The Court Of Public Opinion

Failure to follow corporate formalities may expose corporate officers, directors and shareholders to personal liability. Maintaining good records, including corporate minutes, on a timely basis goes a long way toward maintaining the limited liability benefit of a corporation.

If incorporating was your first step to a new and safe way to do business, compliance with the law is the easiest way to keep you safe from any liability associated with they way you manage your company.

There are many reasons to pay attention to the formalities associated with running a corporation: Business corporation laws require articles of incorporation and bylaws and specify other things that must occur.

Articles of incorporation and bylaws form a contract between the corporation and its shareholders, obligating the corporation to act in accordance with the articles and bylaws.

Directors and officers owe the corporation and shareholders a fiduciary duty to use good faith, exercise due care, and act in the best interests of the corporation. Majority shareholders must act in good faith, in a manner not calculated to oppress the rights of minority shareholders.

Corporate formality must be respected and observed to preserve the integrity of the corporation and to shield officers, directors, and shareholders or related businesses from personal liability.

Dont think that for the fact that you can be the only person holding all the positions of a corporation you are out of keeping your company in compliance. Small companies also have duties with State Agencies, providers and even customers.

Why Are Minutes So Important?

Its the law. Nothing more clear than that. Minutes are legal records that document actions and support business decisions made by the principals of the business throughout the year. Minutes help you to separate your own affairs from the companys actions. It is the way to protect you from liability.

During an IRS audit a privately held company may be required to produce the minutes of the company. If they do not, or can not give the minutes to the IRS agent, the problems stand as found. There is no negotiation with the IRS.

State law requires corporations to prepare annual minutes and in many cases; failure to do so has contributed to piercing of the company veil resulting in exposure to the principals.

As mentioned, without current and complete minutes, corporate players could be held personally liable for the actions of the corporation.

Protect Yourself

Your legal protection could be in jeopardy if a creditor successfully pierces the corporate veil due to the corporations failure to keep minutes.

Good recordkeeping habits and paying attention to detail are necessary for any successful business. Now you know it.

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Recently a federal judge from Orlando, Florida, brought the childrens game of Rock, Paper, Scissors to national attention through Forbes Magazine and CNNMoney.com. Datelined June 7, 2006, Fortune writer Roger Parloff describes two lawyers in a federal case who could not agree on the place for a deposition even though their offices were four floors apart in the same building. Rather than deciding the matter, Judge Presnell ordered each attorney to the steps of the federal courthouse on June 30, 2006, accompanied by a paralegal witness, to play one dispositive round of rock, paper, scissors with the winner to choose the location for the deposition so long as it was in Hillsborough County, Florida. Apparently intimidated by the threat of playing rock, paper, scissors, the World RPS Society (www.worldrps.com) reported on June 9th that the attorneys have worked out our differences by agreement. We will not have to resort to combat by RPS. The judge has since withdrawn its order.

One may think that the Rock, Paper, Scissors game is an arbitrary way to make decisions. In Hindson v. Allstate Ins. Co., 694 A.2d 682, 685 (R.I. 1997) the court was faced with allocating coverage among various insurance carriers where none would admit to primary coverage. The court considered using a rock, paper, scissors approach to determine which carriers should provide primary coverage to the claims at issue, but considered that approach to be arbitrary. In that case, the court opted to halt the incessant battle of the draftsmen waged by, between, and among the various insurance companies by finding that the coverage responsibilities of all insurers should be shared on a pro-rata basis.

Notwithstanding the reluctance of the Rhode Island court to use rock, paper, scissors, variations of rock, paper, scissors have been used for dispute resolution for more than 50,000 years, according to Wikipedia, the free online encyclopedia. According to the Official Rock, Paper, Scissors Strategy Guide (available at Amazon.com), early Homo sapiens played a predecessor game about 50,000 B.C. to resolve food and mating disputes. This game only involved a rock (scissors were not invented until sixth century Italy). The thrower tried to place the fist-rock on the catchers body, while the catcher tried to avoid this by positioning his hand to catch the rock. After switching positions, the thrower who placed the most rocks on the catchers body won.

