Contents

Q:

Why do I need to incorporate my business or form a limited liability company?

A:

The most common reason for incorporating a business is to separate an individual’s liabilities from those of a business. For example, a company may enter into a contract with a third party. If the business subsequently dissolves, the individual owners of the business might not be liable for the debt in many circumstances. Additionally, a business entity allows a person to easily raise capital, and spread ownership among others. Our office forms business entities and helps to ensure that they are formed properly. Contact the Law Offices of David L. Leon, PC for more information.

Q:

Our company needs to have an annual meeting. Where should we have the meeting?

A:

You can have the company’s meetings at the place that is provided in the entity’s company documents. If there is no place mentioned in the company documents, then the meetings can be held at the registered office of the company. As always, if all agree, then the meeting can be held anywhere.

Q:

When would I need to apply for a late hour mixed beverages permit?

A:

The holder of a mixed beverage late hours permit may sell mixed beverages on Sunday between the hours of 1:00 a. m. and 2 a. m. and on any other day between the hours of 12 midnight and 2 a. m. (TABC Sec. 29.01)

Q:

What sort of forms do I need to complete for my business before the end of the year?

A:

This is a common question. Most companies and partnerships in Texas should complete some end of year meetings. The notes from these meetings, called “minutes” should be placed with the company’s records. The minutes should contain signatures of all owners of the company, and a list of any important business that has been transacted since the past meeting. You can also take this opportunity to have your board of managers / board of director elections for the upcoming year, double check that the registered agent and public information reports (PIR) are up to date. Contact Us for more information.

Q:

What is ERISA?

A:

ERISA is a federal law that stands for the “Employment Retirement Income Security Act” of 1974. This law is designed to protect retirement, pension and 401(k) plans.

ERISA requires employer plans to provide subscribers with specific information (such as disclosures about plan benefits and how the plan is funded). This law also assigns fiduciary responsibilities for those who manage and control plan assets.

Finally, the Act requires such plans to establish a grievance and appeals process for subscribers/employees and gives employees the right to sue for denials and breaches of fiduciary duty by plan administrators.

Q:

What is business insurance planning?

A:

Business insurance planning includes insurance against the loss of a key person who is vital to the survival of a business. This type of policy can be used to inject cash into a business in order to survive while you replace the lost person. It can also cover buy/sell agreements, allowing the surviving member of the business to buy out the deceased member’s interest. Other types of insurance planning include wholly owned or captive insurance companies, umbrella insurance policy planning and commercial liability. Contact the Law Offices of David L. Leon, PC for more information.

Q:

What is an organizational meeting?

A:

After forming a new corporation, an organizational meeting is to be held by the directors. At this meeting, the officers and directors of the corporation are elected, the bylaws adopted, and the stock is issued to the shareholders. (Texas Business & Corp. Act, Sec. 3.06)

Q:

What is an intellectual property license? What is a royalty?

A:

In order to legally use the intellectual property of another, the owner of the intellectual property needs to give permission. Such permission is called a “license.” The payment for the license is typically the “royalty.”

Q:

What is a “work for hire”?

A:

A “work for hire” (also known as a “work made for hire”) is doctrine of intellectual property law governing ownership of material. The premise is that if a person or company hires another to create something under a work for hire arrangement, the person who hired the creator is the owner of the work. For example, let’s suppose Company A hires Joe Programmer to write a piece of software under a work for hire arrangement. The end result is that Company A owns the software, Joe does not.

Q:

What is a trademark?

A:

A trademark is used to designate a source of goods or services. Typically, a trademark is a logo, graphic or short phrase used to identify a product or company. Trademarks may be obtained at common law, and they may be registered with the United States Patent and Trademark Office. If a trademark is being used without permission, then a trademark infringement or dillution suit may be necessary in order to protect the mark. If your mark is “merely descriptive” of your product, then you may not not be able to register your mark (there is still a supplemental register, though).

Q:

What is a trade secret?

A:

A trade secret is a type of intellectual property which gives a competitive advantage to the knowledge holder, and in which the knowledge holder takes steps to keep secret. For example, a confidential customer list could be considered a trade secret. Our firm can assist with trade secret litigation, trade secret contracts and the like.

Q:

What is a pyramid scheme?

A:

A pyramid scheme (a/k/a franchise fraud) is an investment fraud scheme in which someone is offered a distributorship or franchise to market a particular product. This involves a fee to become part of the business. The real profit is earned by the sale of new distributorships and not by the sale of the products. Typically, the scheme is sold by telling new subscribers that they can remake their original investment by selling distributorships to two or more people, and so on. Soon, the lower levels of the pyramid are unable to find more people to buy into the scheme, and the scheme collapses. (Source: FBI )

Q:

What is a Ponzi scheme?

