The start of your business is the best time to anticipate and to prevent future problems with business associates. It is common for people to plan for marriage with estate planning and premarital agreements, to improve marital stability by removing unneeded apprehensions and third-party interference in a death or divorce. However, many business people ignore those same considerations when they are establish their own business “marriage.”

We know you, like most business people, are reluctant to force tough decisions at the beginning of the business. It’s easy to understand why. You either have known each new business partner well or have tried to select carefully. The beginning of the business relationship is generally a love-fest, with everyone optimistically looking ahead. No one expects the business to struggle unreasonably or to fail. Otherwise, you wouldn’t bother with it. You also are probably reluctant to offend your new business partner by discussing possible problem areas, fearing that this will imply that you don’t trust the other person. Each future partner is, obviously, someone you trust and whose word you believe you can take to the bank. So why rock the boat? Finally, many entrepreneurs are impatient with the formalities of business organization.

But stuff happens. People die, retire or divorce. Businesses struggle. Relationships erode. Family members intrude. You may have seen eye-to-eye with a business partner, but you may not have such a mutual trust with your former partner’s heirs or successors who are thrust on you.

Failure to plan is like building a brick building without mortar. It may survive for a while, but weather and tremors will ultimately bring it down. Advance planning can add the mortar to your business structure and prevent or minimize the affects of negative happenings. Discussion of issues at the beginning is intended to solidify, not to damage, the relationship. A formal agreement is not primarily to protect against a business associate’s dishonesty. If that were the case, you wouldn’t want to deal with such a person, regardless of the ironclad agreement language. The principal purpose is to clarify, at the outset, what everyone’s expectations and responsibilities are. If you make a verbal agreement and, the next day, question each person separately about the details, there will be differences of recollection. That is simply human. Think how those differences in perception can be magnified over time! An agreement allows you to determine beforehand, and to have a point of future reference, concerning your rights and responsibilities.

Some issues to consider and to document include the following:

1.    What is each party expected to contribute?
2.    How is the business going to be managed and controlled?
3.    What happens if someone, purposely or through circumstances beyond their control, doesn’t perform the expected obligations?
4.    Upon your death, do you want your spouse to be bought out and have money to live on or to continue in the business?
5.    Likewise, although you get along with a partner, how well would you get along with a deceased or divorced partners’ spouse in a continuing business? Do you want the right to purchase that person’s interest?
6.    How should any such arrangement be funded?
7.    How are you going to deal with a partner’s retirement? Deciding on these issues in advance will allow you to focus on the business and limit the severity of future business storms and tremors.

You have a great idea, which your business experience and instincts tell you can be wildly successful with some good marketing. Your main problem? You are short of money. You don’t want to borrow the money, nor do you dare ask your spouse to put up your home for collateral. Your solution is to raise enough money from other people to finance the venture.

You know a lot of people, and they know a lot of people. So you think you can raise the funds from your personal network of friends, business acquaintances and relatives. You know you could get a better return for Aunt Tilly’s retirement money if she could only be convinced to invest it in your venture. You have absolute confidence in your idea, assurance of its success, and you aren’t going to need many investors to get started. So, getting this money shouldn’t be a big deal and certainly shouldn’t require some stuffed-shirt lawyer to document this to death, right? After all, what’s so complicated about raising money and selling a few people a piece of a sure-fire business idea?

You are now venturing into the minefield of securities laws. You step wrong, and you blow yourself up. Your eternal optimism has helped in your other business successes. And many times you’ve accomplished your goals without crossing every “t” and dotting every “i”. But unbridled optimism and lack of a map through the securities minefield can definitely be harmful to your financial health. For your investors’ protection, as well as your own, you need to step very carefully. Raising money like this involves far-reaching and highly complex federal and state laws and regulations. It also involves great potential risk for you.

Compliance with securities laws involves two principal considerations: first, whether you have to register or file with any governmental entity; and, second, what disclosure you must make. Some people wrongly assume that you don’t have to worry about anything if you raise money from just a few people. That’s wrong. The number and type of investors may not require a formal filing or registration, but you still have a disclosure requirement. What does that mean? Principally, it means that you can’t make any misstatement or any omission of a material fact which would limit the potential investor’s ability to make an informed decision whether to purchase or invest in your business.

Translated, that means you tell a potential investor everything, both good and bad, that you would want to know if you were going to write a check from your life savings. And you can’t wait for the investor to ask. If there’s something the proposed investors should know, you must tell them up front.

In deciding how much money you need to raise, you would typically formulate a budget, then add on any unanticipated expenses. Likewise, the money you’re raising can include money for accounting and legal fees to ensure securities law compliance. Part of the money, then, the investors are putting up is used to pay for the very protection both you and they need. So why not do it right?

There are other practical reasons you want to comply with the law. First, you don’t want to be in violation of the law.    Second, you don’t want to bring an unhappy or uninformed investor into your business who will become a constant worry or irritation for you. Third, don’t forget that securities violations can in many cases result in criminal prosecution. Finally, even if your actions are well-meaning and are not criminal, you can be faced with civil liability in favor of someone who can prove you violated the law when you got that person involved. This, the risk of civil liability, is the most common exposure you could face and could go far beyond hurting your business. Regardless of your company structure, you’re not protected from personal liability if you have knowledge or reasonable basis to know of the facts that prompted the securities law claim. If you think Plaintiffs’ attorneys may want to sniff around your business, they will be ecstatic if you hand them a slam-dunk securities claim against both you and the company.

In raising money from other people, it’s good advice to follow the old Fram oil filter commercial. You may remember: the mechanic standing over the smoking automobile engine holding up an oil filter and saying, “You can pay me now or you can pay me later.” Pay now and pay a professional who can structure the arrangement to comply with law and help you sleep better at night. As is true in any business activity, but particularly involving securities laws, if you’re going to do it, you need to do it right. If you’re not going to do it right, don’t do it.

