The Importance of Having an Attorney Review and Prepare Your Business Contracts

Business contracts are the rule of law between the people or businesses that enter into the contract.  To a certain extent, if you draft a business contract, then you get to make up your own rules and determine what the law is for the person signing the agreement.  If you have to go to court over a contract dispute, then the rule of the court is to enforce the contract as it is written.  That is why it is important to know what you're signing or to have an attorney draft your business contract for you.  

Do I Really Need an Attorney to Write or  Review my Contracts?

Attorneys are expensive.  Do you really need an attorney to draw up that contract or review the contract you've been given?  If cost is the primary concern, then you are much more likely to walk yourself into a bad deal.

You may be thinking that you don't need an attorney to review your contract.  It is written in English after all, and you understand English, so you can read and understand the contract yourself, right?  Although your contract may be written in English, it is chock full of legalese, which often times is actually written in a different language (Latin).  Business contracts are full of clauses and terms that have a special meaning under the law.  You simply don't know what you don't know, so a non-lawyer would have no idea what to even look for.  If there's any real money at stake under the contract, then you owe it to yourself  to have it looked over by a business contract attorney.  Business contract attorneys are not as expensive as you may think.  For some types of contracts, the price you might pay your own attorney to draft the contract could be comparable to the price to purchase a ready-made contract from an online legal company.

The Pitfalls of Using Contracts You Find or Purchase Online

You can find examples of most types of business contract for free online.  You can also find dozens of online legal form companies to purchase a contract.  You may even be able to customize your contract a little bit with some of the online legal form companies.  The problem is that a non-attorney deosn't know enough information to know if the contract they're getting is good or not.  When you purchase a form contract from an online legal form company, you are purchasing a product the quality of which is unknown from a company organized for the purpose of maximizing profit from people like you.  If you hire an actual contract attorney, then that attorney has a legal obligation to only take actions and perform work that benefits you (called 'fiduciary duty').  An attorney will make sure that your contract truly protects your interests and is actually tailored to the appropriate law.  You will have someone to actually talk to if you have questions.  If the value of the underlying contract is less than $1,000, then it may make more sense to use a contract that you found online.  If the value of the underlying contract is more than $1,000, then you probably owe it to yourself to either have an attorney write your contract or look over the one you've got to make sure that you understand what you're getting into and to advise you and protect your interests.

Ohio Business Contracts

If you're looking for a contract, then take the guess work out of whether you're getting a good contract or not and call an attorney.  The attorneys at Harris & Engler provide exceptional quality and cost effective pricing for business and individual contract needs in Ohio.  The law firm of Harris & Engler is located in Columbus, Ohio, and its business attorneys help individuals and businesses all across Ohio.

Ohio Business Owners Often Move Forward in Operating their Businesses Without Knowing Some Key Areas of Liability Exposure

Small business owners are the driving force of the economy in Ohio.  Most business owners operate in "go mode" and simply keep moving things forward and putting out fires as they come.  While that mentality can be very conducive to success in business, it can also lead to legal issues from long ignored or unknown problems.

The most common ignored or unknown problem for business owners in Ohio is that the company was never properly set up.  You start a Corporation or Limited Liability Company (LLC) in order to limit your personal liability as a business owner.  If something goes wrong, then it is only the assets of the company that are at risk, not the assets of the owner themselves.  That is the goal at least.  The problem usually arises when someone forms the company themselves or with an online forms company or online business registration company.

Many people who start their own businesses think that all you have to do to start a business is pay the filing fee with the Ohio Secretary of State and file the articles of incorporation.  While technically that is true in that your business is officially formed after filing with the Secretary of State, you do not have all of the "limited liability" protections just by filing with the Secretary of State.

