What Legal Strategies Can Help Protect a Small Business from Litigation?

When you operate a business, your everyday decisions can carry financial risks that reach beyond the company itself. In business law, LLC asset protection is one of the best mechanisms available to separate your personal assets from those risks, so you can feel more confident as you move forward. LLC Asset Protection in Business Law An LLC creates a distinct legal entity so that the company itself, rather than its owners, is responsible for business debts, contracts, and certain legal claims. The result is that your personal home, savings, vehicles, and other individual property stay out of reach in most situations where the business could face trouble. In most cases, your personal assets like your house and bank accounts are protected should your business go bankrupt or be involved in a lawsuit. This is in contrast to a sole proprietorship, where no such barrier exists. How Does This Play Out in Day-to-Day Operations? When a supplier delivers late or a customer disputes a service, their claim will target the LLC's assets and any insurance it carries rather than you personally. The same applies if the business borrows money or faces a judgment from a commercial dispute. Under Texas law, unless the company agreement provides otherwise, a member or manager is not liable for a debt, obligation, or liability of the limited liability company. How Does This Affect Financing? Many banks and landlords ask for a personal guarantee on loans, credit lines, or commercial leases, even after the LLC forms. In those cases, you would remain personally responsible for that specific obligation if the business cannot pay. The LLC still protects you against other business debts where you didn't make such a guarantee. What About Lawsuits? If a customer is injured on your business premises or a contract breach claim is brought against you, it usually proceeds against the LLC, not against you personally. In addition, if one of the members of your LLC gets in trouble, the creditors of that member cannot simply reach inside the LLC to seize its property or force control. The exclusive remedy in most judgment situations is a charging order against the member's interest. The creditor receives only any distributions the LLC would otherwise pay to that member; the creditor cannot foreclose on the interest or take the company's assets directly. How Does an LLC Affect Taxes? An LLC itself does not create personal liability for ordinary business income taxes because of pass-through treatment. However, if the business withholds payroll taxes from employee wages and fails to pay them over to the IRS, those responsible (who are often the owners who control the funds) can face personal assessment through the Trust Fund Recovery Penalty. The IRS is going to look at whether a person had the duty and authority to direct payment and willfully failed to do so. This applies regardless of the LLC structure, so when it comes to taxes, it's absolutely essential to get things right. Reach out to the Artie Pennington Law Offices in Kyle or Austin, TX for the legal guidance you need for your business planning.

Forming a business partnership means carefully managing intellectual property (IP) rights to protect everyone's interests. Getting advice from a business attorney in Austin early on will allow you to create clear terms and prevent disputes down the line. Drafting Your Partnership Agreement to Address IP Under the Texas Business Organizations Code, your partnership agreement governs both the relations among the partners and between the partners and the partnership itself. If you don't use specific language in your partnership to address IP, then the default rules will apply, and those defaults may not match what you and your partners intend. The code treats property that's acquired in the partnership's name or with any partnership funds as partnership property. Intellectual property developed during the partnership usually falls into that category unless your agreement says otherwise. Sit down with your partners and a lawyer and decide upfront what should belong to the partnership and what should remain the property of the individuals, and be sure to decide whether new inventions or creative work will be owned by the partnership, assigned to one partner, or shared in some other way. Remember that partners are not employees, so the “work made for hire” concept that automatically gives employers ownership of employee-created IP would not apply here. Contributing Pre-Existing IP to a Partnership When you contribute existing intellectual property, document it carefully. List each piece of IP that's being contributed in a schedule attached to the agreement. State clearly whether you are assigning full ownership to the partnership or granting a license for its use, and be sure to define the terms of that license, including how long it lasts, the scope, what to do if the license ends or the partnership dissolves, and what to do with any royalties. IP Created During the Partnership You might agree that anything one partner develops while working on partnership business belongs to the partnership, or you could let the creating partner keep ownership but require a license back to the partnership on favorable terms. For patents, federal law lets joint owners exploit the invention independently without accounting to the others in a partnership, unless you specifically contract around that rule. The same holds for copyrights. Your partnership agreement can override these defaults with buyout provisions, exclusivity requirements, or profit-sharing formulas. Protecting Trade Secrets Texas has adopted the Uniform Trade Secrets Act, which defines a trade secret as information that derives independent economic value from not being generally known and that the owner has taken reasonable measures to keep secret. Build protection into your agreement with confidentiality clauses and nondisclosure requirements that apply to all partners, employees, and contractors. Keep access to sensitive information on a need-to-know basis, and require partners to return or destroy materials containing trade secrets when they leave or when the partnership ends. Talk With a Business Attorney in Austin If you're building a business, take steps now to protect your intellectual property, your rights, and your company. Call the Artie Pennington Law Offices in Kyle, TX at 512-596-0534 now for a free 15-minute consultation.

When you're looking to get your tech startup off the ground, working with a business lawyer in San Marcos, TX could make all the difference between a smooth climb to profitability and a rocky, frustrating journey with an unhappy ending. From a Business Lawyer in San Marcos, TX: Legal Issues Tech Startups Should Be Aware Of Choosing the Right Structure This is really your foundational legal decision and will make a big difference to everything else. It's common for a tech startup to form initially as a Limited Liability Company (LLC) because this allows you a lot of flexibility in taxation and gives your personal assets legal protection from business debts. However, for some companies, a C Corporation structure will be better: this is a good choice for those who want scalability and need to attract venture capital. more There are other models available, as well, but it's always advisable to have legal counsel to ensure that you are in compliance with the Texas Business Organizations Code, properly registered with the state, and in alignment with any local regulations that might affect you. Your business lawyer will also help you understand the tax and other implications of each structure so you can make the best decision. Core Contracts Your core contracts, like your terms of service, are going to influence what you choose in terms of subscription models, data usage policies, and liability limitations. They will also protect you (or not, if not formulated correctly) against disputes over service delivery and intellectual property rights. Your vendor contracts need to be clear in specifying pricing and timelines and contain the confidentiality clauses you need to protect your property. Employment agreements have to properly cover the scope of the job and exactly who has ownership of proprietary ideas and inventions. The risk here, if you mess any of this up, is that you lose control of your core assets. Licenses, Permits, and Regulations Texas is a very business-friendly state, relatively speaking, yet there is still a minefield of licensing and regulation to get through if you want to have a successful startup. On the local level, you'll need general business licenses, and you might need zoning permits. At the state level, everything needs to follow the Texas Business Organizations Code in terms of registration and ongoing compliance filings. If you're handling any personal data or offering financial services, you're going to have extra oversight from other regulatory agencies here in Texas and possibly federal as well. If you have any European clients or users, the European General Data Protection Regulation (GDPR) rules apply. If you're making software targeted at minors, there's the Children's Online Privacy Protection Act (COPPA) to be aware of. For payment processing, you need to meet Payment Card Industry Data Security Standard (PCI DSS) rules. Ignoring any of these, at any level, can mean fines at best and the loss of your entire business at worst. All this is just a sample of the legal pitfalls facing a startup, but you can thrive if you tackle these issues proactively. Talk to us at the Artie Pennington Law Offices today in Austin or Kyle, TX for help in San Marcos and throughout the state.