Commercial Leasing for New Businesses

When considering a new commercial lease for your business, it is essential that you assemble the right team to assist you with assessing the value of the location and contract, negotiating and reviewing the lease terms, and assessing other important features of the building and location.  In addition to using the services of a commercial real estate broker and/or commercial leasing specialist, it is crucial that you engage a commercial lease attorney.  An attorney that is experienced in drafting, reviewing and negotiating the different material terms and clauses in a commercial lease can help ensure that you sleep better at night after signing a long term contract for new office or facility.

A commercial lease is a legally enforceable contact that will span a considerable amount of time, such as five years, and will becoming a significant part of your operating budget.  A commercial lease is unlike a residential lease in Massachusetts as the residential tenant protections do not apply in this area.  In this regard, commercial leases are regarded strictly as a business transaction and the commercial landlord is providing a significant amount of authority and rights over the commercial tenant.  There are many clauses concerning default, destruction of the property, base rent adjustments, maintenance expenses, and others that can shift financial and legal responsibility from the landlord to the tenant.  These clauses become traps for the unwary and the involvement of a commercial lease attorney can help you avoid these trap and put your business on the path to success. 

The Law Office of Stefan Cencarik, PLLC and its commercial lease attorneys (commercial real estate lawyers) are adept at drafting, reviewing, negotiating and consulting with clients on commercial leases.  We can also leverage an experienced trusted professional network so as to recommend the right consultant and brokers to help you find, select, and evaluate your next commercial lease property. 

Closely Held Corporation Can Cause Legal Issues and Headaches

Closely held Massachusetts corporations (or often referred to as closely held business) are typically entities that are controlled and owned by a small, limited number of persons.  Closely held corporations are often associated with a family business (a/k/a family owned business) and the concept has expanded to include small groups of partners who were at one point friends, colleagues, or co-workers. A typical closely held business is controlled by a select group of persons who play a significant role on the board of directors and as key manager of the company. The affairs of a closely held business are private, and ownership interests are not publicly traded.

The downside of closely held businesses is that they very frequently entail disputes among the owners. One recent example of the severe issues that a closely held business can face is the recent dispute in 2014 involving Market Basket.  This popular supermarket chain operates approximately 75 stores in New England, and was primarily owned by two cousins. An internal dispute arose among the primary shareholders and key board of director members that led to a very public dispute regarding control and ownership of the entity.

This is one example of where disputes can arise when shareholders disagree on the control, discretion and decisions of the board members and officers. Shareholders can also be dissatisfied with the amount of profits earned by the company, as well as question the decisions of the Board and officer that caused the company’s poor financial performance.  Or in other situations, if a company is being sold or liquidated, the shareholders may have concerns about the valuation of the company and how shareholders will be treated.  And finally, significant issues can arise when an owner wants to exit the business and decides to sell his or her stock.

The Law Office of Stefan Cencarik, PLLC handles various business litigation and disputes, and provides related consulting services, mostly involving closely held businesses. Rather filing a lawsuit, it is best to initially explore various dispute resolution alternatives, such as informal negotiation and mediation. If you are experiencing issues with a closely held business, please contact an experienced and skilled business lawyer at 617-669-9780. 

Incorporating in Delaware - What Advantages Does This Provide my Business?

Previous blog articles have addressed in detail the numerous financial and legal benefits of forming a registered entity (Corporation; LLC; etc.) in your home state.  This article will now address the benefits of incorporating in Delaware. 

The most sought after benefit of incorporating in Delaware is that there is no corporate tax, and the state's laws are well developed in the area of corporate law.  First, shareholders of a Delaware corporation are not required to pay personal income tax to the state if they are not residents.  There is no requirement under Delaware law that shareholders, officers or directors be residents of the state. If you business is looking  to obtain funding from a venture capitalist, or have the hopes of an IPO, then it is (practically) mandatory that you incorporate in Delaware.  It is better to first incorporate in Delaware to avoid the expense and frustration of having to convert your entity to a Delaware corporation when you begin funding discussions. 

Additionally, Delaware law is also structured in favor of upholding the limited liability of a corporation.  This is essential so that the officers and directors, and in some cases shareholders, cannot be held personally liable for acts or omissions while conducting corporate affairs. If a lawsuit is filed against a corporation and the suit falls into the area of corporate litigation, then the fate of the parties will be decided by a Judge rather than a jury.  In this case, a Judge who is experienced in all aspects of corporate affairs and disputes will decide the outcome rather than citizens of a community. 

If you first incorporate in Delaware, and intend on conducting your business operations in Massachusetts or another State, you will need to comply with State law concerning registration of a foreign entity. For example, pursuant to  M.G.L. ch. 156D § 15.03 a foreign corporation must register with the Massachusetts secretary of state within ten (10) days of transacting business in the Commonwealth.  In order to do so, you will need a Certificate of Good Standing from Delaware.  You must then file the applicable form and pay the required fee to the Massachusetts Secretary of State, Corporation Division. 

