November 29, 2023

JAMS just published a useful article about navigating mediation claims against corporate officers and directors. Often these claims are derivative claims from a related suit against the company and are brought by a shareholder or LLC interest holder alleging the officer or director breached a fiduciary duty of care owed to the company and shareholders. These claims are incredibly complex because of the multitude of parties and attorneys navigating issues between the individual director or officer, the company, the board, and potentially an insurance company that provides the director or officer liability insurance.

The article focuses on four major issues to consider when engaging in a mediation involving an officer or director, including:

  • Potential disagreement among the directors and officers involved because of the varying defenses of each party.
  • Negative publicity for the company or individual director or officer.
  • The status of the case and whether a pending motion to dismiss will have an effect on the derivative claims.
  • The amount of directors and officers liability insurance coverage.

To read the full article from JAMS, click here.

To read how Castaybert PLLC can assist you in complex corporate mediations and director and officer liability and insurance coverage litigation and counseling, click here and here.

August 23, 2022 — On May 26, 2022, the Appellate Division, First Judicial Department of New York granted an injunction prohibiting former Vice President of Basketball Partnerships at Excel Sports Management, LLC Eric Eways from working for Klutch Sports Group, LLC.

Eways had signed a contract with Excel that featured a restrictive non-compete clause barring him from working for specifically-named competitors for eight months post-separation. The Appellate Division reversed the Supreme Court of New York, Commercial Division’s denial of Excel’s motion for a preliminary injunction, with the Supreme Court having found that Excel’s interests could be protected by more precisely tailored non-solicitation and confidentiality provisions contained in Eways’s employment agreement.

Under New York law, the standard for the enforcement of a restrictive covenant in an employment agreement remains that the covenant is necessary to protect the employer’s legitimate business interests, “(2) does not impose unique hardships on the employee, and (3) is not injurious to the public.” The Appellate Division signaled with its ruling that New York likely will continue to enforce restrictive non-complete clauses in employment agreements.

To read more about Excel Sports Management, LLC’s action against Eric Eways and Klutch Sports Group, LLC, click here.

To read the Appellate Division’s decision, click here.

To learn more about how Castaybert PLLC can help you navigate employment law as well as non-competes and other restrictive covenants, click here and here.

August 3, 2022 —

On July 19, the Delaware Supreme Court contributed to a wave of recent jurisprudence that grants stockholders greater access to corporate records under Section 220 of Delaware General Corporation Law (DGCL). In NVIDIA Corp. v. City of Westmoreland Policy and Fire Retirement System, Del. Supr., No. 259, 2021 (July 19, 2022), a divided bench held that the “credible basis” standard of evidence to obtain corporate records for a “proper purpose” under Section 220 may be satisfied by “reliable hearsay.”

For more information about the decision, click here.

To read about how Castaybert PLLC can assist in navigating commercial litigation and arbitration, click here.

June 15, 2022 —

In a recent issue of Privilege Newsletter, David M. Greenwald and a team of contributors wrote an edifying piece about the strict confines of attorney-client privilege. Greenwald et al. note that in the vast majority of cases, public relations consultants are not protected from scrutiny in their work with a defendant or their counsel.

The only exception to this rule is “if the primary purpose of the engagement is to assist counsel with providing legal advice.” Advice that could be construed as furthering reputational or business interests are not included.

Greenwald et al. explore a range of cases in which the issue of consultants’ communications with defendants are directly contested to provide a clear empirical record for their argument.

To read Greenwald and team’s recent newsletter to get this information directly from the source, click here.

To read about how Castaybert PLLC can assist you with commercial litigation and arbitration, click here.

https://fashionista.com/2018/06/how-to-fund-finance-fashion-business?utm_source=Fashionista%20Newsletters%20Master%20List&utm_campaign=aeab032d23-EMAIL_CAMPAIGN_2017_12_19_COPY_01&utm_medium=email&utm_term=0_a23c93579d-aeab032d23-410579153

Alexander Wang x Judith Lieber clutch. Photo: @judithleiberny/Instagram

Dhani Mau of Fashionista recently published a very useful overview describing the various fashion finance options available to burgeoning fashion entrepreneurs.  Among these fashion finance options are: loans via friends and family and traditional lenders, venture capital, private equity, factoring, side hustles and licensing deals, crowdfunding, and incubators, contests, and holding companies.  Mau details each option’s pros and cons, making this a great introduction to fashion financing for anyone considering a fashion startup.

Find the full article here.  To learn more about how Castaybert PLLC can assist with fashion financing matters, please click here.

1. What is the status of your trade secrets?

Trade secrets come in many forms, and a proper assessment of your company’s assets in this area will ensure that you are current regarding the number, kind, and value of the company’s trade secrets. Some examples of possible trade secrets that you will want to review include: your company’s proprietary lists, such as customer lists and source material supplier lists; the manufacturing or production processes employed; training methods; research methods; and details of operational systems either in use or being tested.

