Hanlon Niemann Blog | A Freehold, New Jersey Law Firm

By Fredrick P. Niemann, Esq. a New Jersey Partnership Attorney

Partnership Disputes are fairly common in the world of business. Trade secrets, embezzlement, conversion and business disparagement are some of the most common causes of partnership disputes. If you suspect that something like that has occurred in your business, you should consult with a qualified partnership dispute attorney in New Jersey.

If you suspect that one of your partners has engaged in some form of wrongdoing, it is important that you investigate immediately. If you fail to do so, this can lead to a more serious dispute. Your partner may be profiting while your business is losing money. That is why is it important for you to consider litigation so that your business is protected from further loss.

A qualified partnership dispute attorney can help your business in several ways. He or she will provide the legal representation that you need to protect your business’s investments and profits. First, the attorney will investigate the breach so that the rights and integrity of your business are protected. After the investigation is complete, he or she will file a claim on your behalf. In order to make sure that your claim will have a successful outcome, the attorney will enlist the help of private investigators, accountants and financial experts. If you decide to dissolve your partnership, he or she will be there to assist you with that. Additionally, an attorney will also be able to help your business recover its losses.

If you suspect that suspicious activity is going on within your partnership, you do not want to wait around because your business could be losing money. Call a qualified partnership dispute attorney in New Jersey so that this issue can be resolved right away.  Contact me personally today to discuss your partnership dispute matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.

By Fredrick P. Niemann, Esq., a New Jersey LLC Attorney

LLCs often involve a small number of shareholders who comprise ownership of the business. Business direction and decisions are typically dictated by those who are majority members, those owning more than 50% of the certificates (commonly misidentified as “share”), since they own the biggest piece of the company. This leaves those owning less than 50% of the certificates, known as minority members, as part-owners of businesses which they sometimes have little to contribute. This can present an unfortunate situation for those minority members, an LLC who are unhappy with company decisions being made, but who are unable to sell their interests in the company. Luckily, New Jersey law offers protection to minority members of an LLC, mainly the right against “oppression”.

Oppression is defined as an act directed at a minority member that personally frustrates their reasonable expectations of the role they play in the management, operation, and other general affairs of the company. Simply put, an oppressed minority member is one who does not get along with majority members, but is stuck owning shares in the company based on the majority’s refusal to buy them out. New Jersey statutes prohibit this type of behavior by the majority members. The law states that company’s and majority members may not act in a way that is detrimental to the interests of minority members.

Proving you are an oppressed minority member and entitled to relief from New Jersey Courts involves a two-step process. First, you must show misconduct committed by the company or majority members that is considered oppression. Courts will evaluate the misconduct in each case on an individual basis. Second, you must show that as a minority member, your interests or reasonable expectations in the company were harmed by the misconduct. Without proving a connection between the oppressive acts and the harm you suffered, you will unable to win an oppression case against your company and/or its majority members. It is also important to keep in mind that the harm you suffer can be a monetary interest, but does not have to be. Non-monetary interests such as being consistently silenced in all business decisions can be considered harm in certain situations. Remember, every situation is unique and the New Jersey Courts will consider each on a case-by-case basis.

If you are a minority member in a New Jersey LLC and believe your interests are being oppressed, call Fredrick P. Niemann, Esq., an experienced NJ LLC Attorney today. He welcomes the opportunity to speak with you about your situation and answer any questions you may have. Mr. Niemann can be reached toll-free at 855-376-5291 or by email at fniemann@hnlawfirm.com. He hopes to hear from you shortly.

By Fredrick P. Niemann, Esq., a NJ Passing on Your Business Attorney

Business owners work hard to create a successful business. They often look forward to retiring and passing along their business to their children. This is a proud time, where a parent gets to sit back, relax, and let their child flourish. Unfortunately, more and more businesses today are making the mistake of not planning for this business transfer. The results have been harsh, with many parents being unable to pass their businesses on to their children due to unforeseen taxation issues that arise upon this transfer. Planning for this business transfer can significantly increase the odds of successfully passing your business along.

Most individuals misunderstand the complicated logistics in passing a business to a successor. Business owners often have the impression that since they have a child willing to take over the company, they can simply take a back seat one day and give the child the business. Unfortunately, finding a successor for the business often turns out to be the least of a business owner’s worries.

Taxation can present one of the most significant obstacles to family business owners wishing to pass their business along. Depending on how you plan on passing your business to your child, whether it be through gifting it at some point during your life, passing it through your estate upon your death, or placing the assets of the business in a trust and passing the business along via the trust, different tax implications will ultimately arise. One must consider these tax implications when determining how and when the appropriate time is to pass their business along. Businesses often collapse because their owners are not prepared for the significant taxes that they are forced to pay when transferring the business. A knowledgeable Business Succession Planning Attorney can guide you as to the best method of transfer and most appropriate time period to transfer. 

