Here are some interesting tidbits of law that probably won’t come up in casual conversation, but could someday be VERY important to you.

Texas courts and lawmakers like Texas law.    Contracts for construction or repair of  buildings, homes and other improvements located on property in Texas are interpreted under Texas law.  Any provision in the contract that makes the contract subject to another state’s law or arbitration in another state is voidable.

Certain consumer contracts can be cancelled by a consumer within 3 business days after the contract is signed.  The merchant has to provide the consumer with a copy of the contract, and notice of the right to cancel.  This covers contracts for goods and services exceeding $25 or purchase of real property for more than $100, where the merchant personally solicited the sale and the consumer signed the contract at a place other than the merchant’s place of business.

Making a transfer (like a gift or a sale for less than fair market value) to defraud or hinder a creditor is illegal under the Texas Uniform Fraudulent Transfer Act.

Statute of Frauds makes unenforceable any oral agreement that promises to pay the debt of another person, contracts for the sale of real estate, or is not to be performed within one year from the date of making the agreement.

A person cannot refuse to sell or rent a dwelling to another because of race, color, religion, sex, familial status or national origin.  “Familial status” includes someone who is pregnant, living with someone younger than 18 years of age, or in the process of obtaining legal custody of someone younger than 18 years of age.   A person can discriminate against someone who has been convicted of the illegal manufacture or distribution of a controlled substance.

Rules for trustees and trusts are determined by the trust instrument.  If the trust instrument is silent, and the Trust is subject to Texas law, then the default rules are found in the Texas Property Code.

Lots used for the burial of the dead are exempt from seizure for the claims of creditors.

Texas has an entire section for Residential Construction Liability that requires a homeowner has to jump through complex and lengthy  procedures before bringing a claim against the contractor.

A person has one year to register with the Secretary of State  the right to use the name of a deceased individual’s name, voice, signature, photograph or likeness.  If the ownership of the right wasn’t transferred at or before the death of the individual, then the right vests in the surviving spouse and children.

Quick, think of three words you associate with boats.

If you thought lake, suntan oil and skiing, then you have friends who own boats and are nice enough to invite you along.

If you thought repairs, money pit and disputes, then you are a boat owner.  It would behoove you to know the lien laws that govern boats (and apply to motorboats, vessels or outboard motors)

A worker in Texas who repairs a boat may retain possession of it until the amount due under a contract for the repair is paid.  If there is no contract, then the amount is for the “reasonable and usual compensation”.

If the worker gives up possession of the boat for a hot check or canceled credit card transaction, then the lien continues to exist.  The worker can retake possession of the boat peacefully IF the person who authorized the repair had signed a separate notice stating the boar was subject to repossession.  Cost of repossession can be charged to the person who authorized the repair.

Someone with whom the boat is left for care is referred to as a “garageman,”  and has a separate lien right based on his care and towing charges.  If payment is delinquent, then he can sell the boat at a public sale after giving notice to the owner.   There are separate notice requirements that must be met if the boat is required to have a certificate of title under the Parks and Wildlife Code.   In addition to personal written notice to the owner, the lien notice has to be filed with the county tax-assessor collector’s office in the county in which the repairs were made. .

There is another type of lien available to someone who furnishes supplies or materials or who performs repairs or labor on a domestic vessel.   The lien attaches to the vessel, and its tackle, apparel, furniture and freight money.  The list of people who are authorized to incur charges that could result in the lien include the managing owner, the ship’s husband, the master, the local agent, and any  person entrusted with management of the vessel.

Lien rights to motorboats, vessels and outboard motors is a hot topic with the Texas legislature. The statute on the lien foreclosure requirements has been amended six times, with the most recent amendment in 2011.  With over 1500 bills on file for the 2013 Legislative session, you can be sure that someone, somewhere, is trying to change them again.

Starting a business?  Then do it the right way.

There are three professionals you need to contact at the beginning of your planning phase:  an accountant, a banker, and a lawyer.