A:

A Ponzi scheme is an investment scam in which a company claims to be paying investors “profits.” However, the business is only bringing in money from getting other investors. For example, Company Z solicits investors A, B, C, who each pay in $1. The company then solicits investors D, E, and F who each pay $1. Company uses D, E, and F’s investments to note on A, B and C’s accounts that they have earned a “profit.” Company then solicits G, H and I, taking their money, and using it to show a “profit” for the accounts on D, E, and F. The cycle continues until people try to withdraw their investments, or until the company can no longer obtain fresh victims. Typically, no real investments are ever made. Another variation is that investments are made, but losses are ‘covered’ by fraudulently making income statements and covering the losses with the new investor’s money.

Q:

What is a patent?

A:

A patent is a mechanism to protect an idea, invention, method or design. Patents are either novel creations or modifications to existing ideas. Prior to filing a patent application with the United States Patent and Trademark Office, it is recommended that a patentability search be conducted.

Q:

What is a non-profit company?

A:

A non-profit company is typically an entity that is formed for a purpose other than to make money. Under the Texas statute (Sec. 2.002 of the Business Organizations Code), the purpose of the nonprofit should be for “serving charitable, benevolent, religious, patriotic, civic, missionary, educational, scientific, social, fraternal, athletic, aesthetic, agricultural, and horticultural purposes…” Also included under the statute are certain animal husbandry organizations, some trade/labor unions, and certain types of co-ops.

Q:

What is a fiduciary duty?

A:

A fiduciary duty is the highest standard of care one can owe to another. The fiduciary relationship is one of trust and confidence. The person or institution who owes the fiduciary duty must put the person’s interests above his or her own interests. Common examples of fiduciary duty include power of attorney holders, executors in wills, and trustees of trusts.

Q:

What is a fictitious name?

A:

A fictitious name (also called a d/b/a or “doing business as”) is the least expensive method for conducting business. Under this scenario, there is no distinction between the individual and the business. From a tax standpoint, there is no difference between the individual’s income and expenses, and those of the business. The business owner is personally liable for the obligations and debts of the business. Taken literally, a d/b/a is just a nickname of the individual that created it. In this case, the name is a business name. For example, Joe wants to create a business to do computer repairs from his home. Joe can file a dba as “Fix It Quick”. Joe can now receive checks made out to Fix It Quick. For individuals, a dba does not have a separate tax identification number in most instances. Contact Us for more information.

Q:

What is a copyright?

A:

A copyright is a legal protection afforded to an author of a creative work. For example, a photograph, drawing, or story could be subject to copyright protection. Although copyright protection is automatically afforded to author upon completion of the work, many additional rights are available if the work is registered shortly after creation. Additionally, registration is a requirement before filing a suit for infringement in federal court.

Q:

What is a Certificate of Authority?

A:

A Certificate of Authority is a document executed by the Texas Secretary of State. This document states that a foreign business (which means a business formed outside of Texas) has permission to transact business within the State of Texas. The business with a Certificate of Authority must file annual reports and pay associated Texas taxes to maintain the Certificate. A Certificate is required for any business regularly transacting within the State of Texas.

Q:

What does the IRS consider when determining whether or not a person is an independent contractor?

A:

The IRS uses three main criteria when determining whether or not someone is an employee or independent contractor.

From the IRS.gov website:
Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Q:

What does FOB mean? What about FAS? What is CIF? and C&F?

A:

International contracts typically contain shorthand terms (Incoterms) describing when the risk of loss transfers from a seller to a buyer. The most commonly used Incoterms are listed below:

FOB stands for “free on board”. Its use would be “FOB ” where would be the city or place where the goods would be left. This term is typically used in sales contract, and designates a location for the delivery of goods. For example, FOB Dallas means that the seller would provide the goods at the seller’s expense to Dallas. The buyer is responsible for transport of the goods beyond Dallas.

FAS stands for “free along side”. Typical usage would be FAS (Port or Vessel). This means that the seller is responsible for delivering goods to a specific port or vessel. The buyer would then assume the risk of loss once the goods were delivered to the side of the vessel. Once the loading process begins, the risk of loss shifts to the buyer.

CIF stands for “cost insured freight”. This means that the seller will bear the cost of shipping and insurance up to the designation. Common usage would be “CIF Buyer’s address”

C&F means “cost and freight” which means the seller pays for shipping, but not insurance. The buyer would be responsible for all insurance.

Q:

My corporation dissolved, but there is still unfinished business. What can it do after the dissolution?

A:

A dissolved corporation in Texas shall continue its corporate existence for a period of three years from the date of dissolution, for the following purposes:

(1) prosecuting or defending in its corporate name any action or proceeding by or against the dissolved corporation;

(2) permitting the survival of any existing claim by or against the dissolved corporation;

(3) holding title to and liquidating any properties or assets that remained in the dissolved corporation at the time of, or are collected by the dissolved corporation after, dissolution, and applying or distributing those properties or assets, or the proceeds thereof.

