Virginia SCC Adds Annual Filing and Payment Options for Corporations to Growing List of eFile Services
As previously noted on the Virginia Business Law Update, the Virginia State Corporation Commission (SCC) is in the process of rolling out a new suite of electronic filing capabilities on its SCC eFile website. The latest enhancement is a welcome addition to all Virginia corporations -- the ability to file corporate annual reports and pay corporate annual registration fees online.
Over the coming months, the SCC plans to further expand the services available on its SCC eFile website. Specifically, Virginia corporations and limited liability companies will be able to submit organizational documents electronically and pay associated fees on the SCC eFile website. Additionally, Virginia businesses will be able to file Uniform Commercial Code (UCC) documents and pay UCC filing fees online.
Q & A: Buy-Sell Agreements In Virginia
As a lawyer with a small business clientele in Virginia, I am frequently asked about Buy-Sell Agreements. Although most small business owners are generally familiar with the concept of a Buy-Sell Agreement, I find that most do not truly understand the purpose of a Buy-Sell Agreement or the form in which these contracts typically exist. Accordingly, here is a brief primer on Buy-Sell Agreements in Virginia.
What is a Buy-Sell Agreement?
A Buy-Sell Agreement is a contractual arrangement between the owners of a business (e.g., a corporation, limited liability company, or partnership) that sets forth the process by which an ownership interest can be sold upon the occurrence of certain triggering events (e.g., retirement, divorce, bankruptcy, disability, death, or a third-party offer) as well as the price or formula for such sale.
Is a Buy-Sell Agreement a stand-alone contract?
Not necessarily. A Buy-Sell Agreement can either be a stand-alone contract or a series of provisions that are incorporated into the governing documents of a business (e.g., By-Laws for a corporation or the Operating Agreement for a limited liability company).
What are the advantages of having a Buy-Sell Agreement?
By having a Buy-Sell Agreement in place, the owners of a company can completely control the disposition of an ownership interest in the business as well as control the composition of the ownership group. In a closely-held company (such as a small, family-owned business), the ability to restrict the transfer or sale of an owner’s interest in the company is an extremely important consideration as it keeps outsiders from assuming a share of the business.
What are the types of Buy-Sell Agreements?
There are three types of Buy-Sell Agreements:
- Redemption Agreement: The selling owner must either sell his ownership interest to the company or provide the company with a right of first refusal. In essence, the company is “redeeming” the shares of the owner.
- Cross-Purchase Agreement: The selling owner must either sell his ownership interest to the remaining owners or provide the remaining owners with a right of first refusal.
- “Hybrid” Agreement: A Hybrid Agreement is simply a blend of a Redemption Agreement and a Cross-Purchase Agreement.
How is a purchase funded under a Buy-Sell Agreement?
Many small businesses do not have the capital reserves to fund the purchase of an ownership interest. As such, a common approach (utilized by businesses and individuals alike) is to purchase and maintain an insurance policy from which the proceeds (upon the disability, death, or retirement of an owner) are used to purchase the available ownership interest. Other funding options include installment plans and loan arrangements.
For one reason or another, every small business is eventually confronted with the loss of an owner. As such, whether you have a startup company or an existing small business, it is of critical importance that you have a well-drafted Buy-Sell Agreement in place to maintain business continuity and to proactively limit any issues relating to the departure of an owner.
Business Law News Bites
Here is a quick summary of some interesting blogs I have read this week on a variety of business law topics that may be of interest to Virginia businesses:
Brian Hill, of the Employer Lawyer Report, analyzes how Facebook’s new privacy controls will impact the employer-employee relationship. According to Hill, these new privacy control measures could make it more difficult for employers who use Facebook to monitor their employees.
Robin Roberts, of the Startup Lawyer Blog, provides some guidance on how equity should be divided amongst co-founders of a startup company. The primary method described by Roberts is to base the equity split on an assessment of the past, current, and future contributions of each co-founder. Regardless of the method used, Roberts advises that co-founders make the equity-split determination quickly and that they consider vesting founders’ stock over a period of time.
Joshua Heslinga, of the Virginia IP Law Blog, writes that it makes good business sense to enforce your patents before they are reexamined by the United States Patent and Trademark Office (USPTO). As Heslinga notes, the timing of a reexamination decision (where a patent is reexamined by a patent examiner to verify a patent’s validity) can be a crucial determining factor in the outcome of a patent litigation case. If a reexamined patent is determined to be invalid, then that will almost certainly result in the dismissal of a pending patent infringement litigation action.
Joel Greenwald, of the Overtime Advisor Blog, details potential issues an employer may face for having employees work through lunch. According to Greenwald, employers that require "non-exempt" staff (e.g., receptionists, data entry clerks, administrative assistants, secretaries, billing clerks, customer service representatives, etc.) to work during their unpaid break time could face substantial liability under the Fair Labor Standards Act (FLSA). Under the FLSA, non-exempt employees must: (1) be paid for every hour they work; and (2) have all hours worked count towards their potential overtime pay. The website for the Virginia Department of Labor and Industry has a good FAQ section on wage payment issues in Virginia.
Michael Stocker, of the Eyes On Wall Street Blog, discusses a proposed bill by Senator Christopher J. Dodd (D-Conn.), Chairman of the Senate Banking Committee, that would overhaul the U.S. financial system. Senator Dodd’s financial reform plan bill would, among other things, consolidate bank regulators, create a consumer financial protection agency, and impose new restraints on exotic financial instruments and credit rating agencies.
Should You Use LegalZoom to Incorporate a Startup Business?
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One question that I am frequently asked by prospective clients is whether it is best to use an online incorporation service like LegalZoom or to retain an attorney to incorporate a startup business. My answer is always the same: if you are looking to form a startup business -- such as a limited liability company (LLC), an S-corporation (S-corp), or any type of business entity -- your best bet is to retain an attorney instead of relying on LegalZoom or other similar online legal document preparation services.
Although LegalZoom is a viable alternative for the preparation of some legal documents, it is not the best option for entrepreneurs looking to start a new business. First, LegalZoom cannot provide legal advice. It can only provide “self-help services at your specific direction.” Most entrepreneurs looking to start a new business need individualized advice from an attorney. They not only need to understand the incorporation process, they also need assistance with a host of other legal issues that accompany starting a new business including the hiring of employees, reviewing and negotiating leases, and drafting business contracts.
Additionally, LegalZoom uses a standard online questionnaire to determine what should go into the incorporation documents that it prepares for you. However, given that incorporation documents (e.g., Bylaws, Operating Agreements, etc.) are the foundation for the operation of your business, an attorney is often needed to ask important questions regarding various business contingencies and intricacies. For instance, although I may start the process of forming an LLC with a basic set of questions to the client, I always have hundreds of “what if” questions based on the initial answers provided by the client. The client’s answers to my litany of additional questions are essential to my determination of what to include in the incorporation documents or whether other legal documents are necessary to effectuate the client’s goals.
The process of starting a new business is much like the process of building a new house: you want it done right the first time around! Although it may be tempting to cut a few corners and save some money with a legal document preparation service, it is worth your while to retain an attorney to ensure that you are building a solid foundation for your new business. For startups in Virginia, a great resource for obtaining basic information on the incorporation process can be found at the website for the State Corporation Commission.
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