The accountant – will counsel you on immediate tax breaks, record requirements, potential tax pitfalls, and proper structure.

The banker – will counsel you on setting up accounts, maintaining financial statements, obtaining financing, and be a resource.

The attorney – will counsel you on entity formation,  avoiding liabilities, protecting assets, drafting and entering into contracts, employment and independent contractor issues, and lawsuit prevention.

The first issue that you will confront, and the starting point for all of your other decisions,  is the legal form of your business.   A sole proprietorship is the most risky and least favored, because it leaves you personally vulnerable.

Texas has several primary forms of entities:  corporation, general partnership, limited liability partnership, limited partnership, and limited liability company.  The Texas Business Organizations Code, a one-stop shop for answers to most of your questions.

If you’re not up to reading the entire TBOC, then you can use the following summary as a starting point to make your decision.

Corporation – ownership by stock, limited liability for owners, management by directors and officers, capital can be raised by sale of stock, shares can be easily transferred (but are subject to state and federal securities laws), low cost of formation. Subject to Texas Margin Tax and income is taxed twice – once on receipt by corporation and once on distribution.

S Corporation – a Corporation that is taxed almost like a partnership.  The “S” denotes tax status with the IRS.

General Partnership – no limitation on liability, if owned by individuals then it does not have to pay the Texas Margin Tax, the partners’ agreement controls how losses and profits are distributed, how the entity is managed, and how capital is raised.   The partner’s interest may be subject to State and federal securities laws.  Limited transfer of interest.  This is considered the most dangerous and risky of entities.

Limited Liability Partnership – a general partnership in which the liability of some partners is limited.  There is no one-size-fits-all type of LLP.  It has to be filed with the Secretary of State, carry at least $100,000 of liability insurance, and is subject to the Texas Margin Tax.

Limited Partnership – has a general partner (with unlimited liability) and limited partners (with limited liability).  The general partner operates the business.  A written agreement is not required, but most LPs have one.  Limited partnership interests are usually considered subject to the state and federal securities laws.  The agreement usually restricts transfer of partnership interest.

Limited Liability Company – created to combine the best of all entities.  Tax-wise, can be treated as a partnership, but is subject to the Texas Margin Tax.  Provides for limited liability and centralized management.   Owners of an LLC have  freedom to determine the internal structure and operation of the LLC.  Newly created last year – the Series LLC, which provides for segregation of management, assets and liabilities within the entity.

Too many choices?  That’s where your accountant, banker and attorney come into the picture.  Choose them wisely, and follow their advice.

You’re bombarded with information about safeguarding your bank accounts from scam artists, identify thieves, embezzling employees and errant spouses. Yet there’s an even bigger threat to the money in your account:  your own bank.

Banks don’t like to lose money.  They don’t like to be in the middle of lawsuits as stakeholders.   They don’t like to be held liable for their own mistakes.

Consequently, if they have an excuse not to give you back your own money, they will seize upon it.

How can this happen?  Let me count the ways.

It can freeze an account if

• someone      else claims they have an interest in the funds.
• it receives      a court order enjoining the account holder from withdrawing the funds.
• it believes      the account owner is “kiting” checks.
• someone in      the bank thinks there is unusual activity on the account.

Most people know that a bank can refuse to give credit on newly deposited funds for anywhere from 3 days to 10 days.

What they don’t realize, however, is that a bank has a right to offset their  account for a past-due debt.  If you have an outstanding loan with the bank that becomes past-due, the bank can take the money out of your account to pay the balance.

Think you can cash out that account at any time and take your money elsewhere?  Not really – the bank has the option to give you your funds in the form of a cashier’s check, not cash.  And most banks will treat a cashier’s check like any other newly deposited fund.

Scared?  You should be – your bank can crash your credit score and put you out of business in a heartbeat.

So how do you protect yourself?   You have several options.

• Spread your      accounts among two or three institutions – a large bank,  a credit union, and a local bank.
• Know your      banker.
• Keep some      cash on hand.
• Read your      account agreement.
• Read your      bank statements as soon as you receive them.

