You and your partner(s) may need to secure financing to obtain capital for the launch of your business. Or, if you have already started your business with partners, it may make sense to be sure you are legally protected (personally) from any business debt.  If you create a general partnership and end up leaving the business, you could still be liable for any business debt the partnership takes on and fails to pay. The following are some tips for protecting yourself from business debt in a partnership.

• Protect Yourself in a General Partnership

Your business structure will influence whether or not you are on the hook for business debts that go unpaid. Most business partnerships fall into two categories — general partnerships and limited partnerships. General partnerships are when two or more people start a business together. You do not need to create a legal entity to form a general business partnership. Suppose you and one of your good friends shake hands and decide to start a t-shirt printing company together; you started a general partnership.

In many general partnerships, there is no formal, written agreement between the partners. Unless all partners have signed a written partnership agreement, each partner will be equally liable for business debt and any outstanding business payments that go unpaid. Many people opt for a general partnership because it is less formal, but this business structure does not protect an individual’s (or a partner’s) personal assets from business liabilities (i.e. debts, lawsuits, etc.). 

In other words, if a patron or customer brings a lawsuit against the business and is awarded a large verdict, or sum of money, the plaintiff could seek to collect from you personally (which also means s/he may collect against your personal property or other personal assets).  A better option is to have all the partners sign an agreement which limits each one’s personal liability for partnership obligations, debts and/or liabilities.  This agreement should also include a limit of liability should one partner leave the partnership for any reason, or under certain circumstances. 

In a general partnership, every partner is 100% liable for the partnership/business debts and liabilities, including debts from loans, capital or financing, and damages awards from lawsuits. At Resnick Law, we can review your partnership and advise on whether you should become a limited partnership or require all partners to sign a contract limiting liability. In the alternative, there may even be a better business structure for your endeavor. An experienced attorney can help you determine the best structure.

• Protect Yourself in a Limited Partnership

A limited partnership is an agreement between a general partnership and a limited partner.  Limited partnerships must be registered and have formal documentation of the agreements between any general and limited partners. The limited partner often acts as an investor or as a less active member of the business. In limited partnerships, the general partner is typically the person who is exposed to the greatest share of potential liability for business debts. The limited partner is often only accountable for their business interest in the company. 

• You May Need to Set Up an LLC or Corporation

If you are concerned about being liable for your business debts, you may want to create an LLC or corporation. When you do so, you will separate your personal assets (i.e. your home, retirement savings, or other property) from your business assets.  Personal liability in an LLC or corporation would generally only come about if you signed a personal guaranty for a business debt, or in some other special circumstances.  Generally speaking, however, an LLC or corporation protects the individual partners, members, shareholders, etc. from personal liability of the business debts.  

• Contact an Experienced Business Lawyer in Michigan

Speaking to an experienced business attorney is one of the most important things you can do to protect yourself from business debts and set up your business and personal life for success. At Resnick Law, our experienced business lawyers are ready to help.  Contact us today to schedule your initial consultation.

Burgeoning Coronavirus Lawsuits

In May 2020, lawsuits were filed against Princess Cruise lines alleging that the company was grossly negligent in exposing passengers to COVID-19. The lawsuit claims that the cruise ship was allowed to go to sea despite the knowledge that previous ship passengers had the disease. The Princess Cruise lawsuit is only one COVID-19 lawsuit of many, and the numbers keep going up. 

To minimize the risk of ending up in a lawsuit, some companies have resorted to what once seemed like drastic measures. For example, there have been several news stories of companies throwing away tens of thousands of dollars in food to avoid potential infection risks.

What Duty Business Owners Have to Customers

In Michigan, business owners have a duty to use reasonable care to protect customers from an unreasonable risk of harm created by dangerous conditions. Business owners must take reasonable care to provide customers with a safe environment. This means that business owners must discover and eliminate dangerous conditions on their premises and avoid creating conditions that could make things unsafe.

In Michigan, a customer’s contributory negligence is not a complete bar to recovery. Given the extensive recommendations about staying indoors and maintaining a six feet distance from others, there is at least some degree of culpability if a person claims to have contracted COVID-19 while patronizing a business in person.

The Role of CDC and MIOSHA Guidelines

While there is no specific requirement that business owners must follow guidelines established by the Centers for Disease Control and Prevention, to avoid third-party liability, it might be a good idea to follow these guidelines to keep customers as safe as possible.

Unlike the CDC, the Michigan Occupational Safety and Health Administration (MIOSHA) has issued workplace guidelines for business owners that include requirements that must be followed. For example, employers must create a written exposure control plan that includes exposure determination and addresses what measures will be taken to prevent worker exposure to COVID-19.

