
  • A specific statement as to whether this sale is governed by the SEC (Securities and Exchange Commission). Depending on the type of corporation you’re running, it may be necessary for your attorney to file paperwork regarding the sale with the SEC.

While the list above isn’t intended to be comprehensive, it should provide you with a clear idea of the many critical topics that most stock purchase agreements should cover. It’s always best to have your lawyer go over your corporation’s specific needs with you before drafting this type of document since federal, state and local laws are constantly changing.

Members of our firm are readily available to provide you with professional legal advice concerning all your corporate needs and interests. We look forward to meeting with you soon.