The Ten Commandments

The Ten Commandments of Business Law and How Following Them Will Keep You Out of Court

By Melissa Iyer

A general word to the wiseThe last place any business owner wants to

find themselves (aside from bankruptcy court) is in a lawyer’s office.

Lawyers are expensive and you’re usually there if you’ve got a problem you can’t solve yourself.

So key to happiness in business is avoiding lawyers.

And the key to avoiding lawyers is avoiding litigation.

Commandment 1: Thou shalt think twice before going into business with your

best friend

Every good lesson starts with a good story . . . . Where somebody does

something a little dumb and learns from their mistake

Avoid business partnersDo not own a minority percentage of any

small businessBusiness partners (in good times and bad)

often disagree with how the business should be run

Minority shareholders don’t have any say at the end of the day

This usually makes them more likely to resort to litigation to get what they want, which then becomes a giant headache for everybody

Commandment 2: Thou shalt respect the

corporate form Corporation: an ingenious device for obtaining profit without individual responsibility. ~ Ambrose Bierce

…unless you use your corporate account to expense a two-week vacation to Tahiti that has no business purpose whatsoever, in which case you’d better stay in Tahiti.

The purpose of a business is to AVOID personal liability

If you treat your business as yourself (i.e., the legal world refers to it as your “alter-ego”), you will be personally liable anyway.

The moral of this story: Do not play fast and lose when you spend the company dough.

What to do and not to do:◦File your tax returns with the help of an accountant◦Do not comingle your business and personal funds◦Pay your self a reasonable WAGE commensurate

with others in the field with your job title◦Maintain your entity in good standing with the

Arizona Corporation commission at all times◦Document your business activities (maintain a

corporate book, with all operating agreements, by laws, articles of incorporation, annual meeting minutes and agendas)

◦Do not authorize the company to loan you or other shareholders money without a benefit to the company and adequate documentation/collateral.

Commandment 3: Thou shalt think before ye

email

At the last break here, how many of you checked your phone? Email? Facebook?

Twitter? Text messages? How long did it take you to shoot off 5

email replies?

◦Email is the single most useful and damaging piece of evidence that ends up being on display in commercial cases.

◦It’s far too simple for us to shoot off a damaging email without thinking about the consequences

◦Emails are essentially forever◦So think before you send a business email,

don’t be light or sarcastic (it doesn’t translate well enough) and be sure you’re saying what you want to say

Commandment 4: Thou shalt get non-compete, non-

solicitation, and non-disclosure agreements from key employees

Noncompetes, nonsolicitation, and nondisclosure agreements are standard

forms in employment agreements.

◦A noncompete – means the employee is prevented from obtaining another position with one of your competitors in a limited geographic location, for a limited period of time

◦A non-solicitation – prevents an employee who leaves from stealing your customers.

◦A nondisclosure – prevents a former employee from giving your business trade secrets to his or her new employer

◦These agreements insulate your business to some degree from interference by competitors through your former employees

◦They are important to have, but their limits are worthy noting

◦Noncompetes are very limited and construed strictly by Arizona courts – they cannot be broad. Must limit to 1 year and a reasonable geographic radius.

◦Nonsolicitation/nondisclosure agreements are much easier to enforce.

◦Make all former employees turn in all company products, customer lists, computers, etc before they leave the building!

Non-Competes in Business Sales

◦Noncompetes are also utilized often during the course of a business sale.

◦The selling owner will be required to sign a noncompete so he or she doesn’t turn around and start up the same business he or she is being paid for

◦These ARE much more likely to be enforced because the same policy considerations don’t apply.

Commandment 5: Thou shalt tender your claim to your insurance carrier promptly

Coverage often means your insurance company will hire you a lawyer, pay for your attorneys’ fees and litigation costs, and cover any judgment against you if one is rendered.

Obviously, litigation gets significantly less stressful when you discover that your insurance company is responsible for paying your attorneys’ fees.

Look at your errors and omissions and any other commercial general liability policy to determine whether you can tender the defense to the insurance company.

Look at contractual indemnification provisions you have with those you do business with

If the claim is covered through such an indemnity provision, you may be able to tender the claim for coverage to that company’s insurers or the insurers of any entity potentially owing indemnity to the business by contract.

