Articles Posted in Companies

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Contract Newer.jpgGood Georgia Lawyer is sometimes asked by our business owners: “Can I sue for both fraud and breach of contract?” The answer is: “Yes you can!”

We have discussed this issue in a previous article, but we’ll offer further reasoning: It has been well established for decades in Georgia law that the Plaintiff can plead alternative theories of both breach of contract and fraud and is entitled to pursue inconsistent remedies until judgment. See Estate of Sam Farkas, Inc. v. Clark, 238 Ga. App. 115, 517 S.E. 2d 826 (1999) (referring to both causes of action); Carpenter v. Curtis, 196 Ga. App. 234, 236, 395 S. E. 2d 653 (1990) physical precedent) (“Affirmance of the contract by the defrauded party does not necessarily deprive him of the right to sue for damages for fraud, as the right to affirm and the right to fraud damages coexist.”)

Under O.C.G.A. § 13-5-5, fraud renders contracts voidable at the election of the injured party. Fraud ordinarily gives injured party option either to rescind contract so induced, or, by affirming contract, to claim damages as compensation. Barfield v. Farkas, 40 Ga. App. 559, 150 S.E. 600 (1929); Nalley & Co. v. Moore, 51 Ga. App. 718, 181 S.E. 429 (1935); Brown v. Ragsdale Motor Co., 65 Ga. App. 727, 16 S.E.2d 176 (1941).

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Contract Newer.jpgThe Official Code of Georgia § 13-2-2 sets out “rules for interpretation of contracts generally.” The law states that the following rules, among others, shall be used in order to arrive at the truthful interpretation of a contract. This means if you are having a business dispute with your partner, vendor, tenant, or another company and a question turns on what the contract between you two actually means or whose version (yours or theirs) interprets the contract correctly, consider the following rules:

(1) Parol evidence is inadmissible to interpret the written contract.–Parol evidence is anything that is outside of the four written corners of the piece of paper that the contract is actually written on. This could mean conversations that you had over the telephone or notes written on a dinner napkin at a restaurant you were eating at during contract negotiations. The only time this outside evidence (“parol evidence”)should come in to interpret the meaning of the written contract is if it the written contract is somehow ambiguous (unclear) and it is obvious that the written contract wasn’t intended to represent the entire agreement.

(2) Words generally should be interpreted by their usual and common meaning; but a technical word used in particular trades should be interpreted the way they are generally used in that line of business. The local use of a word can be brought in as evidence to determine the actual meaning intended by the parties who entered the contract. In other words, if you and I were chicken farmers and we entered into a contract where you would sell me 500 Rock Cornish broilers, if there was any dispute as to what a “broiler” was, the courts would look to the ordinary local use of how Georgia chicken farmers interpret “broilers.”

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Thumbnail image for contract.jpgMany commercial contract agreements have provisions for attorney’s fees in the event one party breaches the contract. The question is: what does Georgia law say about collecting attorney’s fees from a contract? The Official Code of Georgia Annotated law, O.C.G.A. § 13-1-11, talks about the validity and enforcement of obligations to pay such fees.

Specifically, Georgia law O.C.G.A. §13-1-11 states that obligations to pay attorney fees and an interest rate shall be valid, enforceable, and collectable as part of a debt if collected by an attorney, as long as it is subject to the following:

(1) If your contract provides for attorneys fees in some specific percent of the principle and interest it will be valid and enforceable, but you can never charge over 15 percent of the principal and interest.

(2) If the term in the contract just doesn’t specify a percent, then the provision will be interpreted to mean 15 percent of the first $500.00 of principal and interest and 10 percent of the remainder.

(3) You need to first notify the person who owes you the money in writing that they have ten days after receiving the notice to pay the principal and interest they owe without having to pay for attorney’s fees. If they pay the principal and interest in full before ten days then they won’t be obligated to pay attorney’s fees. If the person who owes you the money refuses to receive delivery of your notice, it will still be considered giving notice.

You do however need to make sure you request the attorney’s fees in your demand letter because if you don’t include any reference to the attorney fees provision in your contract, then you have no right to them. And, if you need to sue to collect the money you are owed, a court cannot award you them either if you never provided notice. E.g. Quintanilla v. Rathur, 227 Ga. App. 788, 490 S.E.2d 471 (1997). Trust Assoc. v. Snead, 253 Ga. App. 475, 559 S.E.2d 502 (2002).

Since you do need an attorney to collect “attorney’s fees,” you do need to make sure you have competent legal counsel representing you in your business dispute involving a breach of contract.

But this is a good thing. Using an attorney’s fees provision is a good way to make sure you cover the cost of your legal fees in the event you get into a business dispute. Having an attorney to help you navigate complex Georgia law is much better than going it alone. In fact, going it alone is the best way to end up in a bad situation. Unfortunately, many times our business clients come in after their situation leaves them with no choice other than retaining legal counsel.

