By Arizona Corporate Compliance Attorneys Gunderson, Denton And Peterson

Has a Lack of Corporate Compliance Destroyed your Company’s Liability Protection?

Familiar adages have a way of popping up just after they would have been useful, as if to say, “I told you so.” How about this one – “Never put all your eggs in one basket.” That is why you formed a corporation or limited liability company to do business in the first place. It’s smart to limit personal liability. Without necessarily disagreeing with the underlying principle, Mark Twain offered his own insightful variation of the old saying. He said, “Put all your eggs in one basket and then watch that basket.”

So how is that business entity you formed doing these days? This is a great time of year to review your company’s corporate compliance with Arizona law. Have you filed your Annual Report with the Arizona Corporation Commission? The ACC doesn’t send a reminder anymore, so you may be surprised to learn that your corporation might have been administratively dissolved. How about that pesky annual meeting required by statute? Have you generated the proper meeting minutes or corporate resolutions? Has your place of business changed? How about your statutory agent? These are some of the seemingly unimportant details that cause legal headaches for your company.

There may be a relatively easy fix for most simple non-compliance issues. But, as business attorney’s, we see too many instances of big problems resulting from simple inattention to corporate compliance requirements. For instance:

• A company can lose the right to use its own name without the help of an Arizona Business Attorney.
• A company may be unable to maintain a lawsuit to enforce its rights.
• A minority owner could bring a troublesome lawsuit against the company and the majority owner.

Most dangerous, a creditor of the company could seek to pierce the corporate veil and pursue claims against the owners if they haven’t been playing by the rules.

Nearly every legal problem a business entity encounters could have been mitigated or prevented entirely with the proper documentation and attention to corporate compliance requirements. The problem is, you’re running a business in a tough economy. You don’t have time to become an expert on corporate law, much less stay up to speed on the complex and ever-evolving regulatory environment.

So why not come in for a company tune up? We provide efficient corporate compliance services. At an appointment with us, you can sit down and review your company’s legal status. We’ll help you evaluate your risk based on your circumstances and recommend cost-effective ways to protect your business. We offer competitive rates and flat fees for the preparation of common business documents. You’ve worked hard to be successful. Let our corporate compliance attorneys at Gunderson, Denton & Peterson, PC, help you avoid regulatory pitfalls and expensive legal disputes. After all, an ounce of prevention is worth a pound of cure.

Protecting your business and loved ones 

Business owners should have plans in place to ensure that their business will remain viable in the event that they die or become incapacitated.  Maintaining the viability of the company will allow the business to retain its value and remain a valuable asset that can be passed on.  Failure to prepare before such an event occurs can put unnecessary burdens on family, friends and employees.  If the business owner dies or becomes incapacitated before making preparations, the business might be left to someone who does not possess the skills needed to run it successfully.   

The appropriate manner to prepare and plan will depend on the way the business was set up.  If the business is a sole proprietorship, there is no separately existing business entity, and all of the business’s assets and liabilities are in the owner’s name.  A sole proprietorship usually ends upon the death of the sole proprietor, and the business assets and liabilities become part of the owner’s estate.  For this reason it is usually better to use a business entity that will survive the death or incapacitation of the business owner.  LLCs and corporations are two effective business entities that can have an existence past the death of the owner(s).

Complications can occur when there are multiple owners or business partners.  Many times business partners do not want a new partner after the previous partner becomes incapacitated.  To prevent any unnecessary problems, a prearranged buy-sell agreement can be drafted.  This agreement would obligate remaining partners or business owners to purchase the interest of a deceased or incapacitated owner at a predetermined price.  These agreements are often funded by taking out a life insurance policy on each of the business owners.

Appropriate business contingency preparations will depend on each business owner’s situation and goals.  Attorneys from Gunderson, Denton & Peterson, PC, help business owner clients by analyzing their unique circumstances and helping protect assets during necessary business transitions.

The requirements of the Federal Trade Commission’s Franchise Rule

The franchise industry is large and growing larger.  The U.S. Census Bureau recently collected franchising data for certain industries and found that in those industries 10.5% of businesses were franchises and $1.3 trillion of the $7.7 trillion total sales were from franchises.[i]  There is a lot of money in the franchise market, and it can be very lucrative for an individual with a successful business to franchise that business.  However, in order to comply with the law and ensure long-term profitability, a franchisor needs to abide by the franchise rules and regulations set forth by the Federal Trade Commission – specifically the Franchise rule.  The Federal Trade Commission has brought cases against hundreds of companies based on the Franchise Rule. 

