The 2nd annual Small Business Saturday® is a day dedicated to supporting small businesses on one of the busiest shopping weekends of the year.

On November 26, we’re asking millions of Americans to shop small at their favorite local stores and help fuel the economy. When we all shop small, it will be huge.

You can pledge to “Shop Small” at the official Facebook page. As a small business owner, I urge you to spend some–or all!–of you holiday budget at a small business, whether by visiting in person or shopping online.

See the Small Business Saturday^SM official website for more information.

When drafting a buy-sell agreement, attorneys and owners of closely-held companies (including corporations and LLCs) should take care to structure rights-of-first refusal and cross-purchase obligations in a way that a triggering event does not result in a constructive dividend to shareholders (or, for LLCs, to members).

For example, assume a buy-sell gives the company the first option to purchase a departing shareholder’s shares, with the remaining shareholders required to purchase what the company does not buy. This structure may result in a constructive dividend if the company purchases some or all of the shares, as the agreement formally gives the company the right to first “step in” and relieve the shareholders of an obligation. To avoid a constructive dividend, the buy-sell could be structured to give the shareholders the option to purchase the shares, instead of the obligation to do so. Alternatively, if the shareholders have an unconditional obligation to purchase the shares, the agreement can simply omit any requirement or right of the company to purchase the shares.

For this and many other reasons, I always strongly suggest to my clients that they work with an attorney and a tax professional when drafting a buy-sell agreement.

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I do not know how this misconception started, but as I have covered in a previous post, ignoring corporate “formalities” can lead to serious consequences for a company and its owners, particularly when someone attempts to pierce the corporate veil and hold the owners personally liable for a liability of the company.

The board and members of an LLC should document all important decisions, including loans, issuance of membership interests, major capital purchases, leases, and the election and removal of managers/officers and board members. Even though an annual member meeting is not required by the Minnesota Limited Liability Company Act (see Minn. Stat. §322B.333 sub. 1), I advise my LLC clients to hold an annual member meeting and document several actions, even if the business is routine, such as renominating and electing the board.

If an LLC hopes to bring in outside investors in the future, those investors will certainly conduct due diligence on the company. One item that is invariably included on due diligence request lists is a copy of all corporate minutes and resolutions. Potential investors may become wary of a company with sloppy or incomplete documentation. At best, the company will need to spend significant time playing catch-up on its governance documents.

An experienced corporate attorney can assist companies with implementing best practices for corporate governance documentation and advise companies that have not followed best practices on options to correct their situation.

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“All the services of the Office of the Secretary of State will be available, including but not limited to: Uniform Commercial Code (UCC) filings, the Central Notification System (CNS), apostilles and authentications, business services, election administration and the Safe at Home program.”

One key risk in taking a shortcut on your release is that the “exculpatory clause” is too narrow. The “exculpatory clause” is the portion of the release that limits the liability of the provider for damages resulting from certain activities.

For most providers, it is simple to list the obvious risks associated with the activity, such as the risk of drowning on a chartered fishing trip. ”Excursion” trips, however, is an example of a service that includes many activities beyond the core activity. For example, a rock climbing guide would certainly include the obvious risk of falling off of a cliff face in her waiver. Suppose the guide takes her clients on an extended hiking trip to a remote climbing location and also provides overnight camping accommodations and food. Does her release include the risk that a camper gets food poisoning from the provided meals? What about a fishing guide who injures a client in an auto accident while driving the client to different spots along Minnesota’s Whitewater River? Does the client’s signed waiver of liability for “fishing and related activities” include these injuries?

In certain situations, Minnesota courts recognize the right of a party to contractually protect itself against liability, including liability due to their own negligence, provided that the release does not violate public policy. Even though this right is recognized, however, releases and assumption-of-risk contracts are not typically favored by courts and are strictly construed against the benefited party (in our examples, the climbing and fishing guides).

One factor a court analyzes is whether the exculpatory clause is ambiguous, meaning that the clause is susceptible to more than one reasonable interpretation. Courts will not enforce a provision that is ambiguous. Ambiguity is determined on a case-by-case basis.

Back to our examples – Is “fishing activities” sufficiently broad to include driving the client between fishing spots? This would be a question of fact determined in court, and even if the court finds for the guide, it will be at the cost of significant time, stress, and legal fees.

The takeaway for sports and recreation providers is to regularly review the scope of activities contained in their waivers and make sure all related risks and activities are included, even if the risks are remote and the ancillary activities are only a small part of the services. For example, a fishing trip may include dangers associated with lightning and severe weather, traversing over rough terrain, and wild animals.

Sports and recreation providers would be wise to have an attorney experienced in this area review their waiver, release, and assumption-of-risk forms.