It appears that the Japanese invented the modern, tripartite game they call Janken, based on the Guu Choki Paa way of thinking: the snake fears the slug; the slug fears the frog, and the frog fears the snake. Moving away from snakes, slugs and frogs, the Japanese developed a new version where the tiger feared the warrior, the warrior feared his mother, and the warriors mother feared the tiger. Marco Polo reportedly brought this game back to Europe, and the Venetian traders changed it to rock, paper, blade to settle trade disputes. One of the most amusing variations of the game comes from Indonesia and apparently involved an elephant, a person, and an ant. The elephant can crush the person, the person can crush the ant, but how can the ant win against the elephant? It crawls in the elephants ear and drives the elephant crazy.

The game may have migrated to the United States via Jean Baptiste. Jean Baptise was the French general who helped George Washington during the American Revolution. It is unknown as to why this game came to be associated with the Count of Rochambeau, but it does raise questions as to the means by which Washington secured Cornwallis surrender in Yorktown. Nevertheless, this theory may explain why the game is often called, rochambeau, or, roshambo.

In any event, it is clear that Judge Presnell was not the first to use rock, paper, scissors to resolve commercial disputes in modern time. The August 2005 newsletter published by the Institute for Conflict Management (http://www.icmneutrals.com/news.html) describes a 75 year-old Japanese businessman who was trying to choose between Christies and Sothebys to auction off his $17.8 million art collection for a commission of more than $2 million to the successful firm. Believing that both companies were equal and not wanting to insult either, he said that the winner would be determined by a game of rock, paper, scissors. That way, the loser would be considered unlucky, not unworthy. Sothebys said that this is a game and we really didnt give it that much thought. We had no strategy in mind.

The Christies representative spent her weekend before the challenge researching the psychology of the game and talking to friends. One had 11 year-old twin girls who offered the following analysis to Christies: Since [Sothebys were beginners, scissors were safest for Christies, because rock is way too obvious and scissors beats paper. The girls further explained that beginners think rock feels strong, so they expect you to go for rock, so they choose paper to beat you. As the girls predicted, Sothebys went for paper. Based on the girls advice, Christies went for scissors and won the $17.8 million auction contract.

Needless to say, rock, paper, scissors is not a suitable method to resolve all disputes. Where appropriate, though, you may want to consult the World RPS Society, the Official Rock, Paper, Scissors Strategy Guide, your young nieces or nephews, or attend the next tournament near you. You can find listings for tournaments at www.usarps.com (held in June 2006 Las Vegas, Nevada with a $50,000 grand prize) and www.worldrps.com (to be held in Toronto, Ontario in September 2006).

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Corporate law has a long history in the United States dating back to Alexander Hamilton and Thomas Jefferson when the government of our then evolving country was being centralized. With the country growing, it became apparent that decisions were needed pertaining to power within states, citizen involvement, public affairs, and so on. The challenge at that time was that Hamilton strongly believed there should be a central government or industrialized nation. However, Jefferson had a different idea, believing an agrarian nation would work best.

When the Federal Constitution was established in the late 18th century, it had no mention of corporations. During this time, most corporations were actually British chartered institutions or those associated with education. However, over the years, financial institutions, colleges, and other new types of corporate entities formed. With no laws in place, states had to fend for themselves, making the best decisions possible, although not consistent among each other. A pivotal moment occurred when a college brought forward a lawsuit to have the right to recognize itself along with the ability to terminate professors. John Marshall, a private lawyer spearheaded the case. This particular case among others helped solidify the need and validity of attorney services.

While a number of other similar lawsuits were filed during the early part of the 19th century, it was during the Industrial Revolution when things really began to change. This era brought with it new ideologies, techniques, and inventions. To protect the rights of these innovations, the need for corporate attorneys rose. Another major change occurred during the Civil War in which manufacturing practices exploded. Again, to protect this massive growth along with the people in power within the corporations, lawyers were kept very busy. The railroad and the significant impact upon transportation and its continuing advances also furthered the need for complex legal support.

In the new and growing world, attorneys enjoyed a position of respect and power. The country was founded by men of law and until the 20th century the profession was honored. Legal professionals were seen as valuable experts.

In todays world, the nations leaders are still by and large men and women of law. However, the public enjoys a love/hate relationship with attorneys viewing them as a necessary evil. What has changed?

