In more than 80 combined years of business and legal experience, we have learned some lessons the hard way. Here are a few for you the easy way:
Should you do it yourself?
Many business people form their own Limited Liability Company or Corporation on the secretary of state’s website, but do not know what to do next. The formation is relatively simple, but it is only the first step. You also need an employer identification number (EIN), an operating agreement and must file the Beneficial Ownership Information Report with the federal government. If you have “reserved a name” by way of a Certificate of Assumed Name, such a reservation is not enforceable unless published in a legal newspaper for two consecutive issues.
The Minnesota Secretary of State’s Office does not provide legal advice. They sell, among other things, business entities and names. You need a lawyer to get things done correctly.
Some people draft and file their own deeds. These are easy to get wrong. An error could be irreversible or cost many thousands of dollars to correct. Would you pull out your own tooth? Hire a lawyer.
50 Versus 51 Makes
a Big Difference
A business partnership is like a marriage. When people get married do they think they will be getting divorced? As you may know at least 40% of first marriages end in divorce. Business partnerships can be just as volatile.
New business partners often want to split the ownership 50/50 so it is “fair.” Under this scenario a dispute will freeze the business. We recommend at least a 51/49 split; someone needs to have the ultimate say. Governance can be split from equity. In other words, the money can still be split evenly, with one of the partners having ultimate control.
Avoiding Probate
Probate is a lawsuit that transfers title to property from the person who has passed to their heirs or people designated in a will. There are three obvious ways to avoid the need for an expensive and time-consuming probate.
With real estate, both Minnesota and Wisconsin allow for Transfer on Death Deeds. Such a deed will allow a non-probate transfer of real estate upon the death of the owner or owners. This kind of deed is also revocable any time before death.
A transfer of death or pay on death designation can be used to move money from an account after death without probate.
Finally, a revocable trust can be put into place for slightly more complex estates and/or when the heirs are small children. One big feature of this kind of trust is avoidance of probate.
Power of Attorney and
Health Care Directive
These important documents go hand in hand with a will or trust to make sure your affairs are handled if you are unable to take care of things yourself. In Minnesota a Power of Attorney can be used to allow someone else to receive and act on financial information on your behalf. Similarly, a Health Care Directive allows someone you trust to receive and act on medical information on your behalf if you cannot make these decisions yourself.
If these documents are not in place when someone loses the ability to make decisions for themselves, then an expensive and time-consuming guardianship and/or conservatorship would be necessary. A little planning and two fairly simple documents will avoid this painful process. Wisconsin also allows for similar documents.
Contracts
If you are buying a refrigerator at Best Buy, you probably do not need an attorney to review that paperwork. If you are signing a contract to build or remodel a house, are buying a business, are buying a house, or are signing an employment contract, you should have the document reviewed by an attorney and have it explained to you. Nothing is “standard” and often everything is negotiable.
A few issues are common. For example, with a construction contract we need to determine the scope of work, price and whether it is a “bid contract” or “time and materials contract”. A “bid contract” means the contractor is doing the work for a set price. “Time and materials” is where there is no upper limit to what you will be charged. Quite a difference.
Non-compete provisions in employment contracts are now generally invalid in Minnesota, but non-solicitation provisions have now taken the place of the outlawed non-compete provisions. These need to be reviewed carefully.
When you buy the stock of a company, as opposed to its assets, you take on any debts of that company even if unknown at the time of sale.
Are you going to live forever?
Young parents often underestimate the amount of money it will take to raise a child through their college years. Because health matters when it comes to purchasing insurance, it’s best to line up insurance while you have good health and the greatest need. Our son once estimated that he had cost us
$ 1.7 million. This may be high, but the cost of raising a child is significant.
Also, if you do not have an estate plan the state you live in will give you one when you die and require you to go through probate. If an estate plan is not properly drafted, it will not matter what the person who passed wanted; the state “intestacy” laws will apply.
What does it cost to get help?
The vast majority of attorneys charge by the hour. At our firm we use a flat rate whenever possible. Most people appreciate having certainty regarding their bill. When you are consulting with an attorney talk about money up front. It is critical that the client and attorney both understand exactly what the work will cost. Beware any professional that will not quote a price or puts off the money discussion for later.
Attorneys Kay Biga and Patrick Spott live and work in a historic home on East Superior Street. They represent primarily small business owners and professionals. www.spottlaw.com