Most people that start their own business and register it with the Secretary of State themselves will carry on in business indefinitely in that manner focusing on just the business itself.  However, there is a doctrine in the law in Ohio known as "piercing the corporate veil."  What that means is that someone who sues the business can also go after the assets of the business owner personally by "piercing" the corporate shell to go after them.  This is why you need a local business attorney near you that you can trust to protect you from potential personal liability.

A business attorney knows that when you start a business, not only do you have to register the company name with the Secretary of State, but you have to create and maintain a set of "corporate books" in order to comply with Ohio's corporate formalities requirements in order to protect yourself from personal liability.

When you are personally liabile for your business' mistakes or your business'  lawsuits, then your home (if you own it) and your personal bank accounts are at risk.  However, it's not too late to fix it until it's too late.  That is, if you haven't created your corporate books and you haven't run into trouble yet, then now is the perfect time to meet with a business attorney near you to correct the situaiton and make sure that you're protected from that point forward.

Evan T. Engler is an attorney and partner at Harris & Engler who helps businesses all over Ohio with a range of their corporate needs.  If you want to ask an attorney some business questions, please feel free to give Evan a call at (614) 610-9988.

Minority Shareholder Oppression - Minority Shareholder Rights in Ohio

A minority shareholder is an individual (or a company) that has less than a 50% stake in a company.  Minority stake shareholders can be oppressed and have their legal rights violated in a number of different ways.  

In a small corporation or LLC in Ohio (sometimes called a "close corporation"), the majority stake shareholders can oppress minority shareholders by, for example, refusing to declare dividends or distributions, grant exorbitant salaries and bonuses to majority owners, pay high rent for property leased from the majority shareholders, or terminating employment for minority shareholders.

Ohio law provides a number of different protections for minority shareholders and a few different remedies for what can be done in case of minority shareholder oppression.  Minority shareholders in a close corporation or other company with a small number of owners are afforded protections under Ohio law because unlike an owner of a large publicly traded company, a minority shareholder for a close corporation has no ready market to sell their shares.  Without the additional protections that Ohio law provides, then if a minority stake shareholder was getting oppressed by the majority, they would basically be stuck with their shares unable to do anything about it because of the lack of voting power to make any changes.

Fiduciary Duty to Minority Shareholders

Because of the possibility that minority shareholders can be taken advantage of by majority shareholders, Ohio law imposes a fiduciary duty between majority and minority shareholders in a close corporation.  The fiduciary duty owed to minority stake shareholders in a close corporation essentially means that the majority owners cannot take advantage of and must look after the minority shareholder's interests in the company.  When the majority or controlling shareholders breach their fiduciary duty to minority shareholders by using their majority control of the corporation to their own advantage (and to the exclusion of the minority stake owners), without providing the minority shareholders with an equal opportunity to benefit, without any legitimate business purpose, then the minority shareholders can file a lawsuit for breach of fiduciary duty.  (Crosby v. Beam, 47 Ohio St.3d 105, 548 N.E.2d 217 (Ohio 1989)).  A majority shareholder breaches a fiduciary duty when that shareholder manipulates his or her control over the close corporation in order to unfairly acquire personal benefits owing to or not otherwise available to minority shareholder of the company.  See Crosby v. Beam.  

One common abuse of power involves the payment of excessive compensation to majority shareholders or corporate officers.  Bell v. Bell, 6th Cir. No. 96-3655, 1997 WL 764483 (Dec. 3, 1997).  "Given the extensive opportunities for abuse under a close corporation structure, ensuring that majority shareholders of close corporations advance the corporation's and not their personal, interests is critical."  Id.  Accordingly, majority shareholders of close coprorations owe minority shareholders a heightened fiduciary duty of good-faith and loyalty.  If a minority shareholder is getting oppressed by the majority ownership of a company, then they can seek relief in court.  

A court will grant appropriate relief where the majority or dominant group of shareholders act in their own interest so as to oppress the minority or commit fraud upon their rights.  See Crosby v. Beam.  "When a controlling shareholder exercises that control to derive a personal benefit not available to those shareholders out of power, the controlling shareholder has breached his heightened fiduciary duty."  First Nat'l Bank of Omaha v. Ibeam Solutions, LLC, 2016 Ohio 1182 (Ohio App. 2016).  

