What is this business about “Frac GC” (Fractional General Counsel)—is this something for larger firms?
Frac GC® is a practice model pioneered by Armstrong the Law Firm P.C., which makes it possible for a smaller company to enjoy ongoing high quality legal representation without having to employ a full-time lawyer. If you have heard the term “in house general counsel,” you know that major companies often hire a full time attorney or attorneys for their legal department. In so doing, they gain an economic advantage that smaller companies, until now, could not match.
By marrying low, budget-able legal fees to a proactive concept of representing you, we become familiar with your business—like an in-house counsel–without all the overhead. This reduces the tremendous start-up cost that often accompanies hiring a business law firm: that is, you don’t pay us to learn your business, since we already know about it.
Additionally, we have lawyers available to serve you in a broad range of fields, from transactional to litigation, from criminal to bankruptcy. You are placed in control: deciding when and how to use your lawyer resources in a way that fits within your budget.
I have heard that an entity like a corporation or a limited liability company protects me against personal liability to others. Is this true?
This is a true statement as to tort (non-contractual liability), but not contractual liability. For example, a company or individual may sue and recover judgment against your company for its negligent acts or even intentional torts by the entity, and you will not be liable–unless you directly participated in intentionally tortious conduct, e.g., fraud.
However, you will still be liable on matters of contract, the most common example being debt obligations you have personally guaranteed. Common examples are promissory notes, commercial leases, or trade lines of credit.
What about negligent acts of my employees? Can I be personally liable for them?
No. However, your company can, under the common law doctrine of respondiat superior, if the employee was acting within the normal course and scope of his employment when he committed the negligent conduct which caused the injury. This is why it is a good idea to obtain a solid commercial insurance policy, to cover the possibility that the company may be held liable for such negligent acts.
Is it advisable to have employee policies and an employee manual?
The increasing complexity of federal and state laws and regulations applying to employees, makes adopting clearly written policies early on highly recommended.
Even for small employers with one or two employees, having employees sign off on a set of polices at the commencement of employment can go a long way toward protecting you if a discontented former employee sues you, or files a Department of Labor claim claiming he wasn’t told certain things. It can be very difficult to prove that she was told, without uniform policies which are routinely distributed.
What about employment contracts? If Texas is an “at will” state as I have heard, why would I need an employment contract?
Texas is, in fact, among the states that let an employer in the private sector terminate an employee “at will.” That is, the employer doesn’t need a reason, so long as it is not a discriminatory reason in violation of state or federal equal protection and similar laws.
Nevertheless, we advise that you use an employment contract for at least several reasons: (i) it creates clarity, and removes ambiguity as to the nature of the relationship and what is expected by the employer; (2) it affords an opportunity for the employer to include certain covenants which are usually not enforceable outside of a contractual relationship. These may include non-compete and non-solicitation covenants, and employee invention covenants.
Non-disclosure covenants protecting confidential information, though they do not need a contact to support them per se may help provide the quid pro quo for an employer to enforce the non-compete covenant. So don’t overlook the importance of an employment contract.
Can’t I just use subcontractors rather than employees, so I can save on payroll and unemployment taxes?
Be very careful here. While it is possible to do this, the rules promulgated by the Internal Revenue Service and followed almost identically by the Texas Workforce Commission are very exacting. The last time we checked, there were at least 21 criteria these agencies applied in deciding whether to treat a person as an employee or a contractor. While some were more important than others, they are looked at globally in deciding whether you past the test.
Most employers get it wrong, and if you guess wrong, you could be looking at many years of back unpaid payroll or unemployment compensation taxes, plus interest and penalties. Building contractors may be able to pass muster, but be sure your contract spells out the relationship and that it reflects reality. And consult your CPA or tax attorney.
Just because I have created my entity, does it mean I can’t have another trade name or fictitious name to use as well?
No. Trade names or fictitious names–called assumed names in the State of Texas–are perfectly all right for entities to use. They file for them both at the state and county level, the same as individuals do.
Do I have to agree to the forms that other, larger businesses ask me to sign?
Technically, no. Practically, when you need the business’ services more than they need your business (think, e.g., an AT&T cell phone contract), they will not be inclined to change their “standard agreement”, especially when no one outside their legal department has the authority to make any changes.
However, we have been very successful in negotiating changes in, for example, commercial leases, vendor agreements, and other more specialized agreements for our clients. It depends on the relative bargaining power of you and the party with the contract, but it never hurts to ask.
What happens to my business when I die?
This is a many-faceted question that depends on multiple things: your will or estate plan; whether you have family or other friendly parties already working within your business; whether you have contracts in place that allow for a buyout by remaining stakeholders in the business.
Generally, if a business owner has his or her will current, a buy-sell or stock restriction agreement in place, and proper funding sources (e.g., insurance), the death the principal owner(s) need not be a catastrophic event, and an orderly transition can be assured to remaining interest holders, or to successors within your line of inheritance who want to be involved.