Business owners may also face other obstacles when attempting to transfer their business, making consultation with a Business Succession Planning Attorney even more important. Some of these challenges include lack of teamwork among children whom the business is being passed to, second-thoughts about letting go by the business owners themselves, and lack of planning as to the direction of the business. Business Succession Planning attorneys are aware of the significant challenges presented to business owners. They can guide you as to what you can expect when the time comes for you to finally pass your business along. Please call Fredrick P. Niemann, Esq., a NJ Business Succession Planning Attorney today. He can be reached toll-free at 855-376-5291 or by email at fniemann@hnlawfirm.com. He looks forward to discussing this important subject with you.

By Fredrick P. Niemann, Esq. a Contract attorney

Two executives held a meeting; the agenda was about forming a new business together.  The discussion later transformed into a one of an offer of employment to one of the executives.
 
For two men in the upper tiers of New Jersey businesses, they chose a decidedly low-tech way to memorialize their agreement. The end result, however, shows how substance can sometimes triumph over form in the law of New Jersey contracts formation.

At the end of their meeting, the executives simply wrote out the agreement by hand on two notebook pages, and both men
signed it. The writing included specifics as to how the newly hired executive would be compensated, the terms on which he could quit if he became unhappy, and what would happen if intellectual property involved in the deal could not be transferred to the telecommunications firm. It also included the statement that “[t]he parties will complete formal contracts as soon as possible but this is binding.” This would turn out to be pivotal language in the litigation that followed.

Unfortunately, the new arrangement quickly went downhill.  After
about six months the new employee was fired. The “formal contracts” envisioned from the beginning were never drafted and signed. When the former employee sued for breach of contract and other claims, over six years of litigation in the New Jersey Courts ensued, with two trials and two appeals.

Much of the case focused on whether the handwritten agreement that started everything was a valid, binding contract. The telecommunications company argued that it was merely an “agreement to agree.”

However, a jury eventually ruled that the agreement was valid, and that the employer had breached the terms of the contract represented by the two notebook pages.

Four factors are usually considered in determining whether a New Jersey “preliminary agreement” is binding. In this case, the first two clearly favored the fired executive:  There was no explicit reservation of a right not to be bound (in fact, the handwritten agreement said the opposite) and the executive had partially performed the contract. The third factor was about whether all of the terms of the alleged contract were agreed upon. On that point, the agreement, although it may have lacked some details, addressed all of the essentials for a binding contract.

The final factor is whether the agreement was a type of contract that is usually committed to writing in a formal manner. When millions are at stake, as was the case here, it may be unusual to seal the deal with a handwritten document, in outline form, and drafted on the spot by one of the principals without benefit of legal counsel.  The agreement was not much to look at, barely surpassing in formality the proverbial agreement scribbled on a cocktail napkin. Still, that it was unorthodox did not mean that the method was unprecedented. In the end, this factor, balanced against the other three, was not enough to discard the agreement and deprive the departed executive of the benefits of his bargain.

Written contracts, regardless of length, will be enforced in New Jersey provided sufficient detail is recited.  If you have a contract issue that needs review and analysis, contact Fredrick P. Niemann, Esq. toll-free at (888) 800-7442 or e-mail him at fniemann@hnlawfirm.com.  He has prepared, reviewed and advised clients on hundreds if not thousands of New Jersey and Interstate contracts.  For further information, go to http://www.youtube.com/user/NJBusinessLaw#p/search/0/zQRtR4wnmHA to learn more.

By Fredrick P. Niemann, Esq., a NJ Shareholder Agreement Attorney
Every business should have some sort of buy-sell agreement, regardless of its size. However, buy-sell agreements are extremely crucial in a smaller business with few owners. While owners of small businesses often start out as friends, unexpected events occur, leading to disagreements among owners and often causing the business to suffer. Fortunately, many businesses owners are smart enough to sign buy-sell agreements when they enter the business. These agreements dictate the terms of the sale of a departing member’s ownership, often dictating who it can be sold to and what price it will be sold for. This helps avoid or resolve potential problems at a time when emotions and anxiety is high and the disagreements is likely to result as one owner seeks to leave the business.

Many owners often forget to include a key component in a shareholder agreement: a clause dealing with unexpected departures. Unexpected departures occur due to a number of reasons. Death, incapacity, disinterest, financial distress, divorce, or loss of a business license is only some of the reasons why an owner may be forced to leave a business. Whatever the reason may be, it is important that owners place a clause in their buy-sell agreement dealing with the unexpected departure of an owner.

