Business Planning Full Outline

1. Representing Clients

   1. Rep’ing an Entity

      1. Rules say you are rep’ing the entity, which is separate & distinct fr the officers, directors, & S/Hs.

         1. 1.13. Organization as Client

      2. Take-Away for Actual Practice—

         1. When you rep a co., be careful how close you get w/officers & directors b/c they aren’t your clients. Know your duty is to the entity, & be prepared to terminate the president if that’s what the entity tells you to do.

         2. If you know that an officer, director, etc., is engaging in behavior that is likely to result in substantial injury to the org, you MUST report up the ladder!

         3. When dealing w/officers, directors, etc., make sure they understand who you rep. So tell them you don’t rep them specifically.

         4. Privilege – When officers, directors, etc., are communicating w/you in regards to the org, then that info ISprivileged; however, if they are NOT communicating about the org, then it is not privileged.

      3. Rule 4.4. Respect for Rights of Third Persons—

         1. Shall not use means that have no substantial purpose other than to embarrass, delay, or burden a 3d person, OR use methods of obtaining evidence that violate the legal rights of such person

         2. Inadvertently sent docs—lawyer shall promptly notify sender.

         3. Overall Take-Away: Be careful when sending emails (double check text & senders) & be courteous as an atty if you receive an inadvertent email.

   1. Representing a Closely Held Business – Issues To Think About:

      1. Form of business entity to use (part of which is tax planning)

         1. SP

         2. GP

         3. LP

         4. Corp

         5. LLC

         6. Etc.

      2. Attorney-Client Agreement (Engagement Letter)

         1. Very helpful & important

         2. Who signs?

         3. Terms/Provisions:

            1. Who you are representing (ENTITY, not officers, directors, EEs, S/Hs)

            2. Scope of Repn

            3. Fees

               1. Retainers – there are differing views.

            4. How to contact you/your office

            5. How you will communicate w/client

            6. What the client’s responsibilities are:

               1. To pay

               2. To provide info to you (your repn is limited by the scope of the info that they provide to you)

   2. Client Objectives

      1. Private Business Classifications

         1. The Soloist

            1. One owner – no partners, no co-S/Hs

            2. Can take many forms:

               1. Corp

               2. LLC

               3. SP

            3. No need for buy-sell agreements, control strategies, or IRC provisions on p’ships

            4. Still concerned w:

               1. Entity forms & structures

               2. Motivation & retaining key EEs

               3. Funding & growing the enterprise

               4. Developing exit strategies

               5. Controlling & managing risks

               6. Taxes

         2. Toilers

            1. Business owned by individuals who work full-time for the bus.

            2. Care about:

               1. Stability

               2. Independence of working for themselves

               3. Cash flow to owners

               4. “Democratic” control, w/minority rights being protected only on the most sensitive issues

               5. Careful control of admitting new owners

               6. Exiting & survival after departing partner

         3. Golfers

            1. Org owned by investors who do not work for the bus, but often heavily involved in the highest-level mgmt decisions but not the day-to-day operations

            2. Care about quick returns on investment

            3. Don’t care as much about risks or ownership changes

         4. Hybrid

            1. Org has BOTH toilers & golfers as owners

            2. Usually most difficult org to plan

               1. Toilers care about risks & stability

               2. Golfers care about money, want flexibility to exit & cash out whenever they want

         5. Big Fish

            1. Org has one big majority owner & a few small minority owners

               1. Dominant owner (big fish) cd be toiler or golfer

                  1. Usually wants & expects special treatment

                  2. Exclusive control rights that can be passed on to chosen successors

                  3. Special buy-out rights & liquidity protections to ensure his/her position can always be preserved

               2. Minority owners usually toilers

                  1. Usually maintain their equity interests at will of big fish

         6. Family Affair

            1. Org owned & controlled by a single family

            2. Planning issues:

               1. Estate planning challenges

               2. Dynamics among family members

               3. Liquidity issues

               4. Control issues

            3. Planners’ family objectives typically take priority over business issues, & children will have special agendas

         7. Personal Service Org

            1. Org that generates income by its owners providing services in fields

               1. Typical Fields

                  1. Healthcare

                  2. Law

                  3. Engineering

                  4. Accounting

                  5. Actuarial science

                  6. Performing arts

                  7. Consulting

               2. Typically toiler orgs

            2. Distinct bc:

               1. Owners are the instruments of production of the business

                  1. are well educated, independent & have flexibility to make a move at any time –

                  2. big egos; makes these orgs fragile

                  3. Creates transitioning in & out problematic

               2. Have own tax provisions (usually not friendly)

                  1. All income taxed at max corp 45% rate

2. Liability

   1. GR: No Individual Liability

      1. Generally, officers of a corporation are not liable to third persons for corporate acts where they do not purport to bind themselves.

   2. Exceptions:Piercing the Corp Veil

      1. Dram Shop Cases

         1. In the cases in class, pertinent ones involved P being injured in car wreck by driver who left tavern. The injured P sued the S/Hs/owners of the bar, trying to pierce the veil.

         2. Take-Away:that you can’t escape your own wrongdoing—the court was really imposing tortious liability in the case that the P prevailed

         3. Pennmark Resources, 2000 OK Civ. App 63

            1. Rule: Corporate distinctions may be disregarded and two separate entities may be treated as one if one corporation is but an instrumentality or an agent of another.

               1. Factors:

                  1. The parent corp. owns all or more of the subsidiary’s stock;

                  2. The corporations have common directors & officers;

                  3. The parent provides financing to its subsidiary;

                  4. The dominant corporation subscribes to all the other’s stock;

                  5. The subordinate corporation is grossly undercapitalized;

                  6. The parent pays the salaries, expenses, or losses of the subsidiary;

                  7. Almost all of the subsidiary’s business is with the parent or the assets of the former were conveyed from the latter;

                  8. The parent refers to the subsidiary as a division or department;

                  9. The subsidiary’s officers or directors follow directions from the parent corporation; and

                  10. Legal formalities for keeping the entities separate and independent are...

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