Legal Considerations for Raising Capital

NOTE: THIS IS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE CONSTRUED AS LEGAL ADVICE.

There are numerous legal considerations every entrepreneur must face when starting a new business, and raising startup capital is one that can be fraught with danger. Hiring a qualified securities attorney is not a luxury; it's a necessity for businesses seeking to raise capital from third parties. Some of the key general considerations are:

o Properly organizing the company as business entity under state law;

o Ensuring the company has issued enough authorized shares of stock of the same type that will be offered to investors;

o Make sure that any existing and potential legal problems are resolved before issuing stock to investors;

o Have an experienced securities attorney examine the federal securities laws, as well as the securities laws of any state in which stock may be offered to prospective investors, to make sure the company and its investment offer complies with those laws;

o Have your attorney explain in writing the potential personal liabilities of the company's officers and directors if the company violates any federal or state securities laws in raising capital. Potential penalties can be very serious, ranging from civil fines to jail time;

o Make sure that your written investment prospectus contains all required state and federal disclosure language in the appropriate places;

o Your attorney should review the business plan and financial statements for possible untrue and/or misleading statements; and

o Obtain a written opinion from your attorney whether your particular investment opportunity is required to be registered with the appropriate regulatory agencies.

Henry J. Fasthoff, IV

Principal & General Counsel

HoustonBusiness.com

Extending Consumer Credit Requires Compliance With Federal Laws

It is important for any prospective business purchaser to perform due diligence in researching a potential target business. Some of the documents you will need to collect and review in your analysis of whether a particular business would be a good acquisition include the following types of documents.

NOTE: THIS IS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE CONSTRUED AS LEGAL ADVICE.

1. Corporate and Organizational

o Certified copy of articles of incorporation and bylaws of company and subsidiaries as currently in effect;

o Partnership agreement and any amendments thereto;

o A copy of the most current organization chart available of the company;

o A list of states and foreign countries (if any) in which the Company is 

qualified to do business; and

o All names under which the company has done business in the past five years; this includes registered and unregistered trademarks, fictitious name statements (commonly referred to as "d/b/a filings").

2. Financing Documents

o All loan agreements, debt instruments, and other financing instruments, and all related material documentation, to which the company is a party.

o A list of all mortgages, liens, pledges, security interests, charges, or other encumbrances to which any property (real or personal) of the company is subject and all related material documentation;

o Schedule of all short-term and long-term debt (including capitalized leases, guarantees, and other contingent obligations).

3. Financial Statements

o All audited and un-audited financial statements;

o Brief description of contingent liabilities involving the Company, such as pending lawsuits and threatened litigation;

o Name of accountants and length of relationship with accountants; indicate whether the accountants own any interest in or hold any position with the Company or its subsidiaries;

o Budgets, business plans or projections (for the Company and any of its subsidiaries) made on a quarterly, annual or other basis during the past 3 fiscal years.

4. Contracts & Leases

o Real estate leases. Consider the term of the lease and the quality and location of the space and decide whether your business needs would be satisfied;

o Equipment leases;

o Purchase and sale contracts for goods and services [uniforms; food suppliers]

5. Tax Matters

o Are back taxes owed?

o Are there any pending tax suits?

o Does any local, state or federal taxing authority have any liens against the real property or business personal property you would be acquiring? If so penalties, interest and attorney's fees could greatly increase the cost of satisfying the tax lien.

6. Identities of All Directors, Officers & Shareolders

o You ought to perform a background check on each of these people to see whether there is any pending litigation against them.

7. Owned Real Estate

o Need a list of owned real estate to help in valuing the business and determining liabilities.

8. Insurance

o You would want to have copies of the insurance policies, as well as the name and contact information for the insurance agent, going back four years from the time of purchasing the business. Check to see whether the insurance policies would cover you, as the new company, for any damages alleged to have occurred before you acquired the business.

Finally, many other factors related to financial and other matters must be considered before taking the plunge.