2. What protects your trade secrets?

Once you have a complete picture of the trade secrets possessed by your company, it is critical to properly safeguard these secrets. This is not only to protect them from theft, but to also to demonstrate, should the need arise, that appropriate measures were taken to guard these assets. In the event of a formal dispute about any theft of trade secrets from the company, a court will want proof that the company took logical steps to guard those secrets and that these assets were not left unprotected, vulnerable to attack or to misappropriation. As each company’s set of trade secrets is unique, a trade secret protection system should be tailored specifically for the company it is meant to protect, and that system should also be modified as the company goes through changes affecting its trade secrets.

3. Whose trade secrets are they?

Another critical question to ask in the process of assessing and protecting your company’s trade secrets is “to whom do they belong?” While the full roster of trade secrets known to you may be employed in your company’s processes, there is a possibility that the true owner of those trade secrets is not in fact the company. Your company may have developed into its current incarnation as a result of mergers, acquisitions, selloffs, dissolutions, and other combinations. Trade secrets used by the company may in fact belong to smaller companies that played a role in your company’s history. It is therefore critical that each of the trade secrets used by your company can be traced to a transaction in which it was lawfully acquired.

4. Does employee behavior pose a risk for a dispute?

Part of trade secrets management is protecting these assets from theft. But another part is protecting your company from disputes created by employees who misappropriate trade secrets from parties other than your company. For example, your company may deal with other organizations and individuals who provide services as vendors, suppliers, brokers, or outsourced labor. Each of these trade partners likely has its own set of trade secrets, and you must ensure that agents for your company are not—either by accident or intentionally—employing those secrets in the processes conducted by your company without express permission from the secret’s owner. To prevent costly litigation, it is important to know how to detect any trade secret misappropriation conducted by your company’s employees. Similarly, it is key to appropriately inform them of the nature of trade secrets, lest they mistakenly use another’s trade secrets in a way which is unlawful.

5. What is your response plan in the event of an attack on your company’s trade secrets?

The first thing to have in place is a response team, with your trade secrets lawyer being one of its key members. Second, you will need to consider the likely ways in which a breach could occur, and what measures you will take in the event that such a breach actually happens. Your trade secrets counsel can prepare, in advance, by identifying which forms of legal action will be most appropriate and effective for the various types of breaches your company must protect against. State law and federal law each offer their own unique set of remedies, and one may be more effective than the other. That attorney should also consider ways to resolve a breach by means other than litigation, such as through alternative dispute resolution, mediation, or negotiation.

The attorneys at Castaybert PLLC are skilled in the areas of contract formation and analysis, and also with the intellectual property management issues discussed above. Please contact Andre Castaybert at acastaybert@nullac-counsel.com to get more information about how you can protect your company’s trade secrets.

André Castaybert volunteered as a judge for the Orison S. Marden Moot Court Competition at New York University School of Law on Tuesday, October 13. The problem was prepared by Michael Lombardi, a 3L on the Moot Court Board, on the Microsoft Ireland Warrant Case presently before the Second Circuit.

The issue was based on whether the Stored Communications Act permits a U.S. District court to issue a warrant for electronic files stored by an American internet service providers on servers located in a foreign country, or if the presumption against the extraterritorial application of United States law bars the use of the statute in its current form.

This was the Fall Preliminary Round. The top twelve competitors will move on to the Spring Elimination Round and four finalists will then advance to the Final Argument. Justice Elena Kagan of the United States Supreme Court will lead the judging panel for the Final Argument.

An S Corporation, also known as an S Corp, is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S Corporation.

An S Corp is a corporation with the Subchapter S designation from the IRS. To be considered an S Corp, you must first charter a business as a corporation in the state where it is headquartered. According to the IRS, S Corporations are “considered by law to be a unique entity, separate and apart from those who own it.” This limits the financial liability for which the owner, or “shareholder”, is responsible. Liability protection is limited. S Corporations do not necessarily protect you from all litigation such as an employee’s tort actions as a result of a workplace incident.

The S Corporation is different from a traditional corporation (C corp) in that profits and losses can “pass through” to your personal tax return. Consequently, the business is not taxed itself. Only the shareholders are taxed. There is an important caveat, however: any shareholder who works for the company must pay him or herself “reasonable compensation.” Basically, the shareholder must be paid fair market value, or the IRS might reclassify any additional corporate earnings as “wages.”

Forming an S Corporation

Before you form an S Corporation, determine if your business will qualify under the IRS stipulations. To file as an S Corporation, you must first file as a corporation. After you are considered a corporation, all shareholders must sign and file Form 2553 to elect your corporation to become an S Corporation. Once your business is registered, you must obtain the necessary business licenses and permits. Regulations vary by industry, state and locality. Use the Licensing and Permits Tool on the Small Business Administration website to find a listing of federal, state and local permits, licenses, and registrations you’ll need to run a business.

Combining the Benefits of an LLC with an S Corporation

There is always the possibility of requesting S Corp status for your LLC. Your attorney can advise you on the pros and cons. You’ll have to make a special election with the IRS to have the LLC taxed as an S corp using Form 2553. You must file it before the first two months and fifteen days of the beginning of the tax year in which the election is to take effect. The LLC remains a limited liability company from a legal standpoint, but for tax purposes it’s treated as an S corp. Be sure to contact your state’s income tax agency where you will file the election form to learn about tax requirements.