Commandment 6: Thou shalt not throw the

summons and complaint in your trunk

“Lucy, you got some ‘splainin to do” ~ Ricky Ricardo

Litigation centers around deadlines, if you miss them the consequences can be fatal

Arizona rules give you 20 days from the date your served with the complaint to respond to it

If you don’t, a default judgment will be entered and they are very difficult to get vacated.

Default means the plaintiff wins before you have a chance to defend and they will likely get their attorneys’ fees if its based on any contract

Busy? Don’t have time for silly lawsuits? There is an EASY way to avoid this problem

Appoint a lawyer as your statutory agent!

Easy form that can be filed with the Arizona Corporation Commission

Lawyers (like me and my law firm) will often do it for free because it gives them an opportunity for new business they may not otherwise get

Lawyers know the deadlines and have a professional and ethical obligation to warn you of them

You avoid getting accosted by a process server while you’re grabbing the newspaper off your driveway in your underwear on Monday morning.

Commandment 7: Thou shalt not represent your

company without a lawyer

“A party representing himself has a fool for a lawyer.” Abraham Lincoln

Arizona Supreme Court prohibits the unauthorized practice of law by any non-lawyer

This includes representing your company, which is considered a separate legal “person” for purposes of the law

You can represent yourself (this is inadvisable and almost guaranteeing a bad result though)

But legally you cannot represent your company. It must be represented by a lawyer or it will default!!

Commandment 8: Thou shalt not draft your own

legal documents from something you found on google.com

If it’s too good to be true, it probably is.

Googling is appropriate to find out where the closest Five Guys is when you’re wife is pregnant and craving french fries at all hours of the night

Google is NOT appropriate to use when diagnosing that weird rash on you arm

And it is NOT a good idea to use it for drafting legal documents that have legal consequences

There is a good way and a bad way to pay a lawyer.Lawyers know how to draft contracts in a way that

will protect you in the even that a problem arisesThe purpose of a contract is to protect yourself.

You anticipate all potential problems that may arise and agree to what will happen in the event a problem does come up.

This PREVENTS litigation. But it won’t work if you pull something off of

www.freecontracts.comSpending a few thousand dollars now to get good

contracts may save you hundreds of thousands of dollars later if you end up in litigation

Commandment 9: Thou shalt not maintain

adequate books and records with the assistance of a competent accountant

“I have no use for bodyguards, but I have very specific use for two highly trained certified public accountants.”

~Elvis Presley

Business is about money. Accountants know money. If you want to protect your money, you need a

good accountant. a competent accountant will keep your business

running smoothly and your taxes in check, an accountant is an invaluable tool in most business litigation.

Because most business disputes center around money as well, having untouchable books and records will often provide the key evidence for proving your case.

They will also provide a defense if you’re accused of any financial misconduct.

Commandment 10: Thou shalt settle early and

often when you can“The supreme art of war is to subdue the enemy without fighting.” Sun Tzu

In plain English: Do not argue with an idiot. He will drag you down to his level and beat you with experience.

“Going for the jugular” is a terrible litigation strategy and, more often than not, will result in dragging out your case over a course of years. And only after you are bloodied and stuck with a bill for $500,000 in attorneys’ fees will you finally settle the case in a heap of exhaustion and debt for some amount that is frighteningly close to what you could have settled it for before the lawsuit was even filed.

Broaching the subject to settlement early is a good strategy.

thanks to evidence rule 408, any communications about settlement are inadmissible.  

It’s still just business! Business litigation isn’t personal, it’s still just business. Divorce

yourself from your emotional attachment to being on the “right” side of the case

Evaluate it from a pure risk/reward perspective just as you would any other business decision you make.

By making it “personal” and using litigation to settle a “score,” you are much less likely to ever do business with your opponent again. And yet there was a reason (and the reason often persists) why doing business with that person made sense to you to begin with.

By settling a dispute early, you preserve the potential to keep doing business with them if it keeps making sense. By engaging in contentious litigation with them, you generally kill the option.

Conclusion

Go forth and prosper!

Still Have Questions?

Melissa IyerBurch & Cracchiolo, P.A.(Phone) 602-234-8767Email: miyer@bcattorneys.com