General Legal Tips for Business and Property Owners

GENERAL LEGAL TIPS FOR THE BENEFIT OF SMALL AND

MID-SIZED BUSINESSES AND PROPERTY OWNERS, BY NATE BERNSTEIN, ATTORNEY

" These gems are gained from 13 years of experience in representing business and property owners on the front lines of hard ball commercial litigation practice . . . . . "

- Nate Bernstein, Trial Counsel

1. Do not place the title of all personal and business assets in your name, or in the name of one entity.

Why? A judgment against you can attach to multiple assets, thereby causing substantial financial harm. Therefore, set up different legal entities to protect your assets prior to incurring a legal claim. The law allows you to limit your liability by forming separate entities. Some transfers or formation structures may require consent of your mortgage creditors.

2. Set up asset protection plans before you are sued.

Why? If you set up an asset protection plan after you are sued, it can be unwound as a fraudulent transfer scheme. You and your transferee can be sued for fraud. A fraudulent transfer is also a criminal act in some states.

3. Do not transfer assets to other entities or family members if and when you get sued.

Why? The transfer can be unwound as a fraudulent transfer.

4. Revocable trusts do not protect the trustor from claims by a trustor’s creditors.

Why? The collection laws treats a trust in virtually the same manner as the trustor / settler who incurred the debt- the trust asset could be attached. 5. Obtain insurance with high policy limits for your business, home, and car.

Why? In general, under insurance policies, the insurance company has a legal duty to defend and indemnify you for a covered loss. The insurance company must pay for your defense and settlement if you are sued up to the amount of insurance policy limits. Insurance is an important asset protection product.

6. Setting up a corporation or limited liability company to conduct your business is not a bullet proof asset protection strategy.

Why? You can still be sued personally if you are an "insider-" i.e. an officer, shareholder, director, or manager. In certain situations, creditors can sue an insider based on an "alter ego theory" if the entity is not properly capitalized and corporate formalities are not observed (i.e. you don’t hold regular corporate meetings or issue stock).

7. Set up a special lawsuit defense fund in case you get sued.

Why? If you get sued, you don’t want to put all of your financial dependency and reliance on an insurance company- the company may only defend the claim up to a certain level, and then you are on your own to pay the costs of defense. Also, certain policies have high deductibles- which must be paid by the insured. The insurance company could also deny coverage for the claim- leaving you with no coverage.

8. Don’t trust employees with access to your bank accounts.

Why ? There have been many legal cases of bookkeepers, secretaries, and clerks who have embezzled money, and have tried to cover up the crime. Banks are often so large and inefficient that banks cannot detect, catch, or prevent the fraud.

9. Don’t trust employees who are family members with your bank accounts.

Why? There have been many legal cases of family members who were so desperate for money, that they have embezzled money from their own mishpacha – frequently this happens when family members with the same last name write fraudulent checks "payable to cash" and bank tellers believe that the family members have authority to receive the cash, and the bank tellers cash and pay the instrument.

10. Place business agreements into a written form with simple terms, and have all parties who have proper legal authority sign all pages.

Why ? If business agreements are in written form, and the terms are in plain English and simple to read, it will be easier for the parties to understand the business relationship, and it will be easier for a court or jury to interpret the terms. If the terms are oral, or implied, then the parties have less control over the ultimate interpretation and legal outcome, conflicting oral testimony may confuse the judge or jury, and parties may lie in court to force an interpretation that works to their advantage.

11. Place business partnership agreements into a written form.

Why? Partnership agreements that start with a mere handshake usually end with a fistfight and a dissolution lawsuit in Superior Court. It is worth the money on the front end to have an attorney draft a well written agreement in plain English..

12. Obtain your credit reports from Experian, Equifax, Transunion, and Dunn and Bradstreet to discover and fix errors in your credit file, and find out your FICO score.

Why? Your ability to obtain credit at a favorable rate depends in part on your FICO score. The FICO score is a number that creditors use to evaluate your credit- worthiness. The number is generated by blending different factors- outstanding credit, payment history, number of accounts, and derogatory marks on your credit history. If there are mistakes or inaccuracies, you can send letters to the credit reporting agencies to "bullseye" (delete) the errors.

13. If employees drive a vehicle during work hours, purchase auto insurance naming "you" and your company as an insured.

Why? If the employee is driving during work hours, and the employee gets into an auto accident, the employer can be liable under the doctrine of "respondeat superior." According to Black’s Law Dictionary, respondeat superior is a Latin phrase that means "let the master answer." That means, let the employer pay! If your employees get into an auto accident, you or your company can get sued under theory of vicarious liability. Therefore, you want to be protected by insurance from a well rated insurer.

14. Be very careful in participating in international export transactions.

Why? Crooks and thieves like the global environment of international transactions because the parties are apart geographically, and they think the victims will not pursue them legally in a foreign country. Crooks and thieves can use letters of credit transactions and forged documents to orchestrate a fraudulent payment scheme. A bank issuing a letter of credit or bill of lading documents will not protect your interests. Also, it is easy for sellers to sell counterfeit goods, damaged goods, or not ship the proper quantity of goods.

15. Don’t loan money at unfair, usurious terms.

Why? There have been cases where a debtor has filed a countersuit against the lender based on the state usury laws. To avoid getting sued on this type of claim, keep the interest rate at 10 discounts on hourly rates.