Hire an attorney who can set up preventative measures that place your business in the strongest financial and legal position possible. Smart business owners know this and know that retaining an attorney in order to set up their business to ensure that preventative measures are in place is the best way to save money and make money down the road. For example, it is key that competent legal counsel draft your contract in order to carefully preserve your legal rights. Not only to protect your business interests, but also so they can do the ” smaller things” ensuring that your contract allows you to collect attorney’s fees in the event you must go to court for a breach. These “smaller things” end up being huge, in the long run.
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Thumbnail image for Thumbnail image for Question.jpgChoosing a business form is one of the most important decision any small business owner makes when starting a company. In order to protect yourself from personal liability, it is important to create a separate business entity with the Secretary of State. But, which one should you choose? We are going to address briefly the difference between an LLC and S Corporation, so you can get an idea of some vital distinctions.

Subchapter S corporations, also known as S corporations, are very similar to LLCs. There are certain factors in any given business that lends itself better to an S Corporation or an LLC. The factors to keep in mind are: the number of initial owners, the need to attract other investors, how profits will be allocated, and taxation issues.

Both S Corporations and LLCs offer the owners limited liability protection, and are both pass-through tax entities. Pass-through taxation allows the owners of the company to take the gains or losses generated by the company on their personal tax returns. It is a special tax status that eliminates the double taxation that owners of corporations are subject to.

But, S Corporations and LLC are also very different. The ownership of an S Corporation is restricted to no more than 75 shareholders, it cannot be owned by non-US citizens, other corporations, many trusts, LLC, or partnerships. LLCs do not have these ownership restrictions.

S Corporations, however, can exists perpetually, while LLCs usually have limited life spans. The stock of S Corporations is more freely transferable than the membership interests of an LLC. S Corporations are also usually more beneficial for self-employment taxes.

You need a good lawyer to evaluate your needs and help you navigate through the legal quagmire inherent in forming and operating corporations. You must have a firm understanding of basic corporation law in order to protect your personal and professional interest.
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Question.jpgShould I start an S corporation, or a limited liability company (LLC), or maybe a P.C., or maybe a limited partnership, or what about a C corporation? These are tough questions, tough choices. And regardless of where you’re located in Georgia (Atlanta, Athens, Rome, and so forth), If you are starting a business, one of the most important decisions you will make is what kind of company to form. Even for a single person small businesses, this is an important question. The type of legal structure you choose will have an impact on how much you pay in taxes, as well as your personal liability, and your ability to raise money and investors.

The three key things to keep in mind when choosing a business form are: liability, taxation, and ownership. Corporations and LLCs are legally separate entities from their owners. So, the shareholders or members are not personally responsible for the actions of the business. If something goes wrong, the company is sued, not the owners, and the company’s assets are at stake, not the personal assets of the owners. There are exceptions, but, generally, a corporate entity will protect the owners from personal liability.

Taxation issues should also be considered. As a separate legal entity, corporations are taxed as such. And so are the owners. This is double taxation. There are other forms of corporate entities, however, that have special pass-through tax rules. Pass- through taxation means that the owners of the business can take the gains or losses of the business on their personal tax returns.

Additionally, certain legal business forms limit the number or the type of people who can invest in the company. If you need to attract a large number of investors, or international investors, you need to find a corporate structure that allows for that.

The legal structures to consider are:

Sole Proprietorship or Partnership
The advantages of both of these forms is that there are no forms to file and no double taxation. You just start your business. These two forms, however, do not shield the owners from personal liability. If the company is sued, you will be personally responsible for its actions, and your personal assets are at risk.

Limited Liability Company

The LLC is a legal form which provides limited liability for the company’s owners, but does not require the same amount of formal filings as does the corporation. It has quickly become the choice for small businesses. An LLC offers personal liability protection to its owners as well as pass through taxation. It also allows for profits to be distributed unequally, allowing for more flexibility in tax planning and for rewarding owners who manage the day-to-day affairs of the company. The disadvantages are that you may are limited in transferring ownership and your tax liability could be higher, especially if you are the only member.

S Corporation

This is a corporation formed with the state, with an “S Election” filed with the IRS. It provides limited liability to its shareholders, but still allows for pass through taxation. Shares a often more transferable, and you can incentivize employees with stock options or bonuses. The number and type of investors are limited, however, and there are more filing formalities that need to be observed than with an LLC.

C Corporation

This is a corporation that allows for the most investors. There is limited liability for its owners. It is, however, subject to double taxation.

While many small businesses are interested in saving money and using online forms to form legal entities, it is important to discuss your goals with your attorney before selecting a corporate form. An attorney can help you choose the right form to fit your business today and ten years from now.
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