Selecting the right entity and structuring your organization in two states including Massachusetts and Delaware requires the expertise of a business law attorney. Attorney Stefan Cencarik, a business attorney in Lynnfield is available for consultation and can assist you in selecting the right entity.  

What is Trademark Infringement, and What Can My Business Do About It?

In order for your business to take advantage of the Federal rights and protections contained in the Lanham Act (the Federal trademark series of laws), you must first possess a registered trademark or servicemark.  If you have not already applied for a trademark or servicemark for your unique and valuable company name, company logo, product brand or service, you should consult a qualified business law and/or intellectual property attorney to discuss how you can protect your valuable assets.  This article will presume that a business has already received a certificate of registration of a trademark or servicemark from the United States Trademark and Patent Office.  What rights does this Certificate of Registration provide your business when you discover that a competitor or former employee (or ex-business partner) is now using your trademark? 

This blog article will focus strictly on trademark infringement, as this type of injury and civil claim is the starting point for any type of trademark dispute. (Future articles will discuss other claims and remedies concerning Cyber piracy and Unfair Competition).  

A claim for trademark infringement is rooted in 15 U.S.C. s. 1114, and declares use of a trademark without the consent of the owner to be unlawful.  Copying, counterfeiting, or imitating a registered mark in connection with the promotion / marketing, sale or distribution of goods and services, which is likely to cause confusion, a mistake, or deception to consumers qualifies as infringement. In other words, if a competing business is using a name logo to attract new customers that contains the same or very similar characteristics of your registered logo mark, you may have a claim for trademark infringement.  This is an oversimplified example, and each case is fact specific, therefore, only an intellectual property lawyer with litigation experience can determine whether your business is a victim of trademark infringement. 

If you learn that your registered trademark is being misused, then you may file a civil action in the United States District Court for the District of Massachusetts.  You will be able to obtain an injunction that prohibits further use of your mark; and in more egregious cases, obtain the profits earned by the infringer by use of the mark, recover losses incurred by your business due to the infringement, and costs of action. Prior to filing a civil action it is customary for an attorney representing the trademark holder to serve a cease and desist letter on the infringer. This will put the infringer on notice of your mark and potential claim.  

If your business already possesses a registered trademark and you suspect that you are a casualty of trademark infringement, it is best that you contact Attorney Stefan Cencarik to determine your rights under Federal law. 

The Importance of Buy Sell Agreements for Business Partners

Buy Sell Agreements can be an effective tool for eliminating any confusion or dispute when it comes time for a partner to exit a business relationship.  A Buy Sell Agreement is a contract between two or more business owners that specifies the terms and conditions for a "buyout" and exit for one of the owners. These agreements are sometimes embedded in an Operating Agreement for an Limited Liability Company (LLC) or a Shareholder Agreement for a Corporation. 

It is a common occurrence, at the beginning stages of a business, that the partners are so focused on fundraising, marketing, and management of the business that those individuals ignore the importance of organizational matters. In other words, the partners put off meeting with a business attorney to set out an agreement that will become essential when it comes time to transfer ownership of the business.  A Buy Sell Agreement should be viewed as a indispensable agreement that can structure a partnership arrangement, and ensure that the business founders set conditions for long term control and ownership of the organization. 

These types of agreements can avoid numerous issues and potential litigation as a result of a disagreement on the transfer of a founder's interest to a third party; termination of the founder's involvement or employment in the business; buyback of interest by the organization or other founders; or death, disability, or insolvency of one of the founders. 

One of the principal and most common features of a Buy Sell Agreement is a provision that provides other corporate shareholders or LLC members the rights to purchase the shares or interest held by the other owner.  For example, if an owner materially changes their involvement in the management and day-to-day affairs of the organization through resignation, or termination, then the Buy Sell Agreement would provide the remaining owners the automatic right to purchase the interest or shares held by the departing owner. The agreement should specify the method for determining the buyout price, such as: a predetermined value; valuation of the business; or formula. The agreement would also set out the time frames; methods of payment; process for valuation of the business; and other conditions of the partner's departure from the business. 

The other types of situations that necessitate a Buy Sell Agreement are changes in the financial, health, and domestic status of one of the shareholders or members.  A business partner could face severe financial troubles that could cause a partner to become insolvent, or subject to numerous lawsuits involving personal creditors. Those creditors may seek to attach any dividends or equity disbursements of the partner, or the partner may be placed in receivership or bankruptcy.  In those instances, a receiver or bankruptcy trustee would be looking to claim all profit rights of the owners, or liquidate the business interest to a third party. This is an undesirable position for the other business partners particularly in the context of a private, closely held organization where the affairs of the business, in part, would be exposed to a public court proceeding. 