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An SNDA agreement is a “Subordination, Non-Disturbance, and Attornment” agreement. The landlord, tenant, and the landlord’s lender are parties to an SNDA. SNDA agreements are typically referenced in a lease as a separate agreement, with the lease requiring the landlord and tenant to enter into the SNDA contemporaneously with the lease.

Generally, a commercial tenant may not have any ongoing rights to occupy a leased premises if the landlord defaults on its mortgage and the lender forecloses on the premises. Mortgages are typically subordinated to the lender’s interest in the property, and without the protection of an SNDA, a lender may be able to terminate the lease upon foreclosure. It may seem unwise for a lender to terminate the lease of a tenant that is providing rental income, but market forces and other issues may factor into a lender’s decision. The unknown poses a risk to the commercial tenant that it will lose its premises. This risk can be minimized through a well-negotiated SNDA.

An SNDA should address three main topics:

1. Subordination – The tenant agrees that its leasehold rights are subordinated, or placed in a junior position, to the lender’s mortgage lien.
2. Non-Disturbance – The lender agrees that if it forecloses upon the property, it will not disturb the tenant’s rights under the lease. The Non-Disturbance provision is a critical provision for the tenant – it allows the tenant ongoing occupancy of the premises. The language of most SNDAs essentially provides that the lender or the purchaser at the foreclosure sale will step into the place of the landlord in the event of a foreclosure.
3. Attornment – The tenant agrees that it will recognize – or attorn­ to – the lender or purchaser of the premises at the foreclosure sale and continue to perform its obligations under the lease.

Lenders often have form SNDAs they prefer to use, but in most situations lenders are open to some revisions of their form to include more tenant-friendly clauses.

If you are a commercial tenant negotiating a lease or lease extension, I recommend speaking with an attorney such as myself who has experience in drafting and negotiating commercial leases, to make sure your lease addresses potential issues that could arise during the lease term.

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For example, consider the situation in which a landlord grants a large chain bookseller in the shopping center an exclusive for retail sales of new and used books. If the bookseller decides to shutter this particular location but otherwise keep the lease active (which could occur for various reasons, as discussed in my previous post), the landlord not only has an empty space in the shopping center, but the exclusive prevents the landlord from placing a competitor bookseller in another space in the shopping center to replace the bookstore traffic. If the landlord had a go-dark-and-recapture right, however, if could terminate the bookseller’s lease and move in a new tenant.

The abilities of a tenant to obtain an exclusive use clause and a landlord to obtain a go-dark-and-recapture right depend on the bargaining power of each party, but a commercial landlord would be prudent to consider them both together.

In general:

• Leave a paper trail of corporate governance. I have written before about the risks in avoiding what many disclaim as mere “corporate formalities.” Even if you are a single member LLC, document the actions you take as a governor of your company.
• Obtain Directors & Officers (D&O) insurance coverage, to cover damages arising out of a lawsuit brought against a director or officer in connection with the performance of his or her duties.
• Establish a Code of Conduct and Conflicts of Interest Policy, and require each director and officer to sign an acknowledgment that he or she read and understands the document.

The Board should be actively engaged in guiding the company and making decisions:

• Meet regularly.
• Approve major corporate actions (such as entering into a new office lease).
• Present a meeting agenda and the documentation necessary for directors to make an informed decision.
• Provide an opportunity for directors to ask questions and provide input.
• Do not rush decisions or use the Board to merely rubber stamp corporate actions.

Owners of a closely-held corporation face the challenge of wearing several hats – shareholder, officer, and director. It is still critical to document major corporate actions, even if the documentation is a combined written action by “John Smith, Sole Shareholder and Sole Director of XYZ, Inc.”

This is only a partial list of best practices, and many comprehensive materials are available online for companies and their directors and officers to review. The main take-away here is to remember that even in the smallest companies, the directors, officers, and shareholders are bound by certain statutory and common law duties that cannot be ignored, and each person in these roles should be familiar with the applicable duties.

Related posts:

• Standard of Conduct of Corporate Directors
• Standard of Conduct of Corporate Officers
• Shareholder Duties in a Closely-Held Corporation

You can post your ideas online at this site.

As a veteran, I’m proud to have an opportunity to assist veterans succeed in the civilian business world. I will be speaking on the basics of starting a business and issues to address when there are multiple owners of a business. The tentative list of speakers includes Secretary of State Mark Ritchie and representatives from the Small Business Administration and Procurement Technical Assistance Center (PTAC). John Baker of Baker Williams, LLP will discuss obtaining certification as a veteran-owned business. This CLE is geared towards attorneys, veterans, service members, and businesspeople who wish to learn about the benefits of veteran-owned businesses

Cost – $25, 2 standard CLE credits have been applied for.

This CLE is sponsored by the Hamline University School of Law Veterans Association, and all proceeds go towards the endowed scholarship for the Veterans Association at the law school. Registration information can be found at this link.