If you are having a problem with your banking institution, call Hammerle Finley Law Firm.  Virginia Hammerle and Thad Finley have been members of the Texas Association of Bank Counsel for over twenty years.

Starting a business?  Then do it the right way.

There are three professionals you need to contact at the beginning of your planning phase:  an accountant, a banker, and a lawyer.

The accountant – will counsel you on immediate tax breaks, record requirements, potential tax pitfalls, and proper structure.

The banker – will counsel you on setting up accounts, maintaining financial statements, obtaining financing, and be a resource.

The attorney – will counsel you on entity formation,  avoiding liabilities, protecting assets, drafting and entering into contracts, employment and independent contractor issues, and lawsuit prevention.

The first issue that you will confront, and the starting point for all of your other decisions,  is the legal form of your business.   A sole proprietorship is the most risky and least favored, because it leaves you personally vulnerable.

Texas has several primary forms of entities:  corporation, general partnership, limited liability partnership, limited partnership, and limited liability company.  The Texas Business Organizations Code, a one-stop shop for answers to most of your questions.

If you’re not up to reading the entire TBOC, then you can use the following summary as a starting point to make your decision.

Corporation – ownership by stock, limited liability for owners, management by directors and officers, capital can be raised by sale of stock, shares can be easily transferred (but are subject to state and federal securities laws), low cost of formation. Subject to Texas Margin Tax and income is taxed twice – once on receipt by corporation and once on distribution.

S Corporation – a Corporation that is taxed almost like a partnership.  The “S” denotes tax status with the IRS.

General Partnership – no limitation on liability, if owned by individuals then it does not have to pay the Texas Margin Tax, the partners’ agreement controls how losses and profits are distributed, how the entity is managed, and how capital is raised.   The partner’s interest may be subject to State and federal securities laws.  Limited transfer of interest.  This is considered the most dangerous and risky of entities.

Limited Liability Partnership – a general partnership in which the liability of some partners is limited.  There is no one-size-fits-all type of LLP.  It has to be filed with the Secretary of State, carry at least $100,000 of liability insurance, and is subject to the Texas Margin Tax.

Limited Partnership – has a general partner (with unlimited liability) and limited partners (with limited liability).  The general partner operates the business.  A written agreement is not required, but most LPs have one.  Limited partnership interests are usually considered subject to the state and federal securities laws.  The agreement usually restricts transfer of partnership interest.

Limited Liability Company – created to combine the best of all entities.  Tax-wise, can be treated as a partnership, but is subject to the Texas Margin Tax.  Provides for limited liability and centralized management.   Owners of an LLC have  freedom to determine the internal structure and operation of the LLC.  Newly created last year – the Series LLC, which provides for segregation of management, assets and liabilities within the entity.

Too many choices?  That’s where your accountant, banker and attorney come into the picture.  Choose them wisely, and follow their advice.

This is a story about a ConTort.  If you don’t know what a ConTort is, you’re not alone.

In the 1950’s, Exxon entered into a mineral lease with a group of landowners (we’ll call them the” Miesch Group”)and agreed to pay them 50% royalties.   Thirty years later, Exxon contacted the Miesch Group and said the minerals were depleted and that it wanted to renegotiate the leases to pay a lower royalty than the admittedly onerous 50%.    When the Miesch Group refused to renegotiate, Exxon terminated the leases and plugged the wells.

The Miesch Group then entered into a contract with another production company, which sent them  a letter that it had  encountered “junk,” cut casing, packers, and other debris in its attempt to re-open the plugged wells.   After the wells were re-opened, the Miesch Group discovered that, contrary to Exxon’s statements, the minerals were not depleted.   Suspecting Exxon had lied to them just to drive down the royalty cut, the Miesch Group sued Exxon on several tort theories (a tort is a common-law claim that the defendant’s  acts caused injury to the plaintiff).

Exxon vigorously denied everything, and further added that it couldn’t be liable on a tort when there had been a contract (the lease) in place.  It said the Miesch Group could only sue them on the contract.

