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What are some considerations for starting a business in Ohio?

Starting a business begins with an idea, but it certainly does not does not end there. between the concept and the commencement of operations there are several legal matters that you must decide upon. This post touches on some of them.

To begin with, you will need to decide on the form that your business will take. It can be as simple as a sole proprietorship or as formal as a "C" corporation, depending on how much protection you believe you will need based on the legal entity status of the business as well as certain accounting considerations. Related to the decision about the business form decision are the questions of whether you will have any employees or shareholders; depending on the answers you give, some business types will be either impractical or desirable.

What's a memorandum of understanding, and do I need one?

Business contracts can be informal or formal, oral or written. And sometimes the process of reaching an agreement can involve extensive and detailed negotiations before the two sides can reach a point of "agreeing to agree." In this kind of situation, sometimes the parties to the upcoming agreement will enter into a document meant to memorialize the points they want to make sure are addressed in the final contract. This document is referred to as a "memorandum of understanding" or as a "letter of intent."

Memoranda of understanding are frequently used in contracting with government entities and in international business negotiations, but they are not confined to those two areas. They can be employed in any contract negotiation. These documents do not usually generate controversy, but depending on the way they are written they can become what the law refers to as a "quasi-contract," meaning that they contain enough detail about the parties intent to be bound to an agreement that they can effectively become contracts unto themselves. That is what happened, for example, in the case of Pennzoil v. Texaco in the 1980s, when an attempt by Texaco to interfere with a business acquisition by Pennzoil ran afoul of a memorandum of understanding between Pennzoil and the company it was negotiating to acquire that the court ended up treating as a contract.

What makes a breach of contract "material?"

It can be the case that after the parties to a contract begin their respective performance obligations under the document, disagreement can ensue as to whether one party performed its contractual duties sufficiently or whether it failed to do so in such a way as to constitute an actionable breach of contract. When making the determination of whether a breach of contract will support a legal claim for damages or another form of contractual remedy such as specific performance, an important question to tackle is whether the breach was "material" in nature.

The distinction between a material and a non-material breach of contract can be important, because if the breach is not material then the non-breaching party's legal remedies may be limited in scope. Indeed, the Ohio State Bar Association suggests that unless a breach is material in nature, there is no cause of action for breach of contract. Put another way a breach is material when a party violates a term essential to the purpose of the agreement; otherwise minor, trifling, or technical departures from a party's performance obligations will not result in a breach of contract.

What are due diligence considerations for commercial real estate?

The acquisition of real property by a business for strategic, financial or development purposes often represents a substantial investment and as such must be taken with the utmost seriousness and care.

This is especially so because unlike individual consumers purchasing homes, the law in Ohio and elsewhere in the United States generally is not as forgiving to business purchasers of land who make mistakes during the process. In other words, the old adage of caveat emptor – "buyer beware" – might be softened somewhat for a consumer, but generally still applies to business real estate buyers.

How do I form a joint venture business?

Are you in the beginning process of planning and forming your new Ohio business? Congratulations, this is an exciting undertaking that could lead you down a road of major success in the state. If you already have a business and are looking to expand, you may be considering entering into a joint venture. This is when two or more smaller businesses join to create a larger, temporary solution that benefits both businesses. Does this sound appealing to you? If so, read through the following basics.

You should only consider entering into a joint venture if the terms will be beneficial to both you and any partners that you will be merging your business with. You should think about what you will be giving and receiving and use that information to decide if the venture is worth the hassle and the risks. It can be difficult to outline this giving and taken as you are drawing up negotiations. Before joining a joint venture, always insure that your business is protected from potential risks.

What is a sub-s corporation?

When forming your future business, it is important to establish what type of corporation you are planning. The status of your business will play an important role in determining what taxes you are held liable for in the state of Ohio. You could also be eligible for some benefits or tax breaks of you own a certain type of business. Small businesses in particular should be thoroughly planned for success.

A sub-s corporation is one that passes on financial fluctuations, such as corporate income, deductions, losses or credits, to the shareholders. This is done for federal tax purposes. These shareholders then report the earnings and losses on their personal income tax documents. Taxes are assessed at the rate of the individual shareholder, rather than the business as a whole. This is a route that allows the corporation to avoid being taxed twice for income. This type of corporation is responsible for specified areas, such as entity level passive income and built-in gains.

How the IRS distinguishes between employees and contractors

One of the major shifts in American employment patterns that has affected businesses in Ohio as well has been the move of companies away from hiring employees and toward relying on independent contractors. There are a number of practical reasons for this change: employers do not normally extend employee benefits to contractors, contractors have more flexibility in their work schedules and weekly hours, it can be easier to release a contractor than to fire an employee, and tax advantages for the employer.

Wrongly categorizing an employee is a contractor can result in serious tax consequences for the employer. In cases of doubt, in addition to consulting with the IRS – or if the IRS is challenging your classification of a worker's status as a contractor – you may wish to consult with a law firm that practices in business and employment law matters for assistance.

What is a "quasi contract?"

Valid contracts can take different forms. The type that as a business professional you may be most familiar with is known as an express contract, which is an agreement set forth in a signed writing and the terms of which are included in the agreement document.

There are a couple of other contract types that you may not be familiar with, but which are still enforceable. One is the oral agreement, in which the two sides agree to a course of performance without ever setting forth the details in writing. The other is an implied contract that a court may impose on the parties, which is also known as a "quasi contract."

Considerations in drafting a nondisclosure agreement

If you have done business-to-business negotiations for any length of time, then you are likely familiar with one of the ubiquitous aspects of such dealings: a confidentiality, or nondisclosure agreement. These are typically anywhere from two to five or six page documents that seek to protect from unauthorized information that one or both parties considers to be sensitive to its business, such as trade secrets or other proprietary information.

Many of these agreements are “boilerplate” in nature, meaning that they contain roughly similar terms and conditions such as how confidential information is to be defined and marked, how long it should be protected, the duration of the term of protection, and whether such information needs to be returned to the disclosing party after the end of the agreement. Especially if you have encountered several such agreements, you may be tempted to think that you have “seen them all” and to simply give them a cursory glance-over before signing them. That could, however, be a costly mistake.

What are the different types of alternative dispute resolution?

In an earlier post we touched upon the reasons why your business may want to consider alternative dispute resolution in lieu of litigation in the event of a contract dispute. In this post we will briefly consider some of the specific forms that alternative dispute resolution (ADR) can take.

Arbitration. This is probably the most-used and most familiar form of ADR. Its advantages include the ability of the parties to the dispute to choose an arbitrator (or arbitrators) who is familiar with the subject matter of the agreement, as well as having the arbitrator's decision be binding and enforceable in court.

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