The details of a buy-sell agreement addressing an unexpected departure are completely up to you. Owners of a business often place provisions that allow for the remaining member(s) of the business to buy the deceased or departing owner’s share of the business at a predetermined price.  This gives the remaining owner(s) the option of keeping out family members of the deceased owner from joining the business. Another provision is one that restricts the shares of an owner to a spouse through a divorce.  Similar to the provisions relating to a deceased member, this allows the remaining member(s) to restrict who owns the business with them. Finally, another common provision requires the sale of a departing owner’s shares to the remaining owners if the departing owner is convicted of a crime or loses their professional license. This ensures the remaining owners that the integrity of the business will be kept up and they will not be forced to work with someone they do not want to.

Buy-sell agreements are key to all businesses, especially small businesses. A properly crafted agreement can help ensure the success of your business even upon the departure of a co-owner. Please contact Fredrick P. Niemann, Esq., a qualified New Jersey Business Attorney today if you have any questions. He can be reached toll-free at 888-800-7442 or by email at fniemann@hnlawfirm.com.  For further information, go to http://www.youtube.com/user/NJBusinessLaw#p/search/0/ZWx2P0MQWwA to learn more.

By Fredrick P. Niemann, Esq., NJ LLC Attorney
                              
 
How to perfect a security interest in an LLC membership interest depends on whether the membership interests are certificated (evidenced by certificates).

If the interests are certificated and the LLC has “opted in” to have UCC Article 8 apply to the membership interests in the operating agreement, then the best way for the secured party to perfect its interest is through “control” of the interest by taking possession of the certificate.  The secured party can also perfect against certificated membership interests by filing a UCC financing statement (UCC-1) against the member with respect to the interest, but if another secured party acquires control of the interest by taking possession of the certificate, the secured party with possession of the certificate will have priority, even if the financing statement was filed before the other secured party acquired control.  Many secured parties perfect a security interest in certificated membership interests by both methods, taking possession of the certificate and filing a financing statement.  In many financings, the lender requires that the LLC membership interests be certificated and that the LLC opt in to Article 8.

If the interests are not certificated, they are usually treated as general intangibles, meaning that the secured party must perfect by filing a financing statement against the member with respect to the interest.  Note that, if the membership interests are later certificated and the LLC opts in to Article 8, and another secured party perfects a security interest not certificated at the time the original secured party filed its financing statement.  Therefore, you will want a covenant in your security agreement that the membership interests cannot become certificated (nor can the LLC opt in to Article with the secured party’s consent. 

For more information regarding Security Interests in a LLC, please contact Fredrick P. Niemann, Esq. toll-free at (888) 800-7442 or email him at fniemann@hnlawfirm.com for a low cost consultation.  For further information, go to http://www.youtube.com/user/NJBusinessLaw#p/search/0/pKIalQAdprY to learn more.

By Fredrick P. Niemann, Esq., a New Jersey LLC Company and Corporation Attorney

Business people and those starting up new ventures are checking into the benefits of limited liability companies (LLC’s) as the preferred form of business organization. There are many reasons for this, including: 

- An LLC allows the pass through of profits and taxes to the owners, to avoid double taxation applicable   to regular corporations. 

-There is limited liability for the owner(s) of the LLC which is not available with a sole proprietorship and New Jersey partnerships.  

-There is a significant absence of restrictions applicable to S corporations. These relate to the number of shareholders, types of shareholders, and limits on passive income that can be passed-through without prior tax.  

-Under the tax code, the members can make special allocations of income, losses and deductions among the partners, whereas an S corporation must pass these through on a pro rata basis. 

-How easy an LLC is to form? IRS check-the-box rules enable a single owner to obtain the benefits of limited liability for     legal purposes, yet be treated like a proprietorship for tax purposes, and avoid the cost of forming an “S” or “C” corporation.

-Many states like New Jersey, still impose have a franchise tax even if the corporation has elected S corporation status and otherwise would be a flow-through entity. 

-An LLC (sole-member) reports his or her income on Form Schedule C of their individual tax return. A separate business    return (form 1065) is required if the LLC has two or more members. 

-Unlike an “S” or “C” corporation, a business owner, if actively working in his/her corporation, will not be subjected to such a payroll tax.  

-An LLC has no loss Board of Directors (although an operating agreement may provide for centralization of management authority in a board or similar body).
 

If you’re planning for a high-growth, high revenue business and may seek potential investors in the future, a corporation may be the preferred choice. Also, corporations can live forever, whereas a LLC is dissolved when a member dies or undergoes bankruptcy, absent a contingency agreement in a membership agreement.  Otherwise, an LLC would appear to give you the flexibility, similar protection and tax savings you might desire.
 