Additionally,  it may be that a business partner enters a divorce proceeding, and it becomes important to preclude shares from being held by a former spouse. Finally, there are the health and life consequences of death, disability, and/or incompetence.  A business partner may be permanently unable to participate in the affairs of the business, and  this will create problems at the management and ownership levels since owners are also typically key employees of the business.  In each of these circumstances, a well drafted Buy Sell Agreement can specify the buyout process, conditions, and price for transitioning ownership of the business to the remaining partners. 

A properly drafted Buy Sell Agreement can help business partners can help make all of the expectations and conditions clear out the outset when it comes time for a partner to move on. Attorney Stefan Cencarik, a Boston area business lawyer, works closely with business partners and entrepreneurs to help create Buy Sell Agreements, and is available for consultation at 617-669-9780. 

Holding Business Officers and Directors Personally Liable: Part II

On November 4, 2015, the Law Office of Stefan Cencarik, PLLC, a Boston business lawyer, explained the criteria for disregarding the corporate entity, so that shareholders and corporate directors may be held personally liable.   This blog article will focus on the State statutory exceptions that permit direct liability of officers. 

 The Massachusetts Wage Act, M.G.L. ch. 149, § 148 – The Wage Act holds the president and treasurer of a corporation and any officers or agents having the management of such corporation: liable for the non-payment of wages to employees. In other words, Massachusetts business owners and top level managers can be subject to civil liability for non-payment of wages to employees. Those individuals will be personally responsible for payment of any overdue wages plus any double or treble damages  and legal fees awarded by judgment of a Massachusetts Court. In other words, failing to pay employees earned wages has severe consequences in Massachusetts. 

Worker's Compensation, M.G.L. ch. 152 - An employer is required to provide its employees worker's compensation insurance, and failure to do so will subject a corporation's president and/or treasurer to civil penalties, fines up to $1,500 and imprisonment up to one year. In this instance, the corporate veil cannot protect the officers of a corporation who fail to pay worker's compensation premiums. 

Massachusetts Withholding Tax, M.G.L. ch. 62B, s. 5 - Massachusetts employers and businesses paying wages to employees are responsible for withholding and paying tax to the Massachusetts Department of Revenue. Failure to withhold and pay taxes will subject the corporation officer or LLC manager to personal liability, and that person will be liable to the DOR for payment of the tax, until the business turns-over all overdue tax payments.   

Massachusetts Minimum Wage, M.G.L. ch. 151 - In Massachusetts, it is considered oppressive and unreasonable to pay any worker less than the applicable minimum wage. ($9.00 per hour in 2015; $10.00 per hour in 2016; and $11.00 per hour in 2017 and beyond).  Businesses that pay employees less than the statutory wage (docking wages; failing to pay interns or "temps") are presumed to be in violation of minimum wage laws and the corporate officers may be held personally liable. 

Despite these statutory exceptions to the corporate veil, a corporate officer will not be able to use the limited liability protection of the corporation to obtain immunity for criminal actions and/or intentional torts, such as assault and battery of a fellow co-worker.

The next blog article on holding corporate officers personally liable will address the Federal statute and case law exceptions to limited liability. 

So, You Want to Buy a Business and You Have Never Done This Before . . .

Would you perform a root canal, or other surgical procedure on yourself?  The most common (and rational) answer is: NO.  Most Boston area businesses and residents will hire a professional to assist them when they have a highly complex, specific need. What makes a business purchase different from a surgical procedure or even the purchase of a new home? What type of prudent business decision are you making when you do not hire a qualified business lawyer to protect your interests and make sure you are receive the fruits of your deal? Hiring a business lawyer serves as the shield and sword for your financial interests in any business transaction.  This is neither a "do it yourself" task for an experienced entrepreneur or savvy business person, nor a person entering the world of business ownership for the first time.     

A new business owner may consider exercising fiscal discipline by deciding not to hire an attorney to assist them with their business purchase.  Often new Massachusetts business owners want to avoid having to borrow or obtain additional funds, and/or have to pay out more funds to attorney in addition to the purchase price.  This decision can be fatal for a number of reasons. You do not have an experienced third party to provide you with an outside counsel that is based on experience, best practices and tribulations. You will not have an individual that is not personally vested in your deal to provide you with objective advise, opinions, and  advocacy (if necessary) during a transaction.  You also will not have an independent party to assist you in the due diligence and legal relations that you will invariably enter into. 

Non-employee companies, main street businesses, suppliers, and venture funded, high growth companies all can benefit from a business lawyer who can ensure that you make a strong start out of the gate.  As soon as you make an offer (or even earlier in the negotiation process) you should consult with a qualified Boston business lawyer to ensure that you are protected each step of the business transaction.  Attorney Stefan Cencarik works closely with experienced and new entrepreneurs alike, and is committed to helping you close the deal on-time and on budget.