When a minority shareholder of a close corporation brings suit against  controlling shareholder for breach of his or her fiduciary duties, a presumptoin arises that the fidcuiary, by virtue of his or her superior position, bears the burden of proof with respect to the fairness of his or her actions.  Consistent with this presumption, the fiduciary must demonstrate that his or her actions were fair, reasonable, and based on a full disclosure of relevant information.  

Ohio Shareholder Dispute Attorneys

If you are a shareholder in a company doing business in Ohio and have been going through a dispute with the other shareholders then you can talk to an attorney at Harris & Engler about potential solutions.  The law firm of Harris & Engler is located in Columbus, Ohio, and it's attorneys have experience in negotiating buy-outs and otherwise asserting shareholder rights in court.  You can talk to a business and shareholder rights attorney at Harris & Engler by calling (614) 610-9988.  

Small Business in Ohio - Most Businesses in Ohio are Classified as "Small Business"

Small business is anything but small.  In Ohio, over 95% of all businesses are small businesses.  (See 2016 U.S. Small Business Administration Profile on Ohio here).  Between 45% and 48% of all private sector employees are employed by small businesses in Ohio.  (See the Ohio Small Business Profile).  Generally, being classified as a small business matters for things such as qualification for government contracts, tax purposes, and the number of employees and revenue has an impact on the application of certain employment laws to the business.  The definition of what counts as a "small business" is different depending on the industry.  The biggest industries for small business in Ohio, by rank are: 
  1. Health Care and Social Assistance;
  2. Manufacturing;
  3. Accommodation and Food Service; 
  4. Retail;
  5. Other Services (except public administration);
  6. Professional, Scientific, and Technical Services;
  7. Construction;
  8. Wholesale Trade
  9. Administrative, Support, and Waste Management;
  10. Finance and Insurance.
(See the Ohio Small Business Profile).  Each industry has their own requirement, in terms of average annual revenue and number of employees for being able to be classified as a "small business."  Some of the requirements may surprise you, because small business is not so small.  For example, for Health Care and Social Assistance businesses, a physicians group will count as a small business if the average annual receipts are under $11 million per year and $7.5 million per year for dentists and other health offices.  Retail businesses count as "small businesses" if their average annual receipts are under $7.5 million (with some exceptions going over the $7.5 million threshold).  Construction businesses count as small businesses, if for General Building and Heavy Consruction businesses their average annual receipts are under $36.5 million, for special Trade Contractors their annual receipts average under $15 million, and for Land Subdivision construction, their annual receipts are under $27.5 million on average.  For Legal businesses, their annual receipts have to be under $11 million, $20.5 million for accounting firms, $7.5 million for architecture firms, and $15 million for engineering firms.  It's no wonder that small businesses make up the vast majority of all businesses across Ohio and across the United States.  

Income for Business Owners in Ohio

The limits for what counts as a "small business" is relatively high, which is why almost all businesses in Ohio are technically "small businesses."  The 0.1% to 5% of businesses in Ohio that are too large to be classified as "small businesses" employ over 50% of the private sector workforce, so although those businesses make up a very small part of the total number of businesses in Ohio, they make up a very large part of employing Ohioans.  Most small businesses in Ohio have just a single owner.  Beyond that, a large percentage only have between 1 and 3 owners.  Owners of incorporated businesses tend to make more money than owners of unincorporated entities.  For example, in 2015, the median income for individuals self-employed at an incorporated business was $46,149.00.  Individuals who were self-employed at an unincorporated entity (a sole proprietorship or partnership) made a median income of $21,821.00 per year.  (See more here).  Having your business incorporated does not necessarily lead to higher profits, but generally, as your business makes more money, then it makes a lot more sense to incorporate the business.  As your business grows, the business also needs to grow its network of professional help.