At Hanlon Niemann we often recommend the right kinds of business organizations for clients. We’ll be glad to discuss the pros and cons of limited liability companies, partnerships, S corporations, C corporations, and sole proprietorships with you to help you decide on the business vehicle that is most appropriate for your needs. Contact Fredrick P. Niemann toll-free at (888) 800-7442 or e-mail him at fniemann@hnlawfirm.com today.

By Fredrick P. Niemann, a NJ Parnership Law Attorney

When people create a corporation, limited liability company, or limited partnership as their business, they often do so to try and avoid personal liability. Generally, an owner, shareholder, or partner can’t be held personally liable for actions made by the company. One exception to this is the principle of “piercing the corporate veil”, which means that someone involved with the business can be held personally liable if the Court finds the business is not kept entirely separate from the person’s personal life. Until recently,  piercing the corporate veil principle applied only to corporations and LLCs, but the New Jersey Court of Appeals has stated otherwise.

In a recent case, the NJ State Appeals court extended the principle of piercing the corporate veil to limited partnerships, meaning that if it finds certain conditions are present, the limited partners CAN be held personally liable. New Jersey law creates a “safe harbor” for general partners, shareholders, etc. The Court stated that personal liability comes when a partner exceeds this safe harbor. Similar to all veil-piercing cases, the plaintiff must show that the partners co-mingled funds or some other evidence that the limited partnership was not truly separate from the partners personal accounts. The NJ Courts also allow piercing if a party can show the partnership was created for fraudulent purposes. This is not just applicable to general partners, but limited partners as well if a plaintiff can show that the limited partner actually dominated the partnership and used it in furtherance of injustice or fraud.

Keeping your business and personal life separate are key to avoiding personal liability. An experienced partnership law attorney can teach you the keys to avoiding personal liability for your partnership.  Please call Fredrick P. Niemann, Esq., a knowledgeable New Jersey partnership lawyer, today at 855-376-8291 or email him at fniemann@hnlawfirm.com. He looks forward to hearing from you.

By: Christopher J. Hanlon, Esq.

New Jersey law has recognized the remedy of “Piercing a Corporate Veil” for almost as long as the corporation has existed. Normally individuals or parent corporations that own a corporation are not responsible for the corporation’s debts. “Piercing” is the process of proving a claim related to a corporation’s debt which the corporation owners will be responsible for. The general rule related to a piercing claim is that a court will look at various factors, “including whether or not the company is grossly undercapitalized, the day to day involvement of the company’s directors, officers and personnel,” or whether personnel from affiliates operate within an LLC without failing to distinguish between the corporate entities. Courts will also consider whether the company fails to observe corporate formalities, pays no dividends, is insolvent, lacks corporate records, or is merely a façade for an individual’s or parent company’s operations.

In a recent unreported decision handed down by the Appellate Division of the State of New Jersey, Brown Hill Morgan v. Lehrer, this Appellate Panel applied the doctrine of piercing the corporate veil to a limited liability company. The Court concluded “we can perceive no reason in logic or policy why the principles should not be fully applicable in the context of a limited liability company…”

If such a claim is made, the parties seeking to pierce the corporate veil have the burden of establishing that the corporate forum should be disregarded. A careful study of the New Jersey doctrine related to piercing the corporate veil indicates that experts on this subject matter have rendered the opinion that the cases are inconsistent, and quite often the result will depend upon the particular trial judge’s sense of fairness.

Despite this ambiguity in the law, certain rules can be relied upon to assist those who operate with an LLC in maintaining the protections afforded by that corporate structure (which is probably the sole if not the primary purpose of forming an LLC and operating under its structure in the first place).

Careful attention should be made to the corporate structure and to the positions held by the respective representatives of the LLC. Members and managing members should pay careful attention to the use of job titles (e.g., “member” or “managing member”). Documents (checking accounts, business cards, letterhead, designations on contracts) should be carefully attended to and used. If various properties are owned by various entities but managed by affiliated groups all involved personnel should pay careful attention to their respective titles, and most important, never never never comingle funds or fail to operate in a way that separate corporate identities are acknowledged and maintained. For example, one affiliate should never pay the financial obligation of another. That type of behavior could lead to the “well intended” LLC becoming responsible for the debts of the less solvent affiliate. Careful attention should be paid to the operating agreement which governs the LLC. Required meetings (perhaps annual – if so provided for in the operating agreement) should be conducted. Minutes should be maintained. Files should be “papered” and attention should be paid to details related to the maintenance of separate identities.

Generally the purpose of operating under an LLC is to avoid individual liability for the debts of the business properly operating within the confines of the LLC and to shield other assets. Maintaining that shield (or veil) requires more than just the initial formation and payment of the registration fee. One must operate carefully within the veil to maintain the veil.