Frequently Asked Questions About Business Law

I’m worried about "training the competition." Is there anything I can do to prevent this? I’ve heard that non-competition agreements aren’t enforceable. Is that true?

The legal issues depend on the laws of your state and the non-compete agreement itself. Some states take a dim view of these agreements because they limit an employee’s ability to earn a living. In a few states, like California, they’re basically illegal. But even in states that recognize non-competition agreements, such as Texas and New York, courts often impose time and geographic restrictions on them.

What Are the Federal Securities Laws?

In the chaotic securities markets of the 1920s, companies often sold stocks and bonds on the basis of glittering promises of fantastic profits - without disclosing any meaningful information to investors. These conditions contributed to the disastrous Stock Market Crash of 1929. In response, the U.S. Congress enacted the federal securities laws and created the Securities and Exchange Commission (SEC) to administer them.

There are two primary sets of federal laws that come into play when a company wants to offer and sell its securities to the public. They are:

· The Securities Act of 1933 (Securities Act), and
· The Securities Exchange Act of 1934 (Exchange Act).

Securities Act

The Securities Act generally requires companies to give investors "full disclosure" of all "material facts," the facts investors would find important in making an investment decision. This Act also requires companies to file a registration statement with the SEC that includes information for investors. The SEC does not evaluate the merits of offerings, or determine if the securities offered are "good" investments. The SEC staff reviews registration statements and declares them "effective" if companies satisfy our disclosure rules. We describe this process in more detail beginning on page 7.

Exchange Act

The Exchange Act requires publicly held companies to disclose information continually about their business operations, financial conditions, and managements. These companies, and in many cases their officers, directors and significant shareholders, must file periodic reports or other disclosure documents with the SEC. In some cases, the company must deliver the information directly to investors. We discuss these obligations more fully beginning on page 11.

Exemptions

Your company may be exempt from these registration and reporting requirements.
Are There State Law Requirements in Addition to Federal Laws?
The federal government and state governments each have their own securities laws and regulations. If your company is selling securities, it must comply with federal and state securities laws. If a particular offering is exempt under the federal securities laws that do not necessarily mean that it is exempt from any of the state laws.
Historically, most state legislatures have followed one of two approaches in regulating public offerings of securities, or a combination of the two approaches. Some states review small businesses' securities offerings to ensure that companies disclose to investors all information needed to make an informed investment decision. Other states also analyze public offerings using substantive standards to assure that the terms and structure of the offerings are fair to investors, in addition to the focus on disclosure.

To facilitate small business capital formation, the North American Securities Administrators Association, or NASAA, in conjunction with the American Bar Association, developed the Small Company Offering Registration, also known as SCOR. SCOR is a simplified "question and answer" registration form that companies also can use as the disclosure document for investors. SCOR was primarily designed for state registration of small business securities offerings conducted under the SEC's Rule 504, for sale of securities up to $1,000,000, discussed on page 20. Currently, over 45 states recognize SCOR. To assist small business issuers in completing the SCOR Form, NASAA has developed a detailed "Issuer's Manual." This manual is available through NASAA's Web site at http://www.nasaa.org.

In addition, a small company can use the SCOR Form, called Form U-7, to satisfy many of the filing requirements of the SEC's Regulation A exemption, for sales of securities of up to $5,000,000 (discussed on page 19), since the company may file it with the SEC as part of the Regulation A offering statement.
To assist small businesses offering in several states, many states coordinate SCOR or Regulation A filings through a program called regional review. Regional reviews are available in the New England, Mid-Atlantic, Midwest and Western regions.
Companies seeking additional information on SCOR, regional reviews or the "Issuer's Manual" should contact NASAA.

Can The Franchisor Be Taken To Court In The Franchisee's Home State?

That depends on your state's law and, if consistent with state law, the franchise agreement. Many franchise agreements provide that all disputes must be settled out of court in arbitration, precluding any lawsuits, unless your state's law does not permit that type of provision.

If lawsuits are possible, be aware that most franchisers want to have any lawsuits heard in their home state, and structure their franchise agreements accordingly. However, several states have laws that require that franchisers be amenable to suit in the state in which the franchise is located.

Can I Set Up A Corporation Without A Lawyer?

The most important decision revolves about the type of entity you should be setting up. That is what you really need a professional's advice for.

The specific contents of a Certificate of Incorporation vary with each state’s incorporation laws, but key features are consistent: the corporation's name, the number of shares authorized, the names and addresses of the incorporator(s), and the address of a registered office and agent for service of process.

In terms of the actual filing, some people follow a "do it yourself" approach using
(1) Interactive software programs that automate the process
(2) Tear-out forms available in many published guides to incorporating, or
(3) Fill-in-the blank forms that may be available from the State. Many use a corporate service company to create the corporation for them. Wise ones rely on an attorney to set up the corporation for them.
(4) Forming the corporation is just a small part of the total process of setting up a business and making sure what you are setting up makes sense for you. As an attorney's advice is typically needed in connection with many other aspects of business start-up, relying on a lawyer to set up the corporation will make it far more likely the whole job is done right. Further, once the corporation is set up, it becomes necessary to adopt By-Laws and resolutions and a whole long paper trail to assure you the protections and benefits you are seeking by operating in corporate form.

In what circumstances is a company in 'breach of duty'?

A company is in breach of duty if it has failed to do what it reasonably should be expected to do or does what it reasonably should be expected not to do. If a company is in 'breach of duty' then it has met one of the criterion for being negligent. In working out 'reasonableness' a court takes into account a number of factors, including the likelihood of damage being caused by a company's action or inaction, the extent of damage caused, how cheap and easy it is for a company to take precautions against damage, and the need for the action by the company. A plaintiff must prove 'breach of duty', unless the 'facts speak for themselves', meaning the damage is taken to be obviously the result of a company's negligence and clearly an incident within the sole control of the company.

What is the difference between civil and criminal liability in business?

Civil liability in business arises out of the relations between a business and the people it deals with, and is governed by the laws of contract and tort. Cases against a business, for example, for breach of contract or negligence have to be taken by the people directly concerned.
Criminal liability in business, on the other hand, involves a business committing a crime against the state, and public officials on behalf of society as a whole bring cases against a business. Criminal law applies across many business activities, and is especially important in areas such as the proper description and pricing of goods and services, and the safety of goods and services, particularly food.

How does tort relate to business activities?

Tort is an area of the law concerned with injuries to people or property that come about because of a breach of a duty imposed by the law rather than by some contractual arrangement between people. Individual torts include trespass, defamation, nuisance, negligence and passing off. Each tort has its own rules.
Business activities, therefore, that involves, for example, negligence such as not properly caring for a customer or selling defective goods, involve a tort. Another example of a tort would be a business passing off another company's product as its own.

How does 'negligence' relate to business activity?

Negligence is a tort, meaning it is a kind of wrongful act giving rise to a civil court action, usually for damages. Business activity can give rise to negligence in many different ways, for example, through selling defective goods or defective services. To show there has been negligence a plaintiff (someone bringing a case of negligence against a company) must prove the company had a legal duty of care, was in breach of its duty, and that there was damage caused by the negligence. Damage can be death, injury, nervous shock, damage to property, or financial loss.

Contact our Honolulu Business Lawyers and obtain a free case review!

	Did You Know?
	It's important to set clear expectations and rules for your employees Unclear Expectations and Rules for Employees, make sure they acknowledge they are "at will" employees, which means they can quit or be terminated at any time without exposing your business to liability. It's also important to inform your employees that discrimination, sexual harassment and other illegal acts will not be tolerated.