Q:

May I advertise that I’m “going out of business” even if I’m not?

A:

No. Texas Business and Commerce Code Sec. 17.11 specifically prohibits this practice. Further, this behavior is a misdemeanor.

Q:

Is there a magic test to determine if a person is an employee or independent contractor?

A:

No, there is no “bright line” test determine whether or not a person is an employee or an independent contractor. The IRS will look at the entire relationship between the parties.

Q:

I’m still confused about this independent contractor vs. employee determination. Can I ask the IRS for a determination?

Q:

I’m selling my restaurant or bar. It has a mixed beverage permit. Is the mixed beverage permit transferable?

A:

No. Section 28.04 of the Texas Alcoholic Beverage Code states: A mixed beverage permit held by a corporation may not be renewed if the commission or administrator finds that legal or beneficial ownership of over 50 percent of the stock of the corporation has changed since the time the original permit was issued.

Q:

I want to start a new business. In order to attract customers, can I call my business a “wholesaler” even though I sell to the public?

A:

No. If you are not a wholesaler, you cannot advertise your business as a ‘wholesale’ business. Sec. 17.11 of the Texas Business and Commerce Code specifically prohibits this, as this would be a deceptive trade practice. This type of behavior is a misdemeanor.

Q:

I want to start a business in Texas. Do I need a lawyer?

A:

Although there are several ways you can form a business yourself without an attorney, there are several different types of entities to choose from when you form a business in Texas. Depending on what your plans are, and what your business model is, there are several choices. An attorney can assist you with selecting the appropriate type of entity to choose. After you have selected the type of entity, our firm can set up the company and assist you with the stock or unit issuance and organizational meetings. 

Q:

I want to send an unsolicited commercial email in Texas. How do I comply?

A:

Texas provides a limited safe harbor for unsolicited commercial email (a/k/a bulk email or SPAM) Please note, that other states may have different laws that would apply to email sent to residents of that state.

Q:

I want to sell a used watch. Do I have to disclose that the watch is used to the customer?

A:

Yes. Title 2, Chapter 17 Subchapter C of the Texas Business and Commerce Code deals specifically with the selling of secondhand watches in the state. Not only must the watch be clearly labeled “secondhand” (17.21) but accurate records must also be maintained under Sec. 17.20. Failure to comply is a crime under Sec. 17.22.

Q:

I want to hire someone for my small business. Can I hire them as an independent contractor and not have to deal with taxes?

A:

This is a common question. Many small business owners want help, but don’t want the added hassle (or taxes) of hiring employees. Many business owners believe that they can just simply classify someone as an independent contractor by contract and be done with it. The problem is that the IRS may not agree with your assessment as to whether a person is an employee or independent contractor (even if your agreement specifically states such.) The IRS has its own criteria for determining a person’s status. The contract is only a factor, but it is not determinative. The IRS will look at the entire relationship. Further, if you incorrectly classify someone as an independent contractor, you can face some serious fines from the IRS.

Q:

I have an out of state business. How can I conduct business in Texas?

A:

If you have more than an insolated transaction occuring in Texas, then you will need to either set up a Texas subsidiary or qualify your foriegn company to transact business within the State of Texas. If you are qualifying an out of state entity, then you need to petition the Texas Secretary of State’s office for a Certificate of Authority to transact business within the state. This also requires obtaining a Certificate of Good Standing in your company’s home state, as well as a company meeting to ratify this process. Contact Us for more information.

Q:

I have an idea. Can I patent it?

A:

An idea, in and of itself, may not be subject to patent protection. It should be reduced to a tangible form. It also must be a new idea (novel), non-obvious, and serve some kind of purpose before it can be subject to patent protection.

Q:

I have a Texas entity. What kinds of books and records do I need to keep?

A:

Each filing entity shall keep:

(1) books and records of accounts;
(2) minutes of the proceedings of the owners or members or governing authority of the filing entity and committees of the owners or members or governing authority of the filing entity;*
(3) at its registered office or principal place of business, or at the office of its transfer agent or registrar, a current record of the name and mailing address of each owner or member of the filing entity; and
(4) other books and records as required by the title of this code governing the entity.

* limited liability companies and limited partnerships need not keep these records, if their governing documents do not require them.

Q:

I have a Texas business. Can I conduct business using another name?

A:

Yes. A business entity registered in Texas may use an assumed name to conduct business, provided that it registers the assumed name (Texas Business Organizations Code Sec. 5.051.) Also, the business should double check that the name does not violate the trademark of another.

Q:

I formed a corporation online. What do I do next?