You struggled hard to accumulate your nest egg. But, because you’ve been a successful businessperson, your attorney and CPA have hounded you to revise your estate tax planning because your potential estate taxes may be large enough for the government to buy a cruise missile.

You’ve always shared with the needy, so you consider including charitable contributions as part of your estate planning, not only for tax benefits but, also, because of your genuine concern for others. Your advisors present you with a number of alternatives. You consider a distribution to charity after the deaths of you and your spouse. You discuss charitable remainder trusts; and you think about other similar tax-planning devices. But, somehow, the thought of writing a future check to charity strikes you as sterile. You’ve never been the type of person to make a passive contribution to charity and then to sit back, clip coupons and watch daytime TV. You also aren’t interested in writing your large check to a charity simply to get your name on a building.    You consider “retirement” to be a change in effort, not an ending of goals. You’re a hands-on person who wants to involve you and your family in meaningful service, rather than having your kids simply inherit all your wealth and, maybe, think of you occasionally as they buy their expensive automobiles.

If this describes you, you may be one of those rare individuals who may consider establishing your own qualified charitable foundation, allowing you immediately to provide funding, to coordinate the use of the funds, to obtain significant income tax and estate tax advantages, and to remain directly involved in the charitable decision-making. This is a section “501(c)(3)” organization, referring to a section of the Internal Revenue Code involving charitable organizations and allowing deduction of contributions to the organization. When appropriately handled, you can get considerable satisfaction in a meaningful hands-on charitable undertaking.

A significant number of people take this approach and enjoy considerable personal satisfaction.  Consider three real-life examples in Utah:

James grew up in poverty. Through hard work and business acumen, he became more successful than he ever dreamed possible, built a business, sold it, and is now financially established. Grateful for his own opportunities, he has always wanted to share with others. Since he has been used to being in charge, and is not one to sit on his thumbs, he established a 501(c)(3) foundation and is now having a ball helping the needy in job creation, housing, financial assistance, and education. Carolyn runs her family’s private foundation, which is qualified to provide funding for improving the status and condition of disadvantaged women in third-world countries, as well as in the United States.

A local foundation established by three professionals has quietly provided counseling, medical and dental care and other meaningful assistance for a broad range of needy people locally and internationally. This gives the organizers the pleasure of privately helping with serious social problems while largely remaining anonymous.
In each situation, these people have the enjoyment and satisfaction in harvesting the meaningful results of their life’s work and providing the opportunity to people not so fortunate.

Before you jump into a private foundation, though, you need to give it careful thought. Such an endeavor is not for the faint of heart nor for the careless. Considerable burdens and disadvantages exist in establishing and operating such a foundation, not the least of which is the considerable expense and procedures in obtaining initial IRS approval. Equally, if not more, importantly, you must also be prepared to jump through the continuing hoops of compliance with the complex, and often frustrating, IRS laws, regulations and reporting requirements. You cannot play games with this. The foundation must be genuinely charitable in its operations and cannot be a subterfuge for shifting tax-free money for you own family benefit. This can be a daunting task for most people, even for a detail person and even with your professional advisors helping you. If you are impatient with details and regulations, or if you pride yourself on standing eyeball-to-eyeball with the IRS, forget it.

But when the right people can handle it the right way, a charitable foundation can provide real satisfaction as well as tax savings.

1. Failure to establish a clear written contract between (a) the owner and the design professional, if one is used; (b) the owner and the contractor; and (c) the contractor and subcontractor(s).
2. Errors, defects, or omissions in the construction contract or contract documents.
3. Failure to accurately count the costs of the construction project before construction begins.
4. Changed conditions, cost increases, and failure to agree in advance, to a procedure to adjust the contract price.
5. Delays in completing the project.
6. Failure to use due diligence in selecting reliable, competent, and experienced contractors and subcontractors.
7. Failure to obtain lien releases or lien waivers from contractors, subcontractors, and suppliers.

Nielsen & Senior can help you avoid construction related-disputes.

If you have purchased or leased a new automobile that has significant problems that can’t be repaired, you may have purchased what is commonly referred to as a “lemon”. Under Utah’s New Motor Vehicle Warranties act or the “Lemon Law”, you may be able to obtain relief from the car’s manufacturer.

Utah law defines a “lemon” as a car that has been purchased in Utah, is new and under warranty; weighs less than 12,000 pounds; has had a defect that “substantially impairs” with the use, market value or safety of the car and the manufacturer has tried to fix the defect at least 4 times OR the car has been out of service and you have been unable to drive the car for a total of thirty business days during the first year or the warranty period (which ever occurs less). Of course, the car’s defect cannot be a result of abuse, neglect or modification of the car. The manufacturer can also argue that the defect does not impair the use of the car nor lower the car’s value or interfere with its safety.

NOTE -- If your car does not start to have problems until after you have driven it a year or the express warranty has expired, you WILL NOT qualify for protection under Utah’s lemon law.

You must report the nonconformity or the defect to the manufacturer within the term of the express warranties or during the one-year period following the date of original delivery of the car to you, whichever is earlier. The manufacturer shall make repairs necessary to conform the vehicle to the express warranties. The repairs do not have to be completed within the warranty term or the one-year period.

After a reasonable number of attempts to repair the car and the problem remains unresolved, the manufacturer must replace the car with a comparable new car or accept return of the car and refund the customer the full purchase price including all collateral charges. The manufacturer may deduct a reasonable allowance for the consumer’s use of the car from the refund amount. A reasonable allowance for use is that amount directly attributable to use by the consumer prior to his first report of the nonconformity to the manufacturer and during any other period when the consumer was able to drive the car and it was not out of service because of repair.