Why was this important?   Because if a party wins on a tort claim, then it may also qualify for punitive damages.   There have been cases where the amount of the original claim has been dwarfed by the amount of punitive damages – sometimes by millions of dollars.   In addition,  Exxon could assert defenses on the contract that it could not on the tort.

Was Exxon going to get off on slick lawyering?

Nope.  Enter the ConTort, a hybrid of tort and contract that carried the worst of all worlds for Exxon.  The Court of Appeals decided that, while it was true that Exxon and the Miesch Group had a contract, Exxon had committed a tort when it lied about the mineral reserves in order to gain a negotiating advantage for a new contract.  The Court said that Exxon had a “duty to use reasonable care” when it provided information to a potential customer.

So Exxon committed a tort in trying to form a contract.  A ConTort, pure and simple.

Let’s apply this to the real world.  Is it a ConTort if

• Your  mechanic lies to you about the need for a new part on your car?
• Before entering a rental agreement, the apartment complex leasing agent falsely tells you the parking lot is patrolled 24 hours daily?
• Your sister asks to borrow $25 and falsely tells you she is going to use it to buy food?

All of them are ConTorts.  Still confused?  Rest assured, so are a lot of appellate judges.  There will be a lot more litigation in this area.

When setting up a new business  determining the type of business structure to use can be confusing and overwhelming. In addition, the consequence of choosing the wrong business structure can subject you to liabilities you never intended when setting up your business.

As a potential business owner, you have the option of setting your business up as a sole proprietorship, a general partnership, or as a corporation. There are also several variations of each of these business structures that will change your potential liabilities as the owner of your business. An attorney can help you determine which business structure is best suited to fit your needs as a business owner.

Forming a Texas sole proprietorship  is simple. As a sole proprietor, you have the ease of conducting your business any way you wish. You do not have to answer to any partners nor do you have to meet any corporate formalities. However, you can be subject to potentially devastating liabilities.

It is much more difficult to form the more extensively complex business structures, such as Texas partnerships or corporations. They both generally require you to file documents and pay additional fees. These complex business structures can potentially protect you from being personally liable for any obligations of the business. If the business is not properly formed, however, you may be personally liable for the debts and obligations of the business. An attorney can help insure that your business has been properly formed, so you may be adequately protected.

Choosing which business structure is extremely difficult as each structure has its own advantages as well as its own disadvantages. Failing to choose the correct business structure could be the difference between a successful business and one that ends in failure. The attorneys at our firm have the knowledge and experience to help you decide which business structure will make your business one that succeeds and meets all of your expectations. Call and set up an appointment with Thad Finley or Virginia Hammerle today. They would be happy to meet with you in our Lewisville office, or at one of our other locations. And we can also come to your place of business!

This is a story about a ConTort.  If you don’t know what a ConTort is, you’re not alone.

In the 1950’s, Exxon entered into a mineral lease with a group of landowners (we’ll call them the” Miesch Group”)and agreed to pay them 50% royalties.   Thirty years later, Exxon contacted the Miesch Group and said the minerals were depleted and that it wanted to renegotiate the leases to pay a lower royalty than the admittedly onerous 50%.    When the Miesch Group refused to renegotiate, Exxon terminated the leases and plugged the wells.

The Miesch Group then entered into a contract with another production company, which sent them  a letter that it had  encountered “junk,” cut casing, packers, and other debris in its attempt to re-open the plugged wells.   After the wells were re-opened, the Miesch Group discovered that, contrary to Exxon’s statements, the minerals were not depleted.   Suspecting Exxon had lied to them just to drive down the royalty cut, the Miesch Group sued Exxon on several tort theories (a tort is a common-law claim that the defendant’s  acts caused injury to the plaintiff).

Exxon vigorously denied everything, and further added that it couldn’t be liable on a tort when there had been a contract (the lease) in place.  It said the Miesch Group could only sue them on the contract.