A key part of the Federal Trade Commission’s Franchise Rule is the Franchise Disclosure Document (FDD).  The FDD is a legal document given to potential franchisees by the franchisor to disclose information on many areas of the franchise business.  Use of the FDD was mandated by recent changes to the Franchise Rule, and it replaces the previously used Uniformed Offering Franchising Circular (UFOC).  A franchisor is required to provide this document at least 14 days before a sale is made.  The Federal Trade Commission’s regulations require certain specific information to be included in the FDD.  The Franchise Rule contains 23 Items that must be included in the FDD.  The following is a brief description of six of the Items:

-          Item 2: Business Experience – The FDD must have the business experience over the previous five years of key individuals in the franchisor’s business.  Key individuals usually include the franchisor’s directors, trustees, general partners, and principal officers. 

-          Item 5: Initial Fees – Any money that must be paid by the franchisee to the franchisor before the franchisee’s business opens must be disclosed.  If the fee is not set, the possible range of the fee or a formula to determine the fee must be given.  

-          Item 12: Territory – The Franchisor’s FDD must specify whether the franchise is for a specific geographic location.  The Franchise Rule contains specific language that must be included if the franchisor is not granting an exclusive territory.  If the territory is exclusive, remedies must be given in case there is an intrusion into that territory.  Any restrictions on the franchisor from soliciting or accepting orders from consumers inside the franchisee’s territory must be specified. 

-          Item 17: Renewal, Termination, Transfer, and Dispute Resolution – A table must be added to the FDD that outlines the franchise relationship.  A brief description of required contract provisions must be included in the table. 

-          Item 21: Financial Statements – The franchisor must include a balance sheet and statements of operations, stockholders equity, and cash flows.  These statements should be audited by an independent auditor and be completed according to GAAP (generally accepted accounting principles).  There are specific exceptions for start-up franchisors, but even then audited financial statements should be provided as soon as practicable. 

-          Item 23: Receipts – The Franchisor’s FDD must have two copies of a detachable acknowledgement of receipt.  The Franchise Rule contains specific language that must be used in the acknowledgement of receipt. 

This is just a small sample of what must be included in the FDD.  As can be seen, franchise law and the requirements for the Franchise Disclosure Document are evolving and complex.  Having an experienced attorney is essential if you are franchising your business or looking to buy a franchise. Attorneys at Gunderson, Denton & Peterson, PC are experienced in working with franchisors and franchisees on their franchising issues.  Attorneys from the firm are available to meet with you to review and analyze the Franchise Disclosure Document or address any other franchise or business issue. 

Gunderson, Denton & Peterson welcomes Bert Millett to our firm as an Associate Attorney.  Bert focuses his practice primarily on Business Law, Real Estate Law and contract issues.  He prides himself on his ability to advocate effectively for his clients with an eye for detail and precision in the matters he handles.

 Bert graduated fromArizonaStateUniversitywith a B.S. in Business Management in 2002 and a J.D. from Sandra Day O’Connor College of Law in 2006.  Prior to attending law school at ASU, Bert managed a mid-sized business where he gained first-hand experience in the legal issues faced by business owners.  Since then, Bert has helped business owners with contract issues, business disputes, securities offerings, and much more.

Bridge financing is a short term financing option available for personal or business uses.  Individuals use this service to bridge the time period between buying a new house and selling their prior one.  A business with equity financing expected to close in a short time can also use a bridge loan to secure working capital until the funding goes through.

 Personal Uses for Bridge Financing:  Don’t miss out on that new home.

             A bridge loan is a short-term interim loan used until permanent financing is secured.   A common use for bridge financing occurs with the purchase of a house. Many people worry that they need to have the closing date of their new home purchase occur after the sale of their current home.  This gap in time may cause you to miss out on your new home.  Bridge financing allows you to continue with your purchase by obtaining short-term financial assistance without needing to close on the sale of your previous home.  The bridge financing is used to close on the new home and the funds from the sale of your previous home are used to pay off the short-term financing.  This financing helps you “bridge” the time between your purchase and your sale. 

            It may be difficult to financially qualify for two mortgages on two properties at the same time.   A lender can use different criteria to qualify you for bridge financing.  With assistance from the attorneys at Gunderson Denton & Peterson, the terms are negotiated for financing and payment of the bridge loan.  This will allow you to enjoy your new home without the worries of losing it to another purchaser while waiting for your home to sell.  

 Business Uses for Bridge Financing:  Get immediate cash flow to keep your business growing.

             Bridge financing can be used in business to provide debt financing or short-term cash flow before a company conducts an initial public offering or receives other sources of private equity financing.  If you want to take your business public but need additional immediate funds to accomplish this, bridge financing through the company’s initial public offering can be made.  An investor (a bank or individual) provides the cash in return for a discounted price on the initial public offering.  This could make the difference between going public or not.

            Bridge financing can also be helpful for a new business.  This financing can inject small amounts of cash to carry a company so that it does not run out of funds between private equity financing.  This influx in cash can help your business continue to run or grow until other financing opportunities are available. 

             With all financing options come questions and a need for guidance.  The attorneys at Gunderson Denton & Peterson can provide the direction, services, and advice necessary to execute bridge and many other financing options that you or your business may need.