In the 18th and 19th century legal disputes were largely confined to business issues. People did not routinely sue one another for personal loss, injury or even divorce. As the law became more accessible to the public at large, the caliber of professionals also changed. Divorce attorneys became reviled for winning large settlements, personal injury lawyers were labeled ambulance chasers and unethical attorneys assisted in black market adoptions. Unfortunately, the entire legal profession suffered from guilt by association. Billing practices may have also led to the negative perception of attorneys. Hourly billing did not appropriately show clients value but instead set them up to question being on the clock for every phone call and letter written. Being billed by the hour put the client in an adversarial position rather than one of mutual partnership further degrading the view of the legal profession.

Although corporate attorneys do not have as bad of a reputation as trial lawyers do, they too have their battles. In house counsel is often seen as a hindrance to business rather than a partner in the business. Sales teams view the Legal Department as obstructions to closing a deal and even Executives sometimes believe that they must outsmart Legal in order to grow the business.

However, Legal does not have to be the enemy! When you consider standard business needs such as negotiations, contracts, pricing structures, and risk management combined with the new challenges brought on by the internet, such as internet fraud, identity theft, and email scams, it is easy to understand the demand and necessity of corporate attorneys. In addition to these business challenges, the law itself continues to change. Bankruptcy is an example. Two years ago, filing for bankruptcy was relatively easy but today, new laws have made this practice difficult. Corporate attorneys must stay abreast of all changes, which can be overwhelming.

Legal counsel does not exist to prevent business but to contribute to growing the business. By making Legal a partner rather than an adversary, you can increase the organizations opportunities and aggressively drive the business forward. You may even find yourself doing lunch with a lawyer, off the clock of course!

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Running a company comes with a number of challenges, some which involve the services of legal counsel. When you consider workmens compensation, sexual harassment, contracts, labor laws, marketing and advertising, licensing, termination disputes, and so on, you can easily see that securing a reputable law firm could be to your advantage. However, situations arise all the time within businesses. Because of this, it is vital to know when you should and should not secure the services of a law firm.

Today, you can find a number of do-it-yourself legal solutions online. For example, years ago, tax and payroll issues were often handled by outside or inside counsel. However, with the ability to download forms and follow specific instructions, many times companies choose to handle things on their own. Obviously, this option means a huge savings and quicker turnaround in most cases. However, any do-it-yourself legal action also comes with risk if not done properly.

As you can imagine, knowing when and/or if you should ever hire a lawyer to represent you could be a very, fine line. Consider contracts as an example. If not written and executed properly, you could lose not only a significant amount of money, but also potentially the business you worked so hard to build. For this reason, many companies, small to large, will leave contract negotiations and implementation to that of legal counsel. Because contracts are so sensitive and even the smallest mistake in wording could be deadly, seeking out the advice of an attorney is probably a wise choice.

For relatively simple contracts you can choose to create it yourself or use an already created template. However, if you choose this route, review the contract carefully, eliminating anything that would hold your company or anyone within the company liable. An example of potential liability is indemnity. In addition, the do-it-yourself contract should include and even request mutuality. To give you an idea of what this means, if you were going to create a contract that protected the other party specific to limitation of liability, then you too should have this same protection.

It is also suggested that with any DIY legal contract that you ensure there is some type of clause, allowing you out of the contract if the second party does not live up to their end of the bargain. The key with any contract is to look closely for provisions in which fees would need to be paid by you for early termination or cancellation. The good news about handling contracts on your own is that a number of reputable online resources exist where you can download forms needed and sometimes, at no cost. These forms can then be modified specific to your needs and company.

The other side to this is that sometimes, contracts can be quite lengthy and complex. For example, a simple employee contract for an administrative employee would likely be something you could implement with no problem. However, if you need a contract created for a joint venture, or an employment contract that also protects intellectual property there is a higher potential of error and risk if done without professional input. In this case, hiring a lawyer to prepare the contract, provide guidance, execute, and then back it with legal support is wise.

What you need to do when considering contracts, employment, termination, workmens compensation, or any potential legal issue for your company is to determine the potential risk and financial outcome if the right documentation is not in place. If the risk is minimal and there is a cap on the financial end, then using do-it-yourself legal forms makes sense. However, if the situation is complicated and has great risk attached, then consider the age old wisdom of being a penny wise and a pound foolish. It a wise decision to consider the price of an attorney as an excellent investment if failure to do so would result in a huge financial loss or worse the loss of your business if the risk were realized.

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