Steps Businesses can Take

Some of the helpful strategies business owners can take to mitigate the risk of coronavirus exposure include:

• Discouraging handshaking
• Informing workers about what they can do to reduce the risk of COVID-19 spread
• Practicing proper respiratory hygiene
• Routine cleaning and disinfecting
• Separating sick employees
• Using sufficient building ventilation

Speak With a Michigan Corporate Law Attorney Today

If you have questions or concerns about how your business can better mitigate liability during the COVID-19 pandemic, it can help to speak with a knowledgeable corporate law attorney. Contact Resnick Law, PC today to schedule a free case evaluation.

Cost and Time Efficient

The most critical elements of dispute resolution for business owners are the cost and time required to successfully resolve legal issues. ADR saves companies money by allowing them to avoid paying court fees and other associated costs. ADR can also proceed much more quickly than litigation.

Confidentiality

ADR is a much more private process than traditional litigation. Parties that decide to proceed through ADR can also sign a Non-Disclosure Agreement to make sure that conversations held in ADR remain private. When corporations are involved in ADR, this element of confidentiality means that companies are able to focus on the issues at hand rather than worry about details being leaked to the public. Many companies that are in debates concerning intellectual property or trade secrets find this element particularly valuable.

Easy to Execute

One of the primary advantages of ADR is that it is easy to execute, which can be particularly helpful when corporate disputes involve people who live in different geographic areas. ADR is easy to executive because it provides a singular way to negotiate disputes with parties that might be spread out across the globe.

Effective Results

Unlike litigation, which can be contested through protracted appeals, resolution through ADR is often quick and is not subject to appeal; the process concludes with the agreement of all the parties involved in the conflict and suggests the most suitable agreement for both parties. If your corporation is engaged in a dispute, selecting ADR can help the process resolve in the smoothest manner possible.

Flexibility

During ADR, the parties engaged in the conflict have increased flexibility to select the applicable procedural laws as well as the laws that dictate how the dispute will resolve. The parties also have the ability to select their own method of resolution. As a result, parties are able to focus on the substantial issues that are involved rather than worrying about procedural or administrative issues. While litigation is structured around one party “winning” and the other “losing,” arbitration allows companies to find terms that are mutually agreeable to all parties.

Contact a Knowledgeable Corporate Lawyer Today

There are a number of complex issues that can arise when addressing business disputes. Fortunately, there are also several ways to resolve these problems, including alternative dispute resolution. If you need assistance with ADR or another type of resolution method, do not hesitate to obtain the assistance of an experienced business law attorney. Contact Resnick Law today to schedule an initial free consultation.

(image courtesy of Drew Beamer)

Most business owners do not enjoy being mired in public disputes or messy litigation, either with business partners or clients. For this reason, if it is possible, these businesses may choose alternative dispute resolution methods that keep them away from litigation in court and offer more in terms of keeping the details of the dispute private. One such dispute resolution method used by many businesses is arbitration.

Arbitration is a process that takes place out of court and in which the parties in dispute present evidence of the dispute to a neutral third party, known as an arbitrator, who then makes a decision. The parties can choose the arbitrator in agreement, and can choose an arbitrator who has specific technical knowledge that would assist in resolving the issues in controversy.

The decision the arbitrator makes can be binding on the parties or non-binding, depending on the arbitration agreement the parties signed. If the arbitrator’s decision is non-binding, the parties can go through litigation to settle the dispute.

Arbitration can often present a more cost effective approach to dispute resolution than litigation, but it comes with different costs. In addition, it can often take a shorter period of time to resolve a business dispute through resolution than through litigation. Arbitration further offers more protection of proprietary business information than a trial would because in a trial, the information may be publically available.

Arbitration agreements between businesses and individual clients are not always favored. This is because the business presumably is in a better bargaining position than a client. However, if the arbitration agreement is clear and well drafted, the contract will be enforced. Restrictions that are included as part of the arbitration agreement may not be enforced if they are not allowed under the law.

In order to go through arbitration, the parties in dispute generally have a preexisting contract requiring disputes to be resolved through arbitration. Although it is possible for parties to agree to arbitration after the dispute arises, it is less likely to happen. Arbitration clauses in contracts should be drafted very carefully to ensure that they are later upheld. Failure to properly draft the agreement could mean prolonged and expensive litigation on the validity of the arbitration clause which was supposed to help avoid litigation in the first place.

Arbitration does not eliminate the need for an experienced business attorney, and each side in arbitration is often represented by an attorney. The cost of the attorney’s fees and cost of litigation can sometimes be built into the arbitration agreement, with the agreement holding that the prevailing party will be reimbursed for its attorney’s fees.

Arbitration is not always better than litigation, and vice versa. Which option a business chooses depends on the needs of the business. Therefore, before making a decision on including an arbitration clause in a contract, it is important to seek legal advice from an attorney who is familiar with the needs of your business.

Contact Us for Legal Advice

For more information on alternate dispute resolution, and arbitration in particular, contact an experienced business attorney at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan, to schedule a consultation.

(image courtesy of Olu Eletu)