A:

Our office receives this inquiry quite often. In many cases, a person incorporates using online forms. They then receive their charter, thinking they are ready to transact business. This is not necessarily the case. The next step should be for the board of directors to call and hold an initial organizational meeting. During the organizational meeting, the board should adopt bylaws, elect officers, issue stock and transact any other business as necessary. The directors calling the meeting shall give at least three (3) days notice thereof by mail to each director, stating the time and place of the meeting. If you plan to invest time and money into your new business, you should consider ensuring that it is properly set up. Our office has assisted people with the completion of the organizational meeting. Please Contact Us for an appointment to have your new business reviewed, and to have us assist you with the completion of the organizational meeting.

Q:

I am the sole owner of my business. Do I still need to have annual meetings?

A:

It’s still a great idea to document what has transpired over the past year with your business, even if you are the only owner. This puts you in the habit of observing company formalities, and it makes it easier for you to recall what happened in a given year, should an issue later arise. 

Q:

I already have a business in Texas. What can your law firm do for me?

A:

There are several common issues that our firm can assist your business. Most often, people who have incorporated themselves online using forms or internet incorporation sites should have their documents reviewed by our law firm. We can explain the company’s regulations, by laws or operating agreement. We can also assist with annual corporate governance and maintenance. This includes handling the organizational meeting and stock issuance, reviewing corporate meetings and minutes. Our firm can also assist your business with contract drafting and review, collection matters and litigation.

Q:

How long does an employee have to file a wage claim?

A:

An employee has 180 days to file a wage claim with the Commission. (Texas Labor Code Sec. 61.051). If there is an employment contract in place, there may be additional causes of action falling under the two and four year statutes of limitation.

Q:

How can I tell if the person I hire is going to be classified as an independent contractor or an employee? Can I just say a person is an independent contractor in a contract?

A:

No. From the perspective of the IRS, the IRS doesn’t care if you label a person an employee, independent contractor or anything else. The IRS will look at the entire relationship between the parties. If you incorrectly label someone an independent contractor when they are in fact an employee, you could face serious liability. The IRS has its own criteria for determining a person’s status as employee vs. independent contractor.

Q:

Do I need to use an attorney if I am buying or selling a business using a broker?

A:

It is always a good idea to have your own counsel when buying or selling a business. These tend to be major transactions, with many moving parts. There are also different pieces to the transaction and different ways of structuring the sale. Our firm has experience in handling the buying and selling of businesses. Even if you are using a broker, you can still have your own attorney to assist with the negotiation and closing of the transaction. Transfering ownership of a business can occur in several different ways, and it takes a trained professional to determine which methods of ownership transfer will best benefit the client while minimizing the risk. Also, many companies, such as restaraunts and retail, have specific legal requirements. These tend to be complex transactions and our firm can assist you with each step of the transaction. Contact Us for more information.

Q:

Can I do my company meetings by telephone or video conference?

A:

If your company documents allow for the use of electronic meetings, then yes, you can conduct your meetings using conference calls or the internet. You need to ensure that each participant is properly identified and can communicate with all other participants, and a record of votes must be kept.

Also, if all participants agree in writing in advance, a meeting may be held electronically.

Q:

Can a business entity use a fictitious name?

A:

Yes. An entity may use a fictitious in most instances. The company must have permission to file the dba and the dba must be available. The company is still subject to other Texas laws regarding the use of trade names, and comply with trademark laws. Fictitious names allow a company to use a name other than its corporate name. We can help your business with the appropriate filings. Contact Us for more information.

Q:

Another company owes me for a past due invoice. Can you file suit to collect?

A:

This tends to be one fo the more common types of litigation. Essentially, a business will offer good and services on a revolving account basis to another. When those invoices remain unpaid, litigation may be necessary. The typical first step is to assemble all written documents exchnaged between the parties. Next, a demand letter stating that the other party is in breach of the arrangement would be sent, detailing what the other side needs to do in order to rectify the situation. Should the sides fail to reach a settlement, then the side owed money can file a suit in which a representative the company that issued the invoices swear to the truthfulness of the invoices. This is called a “sworn account suit” This forces the other side to have to file a sworn answer stating that they do not owe the invoices. If you have one of these issues, please Contact Us to discuss your issue.

Q:

An employee owes an employer money. May an employer withhold wages from an employee without a written contract?

A:

Typically, no. Labor Code Sec. 61.018. states:

“An employer may not withhold or divert any part of an employee’s wages unless the employer:

(1) is ordered to do so by a court of competent jurisdiction;
(2) is authorized to do so by state or federal law; or
(3) has written authorization from the employee to deduct part of the wages for a lawful purpose.”

Typical exceptions to this rule are contracts between employer/employee allowing for the deduction of expenses, court ordered child support obligations or court ordered restitution.