Why was this important?   Because if a party wins on a tort claim, then it may also qualify for punitive damages.   There have been cases where the amount of the original claim has been dwarfed by the amount of punitive damages – sometimes by millions of dollars.   In addition,  Exxon could assert defenses on the contract that it could not on the tort.

Was Exxon going to get off on slick lawyering?

Nope.  Enter the ConTort, a hybrid of tort and contract that carried the worst of all worlds for Exxon.  The Court of Appeals decided that, while it was true that Exxon and the Miesch Group had a contract, Exxon had committed a tort when it lied about the mineral reserves in order to gain a negotiating advantage for a new contract.  The Court said that Exxon had a “duty to use reasonable care” when it provided information to a potential customer.

So Exxon committed a tort in trying to form a contract.  A ConTort, pure and simple.

Let’s apply this to the real world.  Is it a ConTort if

• Your  mechanic lies to you about the need for a new part on your car? (yes)
• Before entering a rental agreement, the apartment complex leasing agent falsely tells you the parking lot is patrolled 24 hours daily? (yes)
• Your sister asks to borrow $25 and falsely tells you she is going to use it to buy food?  (yes)

The Affordable Care Act gives certain small businesses a tax credit if they provide health insurance to their employees.  Sounds too good to be true?  That’s because few businesses will qualify.

For tax years 2010-2013, the maximum credit is 35% for small business employers.  In general, on January 1, 2014, the rate will increase to 50%.

If  a small business pays $50,000 a year toward workers’ health care premiums and  otherwise qualifies for a 15% credit, then it could save $7,500.  If they do this for tax years 2009-2013, that’s a total savings of $30,000.

Here’s the catch.   To be eligible, the business must cover at least 50% of the cost of single (not family) health care coverage for its employees.  It  must also have fewer than 25 full time equivalent employees and those employees must have an average wages of less than $50,000 per year.

There are a lot of experts who predict the cost of trying to qualify and prove eligibility for the credit will outweigh the possible savings.

For more info: www.irs.gov/sbhtc.

The Series Limited Liability Corporation.  Ever heard of it?

It’s been approved in Texas since 2009.   This relatively new type of entity is easily the most exciting option that has ever been available in Texas.

The Series LLC establishes one corporate shell can hold a myriad of assets, business arrangements and members, all sheltered from one another.  It can be for profit or not for profit, and can be set up to carry on any business, purpose or activity.

How useful is this?  Imagine a married couple who own several rent houses.  They set up the Series LLC, and establish a separate “shell” for each house.  Each house is protected from the liabilities of the other rent property.

Another scenario – a group of investors who hold interests in 5 different businesses.  In the old days, to protect themselves, and to insulate each business from the other business’ liabilities, they most probably would have set up a holding company, which would then own 5 corporations (one for each business).  That’s a total of 6 companies, each with a board of directors, an annual tax return, and lots of paperwork.  The framework is unwieldly and expensive to maintain.

Using a Series LLC, the investors can set up one company with 5 different series.   Each series can have its own members, managers, membership interests and assets.  It can also have separate rights, powers or duties with respect to specific property.  A Series LLC can even establish a different division of profits and losses for each series or asset.

The Certificate of Formation of the LLC can provide that the debts of one series are enforceable against the assets of that series only, and not against the assets of any other series or of the LLC generally.

The assets of the series can be held in the name of the series, the name of the LLC or through a nominee.  The LLC does have to keep records that identify the assets.

Each Series can, in its own name, sue and be sued, contract, hold title to assets of the series, including real property, personal property, and intangible property, and grant liens and security interests in assets of the series.

Best yet, the company agreement of a Series LCC can provide that a member or manager associated with a series or a member or manager of the company will not be not liable for a debt, obligation, or liability of a series, including a debt, obligation, or liability under a judgment, decree, or court order.

The company agreement can establish classes or groups of members or managers, each with different duties, powers and voting rights.

The possible variations on a Series LLC are endless.   That alone means there will be a lot for the courts to sort out when these entities become more common.  For the present, however – what a great business vehicle to take out for a drive.

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