Henry J. Fasthoff, IV

Principal & General Counsel

HoustonBusiness.com

Limit Your Liability to Protect Your Assets

If your business runs into serious difficulty, will 

it bring you down too? For example, what if one of 

your employees got involved in a serious car accident 

while working for you? Will the resulting lawsuit 

bankrupt you personally?

Here are just a few ways of protecting yourself 

against catastrophic losses and lawsuits.

1. Obtain Adequate Insurance Coverage

If someone slips on the sidewalk of your home and 

injures himself, he could sue you for damages. Your 

tenant`s or homeowner`s policy may cover you for 

liability in such an event.

However, what if it is your customer who falls on his 

way to visiting your home-based business? You will 

need an extra rider on your house insurance to cover 

such incidental business use. The extra charge for 

this additional coverage is well worth it.

If you use a car for business use, insure it for such. 

Some people think that they are being clever writing 

off automobile expenses for income tax purposes but 

at the same time not informing the insurance company 

that the car is being used for business.

This is false economy. If you ever get into an 

accident, police and insurance investigators will 

certainly find out that you used the vehicle for 

business purposes. If you`re not paying for 

business coverage, why would the insurance company 

cover your claim?

As well, what do you think an income tax auditor would 

think of your claimed business expenses on the vehicle 

when your insurance policy indicates personal coverage 

only? Avoid this additional exposure to tax liability.

Be sure to obtain required workers` compensation 

coverage. Some have been held responsible for all the 

medical and other expenses of an injured worker, as well 

as fines for non-compliance to the law. These costs 

can be quite substantial and even bankrupt you.

Consider obtaining product liability insurance. This 

applies not just for any products you manufacture but 

also for products you sell that are made by others.

2. Incorporate Your Business

Insurance may give you some protection against loss. 

However, you may suffer business losses and lawsuits 

that may not be covered by your insurance fully. What 

then?

An extra level of protection can be obtained by forming 

your own corporation. Even though incorporating 

yourself will result in extra paperwork and costs, it 

could be the best insurance you ever bought.

This is because the corporation is a seperate legal 

entity or person. Even though you may own the 

corporation, if the corporation operates the business, 

it is the corporation that will be sued or suffer loss.

If, for example, the corporation had severe business 

losses resulting in debts that could not be repaid, 

the corporation would be insolvent. You, as a 

shareholder, would lose your investment in the company 

but would generally not be responsible for any of its 

debts. Thus, you would not have to sell your home or 

other personal assets to cover the corporation`s 

liabilities.

On the other hand, there are cases where directors of 

a corporation can be held responsible for liabilities 

if they didn`t act responsibly. You can`t hide behind 

a corporation, commit criminal acts and expect to 

escape accountability.

For more information about incorporation, visit: 

http://www.yenommarketinginc.com/incorporation.html

3. Protect Yourself With Legal Agreements

Properly drafted written agreements can protect you in 

many ways. First of all, they can sometimes prevent 

misunderstandings that can lead to legal problems. 

Secondly, they may limit your exposure to lawsuits and 

losses.

Contracts can limit your exposure to liability by 

including provisions restricting the scope of your work 

and responsibility, having disputes handled by arbitration 

rather than through the Courts, and specifying that the 

maximum damages payable shall not exceed the amount of 

the contract.

A special area to watch out for is the Internet. There 

are many laws that impact on websites including 

matters affecting children, privacy, earnings claims, 

and unsolicited e-mail ("spam"). Certain agreements 

and notices on your website may help to protect you.

For more information about Internet law, visit: 

http://www.yenommarketinginc.com/internet-law.html

Protect yourself from catastrophic losses and lawsuits. 

Take steps today to protect your assets by limiting 

your exposure to liability.

J. Stephen Pope, President of Pope Consulting Inc., http://www.popeconsultinginc.com/ has been helping clients to earn maximum business profits for over twenty-five years.

For valuable Work at Home Small Business Ideas, visit: http://www.yenommarketinginc.com/