Help for Small Business Owners

While there are a number of programs with the SBA and tax incentives and other programs in Ohio for small business owners, all business owner really needs outside professional advice that they can trust.  The law firm of Harris & Engler has been advising small business owners across Ohio with regard to all kinds of issues that business owners face.  Whether you need help with getting your business properly set up and preparing the corporate books and corporate structure, adding employees, adding new owners, facing regulatory issues, an attorney at Harris & Engler can offer helpful advice.  You can talk to an attorney at Harris & Engler today by calling (614) 610-9988.

2018 Tax Changes to Ohio Businesses

Ohio is already a very business friendly state with the small business deduction allowing individual business owners to deduct 75% of their first $250,000 in business income (up to $187,500).  Now with the 2018 Tax Cuts and Jobs Act lowering the corporate tax rate to 21%, many Ohio business owners may be wondering if it now makes more sense to organize their businesses as C Corporations (subject to the 21% tax rate) or as a pass through entity (such as a sole proprietorship, partnership, or S corporation).  Pass through entities are called "pass through" because the income of the business "passes through" any taxation at the corporate level and the income is recognized as the owner's individual income, which is taxed at the individual tax bracket level.

Do Pass Through Entities Still Have Tax Advantages Over C Corporations?

The short answer is yes.  Although corporations organized for tax purposes as "C Corporations," now get a 21% tax rate, C corporation owners still get "double taxed."  This means that the corporation itself gets taxed on all net income at the 21% tax rate, but any net profit remaining after tax is still left with the company itself.  In order for the owners of C corporations to actually get any of that money themselves, the money is passed from the company to the owner in a number of possible ways: (a) as wages; (b) distributions; or (c) dividends.  Ultimately, when the business owner gets that money they have to pay individual income taxes on all money received from the business.  That same stream of money already had the business itself pay income taxes on it, and then the owner also has to pay income taxes once they personally receive the money as income.  C corporations are double taxed, first at the corporate level, and then second at the individual level.

Pass Through Corporate Entities Receive Additional Deduction Advantages in the 2018 Tax Act

If you've contemplated forming a corporation or changing your corporate structure to a C corporation now that the tax rate of 21% is lower than your individual tax rate, then you would be missing some of the advantages of being structured as a S corporation, partnership, or sole proprietorship in Ohio.  Along with the new tax act came new deductions for pass through entities.  Although the specifics of the deduction for Qualified Business Income of pass through entities contained in Section 199A of the Act is complicated, the long and short of it is that pass through entities are eligible for up to a 20% deduction of Qualified Business Income.  This means that if your small business made $100,000 in net profit, then you could deduct up to $20,000, and then only have to pay tax on $80,000.  This still maintains a significant advantage over the C corporation tax rate which would undergo a 21% tax on that same $100,000, and then once those corporate profits were transformed into personal income of the owners, that owner would pay their regular individual income tax rate.

Accordingly, Congress specifically designed the new tax act to maintain tax advantages for pass through entities.  There are also some carve out exceptions to the 2018 deduction for pass through entities.  In essence, the exceptions are designed to close any possible loopholes for people to be able to game the system by creating pass through entities to get a lower tax rate than they would have received if they were an employee receiving a W-2.

Ohio Business Lawyers

The law firm of Harris & Engler is located in Columbus, Ohio, and its business lawyers help Ohio businesses navigate through the ever changing legal landscape in order to maximize profits, protect their interests, and insulate from and mitigate liabilities.  If you would like to speak with an Ohio business lawyer about your business, then call (614) 610-9988.
Columbus Business Law Firm

Disclaimer:  Harris & Engler offers this website and the content on it for informational purposes only, as a service for our clients and friends.  The contents of this site are not considered legal advice for any purpose, and you should not consider them as such advice or as legal opinion on any matters. 

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