S Corporation Taxes

Most businesses need to register with the IRS, register with state and local revenue agencies, and obtain a tax ID number or permit. All states do not tax S corps equally. Most recognize them similarly to the federal government and tax the shareholders accordingly. However, some states such as Massachusetts, tax S corps on profits above a specified limit. Other states don’t recognize the S corp election and treat the business as a C corp with all of the tax ramifications. Some states, such as New York and New Jersey, tax both the S corps profits and the shareholder’s proportional shares of the profits. Your corporation must file the Form 2553 to elect “S” status within two months and 15 days after the beginning of the tax year or any time before the tax year for the status to be in effect.

Advantages of an S Corporation

  • Tax Savings. One of the best features of the S Corp is the tax savings for you and your business. While members of an LLC are subject to employment tax on the entire net income of the business, only the wages of the S Corp shareholder who is an employee are subject to employment tax. The remaining income is paid to the owner as a “distribution,” which is taxed at a lower rate, if at all.
  • Business Expense Tax Credits. Some expenses that shareholder/employees incur can be written off as business expenses. Nevertheless, if such an employee owns two percent or more shares, then benefits like health and life insurance are deemed taxable income.
  • Independent Life. An S corp designation also allows a business to have an independent life, separate from its shareholders. If a shareholder leaves the company, or sells his or her shares, the S corp can continue doing business relatively undisturbed. Maintaining the business as a distinct corporate entity defines clear lines between the shareholders and the business that improve the protection of the shareholders.

Disadvantages of an S Corporation

  • Stricter Operational Processes. As a separate structure, S corps require scheduled director and shareholder meetings, minutes from those meetings, adoption and updates to by-laws, stock transfers and records maintenance.
  • Shareholder Compensation Requirements. A shareholder must receive reasonable compensation. The IRS takes notice of shareholder red flags like low salary/high distribution combinations, and may reclassify your distributions as wages. You could pay a higher employment tax because of an audit with these results.

A partnership is one business in which two or more people share ownership. Each partner contributes to all aspects of the business, including money, property, labor or skill. Each partner, in return, shares the profits and losses of the business. Because more than one person is involved in the decision-making, a wide variety of issues must be discussed prior to developing a legal partnership agreement. The agreement should include how future business decisions will be made, such as how profits will be divided, disputes resolved, ownership changes if or when new partners are brought in or current partners bought out, and how to dissolve the partnership. Although not legally required, partnership agreements are strongly recommended and it is considered extremely risky to operate without one in place.

Types of Partnerships

There are three general types of partnership agreements:

  • General Partnerships assume that profits, liability and management duties are divided equally among partners. If you opt for an unequal distribution, the percentages assigned to each partner must be documented in the partnership agreement.
  • Limited Partnerships (or a partnership with limited liability) are more complex than general partnerships. Limited partnerships allow partners to have limited liability as well as limited input with management decisions. These limits depend on the extent of each partner’s investment percentage. Limited partnerships are attractive to investors of short-term projects.
  • Joint Ventures act as general partnership, but for only a limited period of time or for a single project. Partners in a joint venture can be recognized as an ongoing partnership if they continue the venture, but they must file as such.

Forming a Partnership

To form a partnership, you must register your business with your state through your Secretary of State’s office.

You’ll also need to establish your business name. For partnerships, your legal name is the name given in your partnership agreement or the last names of the partners. If you choose to operate under a name different than the officially registered name, you will most likely have to file a fictitious name such as an assumed name, trade name, or DBA name (“doing business as”).

Once your business is registered, you must obtain the necessary business licenses and permits. Regulations vary by industry, state and locality. Use the Licensing and Permits tool on the Small Business Administration website to find a listing of federal, state and local permits, licenses and registrations you’ll need to run a business.

Partnership Taxes

Most businesses will need to register with the IRS, with state and local revenue agencies, and obtain a tax ID number or permit. A partnership must file an “annual information return” to report the income, deductions, gains and losses from the business’s operations, but the business itself does not pay income tax. Instead, the business “passes through” any profits or losses to its partners. Partners include their respective share of the partnership’s income or loss on their personal tax returns.

Partnership taxes generally include:

  • Annual Return of Income
  • Employment Taxes
  • Excise Taxes

Partners in the partnership are responsible for several additional taxes, including:

  • Income Tax
  • Self-Employment Tax
  • Estimated Tax

Filing information for Partnerships

  • Partnerships must furnish copies of their Schedule K-1 (Form 1065) to all partners by the date Form 1065 is required to be filed, including extensions.
  • Partners are not employees and should not be issued a Form W-2.

The IRS guide to Partnerships provides all relevant tax forms and additional information regarding their purpose and use.

Advantages of a Partnership

  • Easy and Inexpensive. Partnerships are generally an inexpensive and easily formed business structure. The majority of time spent starting a partnership often focuses on developing the partnership agreement.
  • Shared Financial Commitment. In a partnership, each partner is equally invested in the success of the business. Partnerships have the advantage of pooling resources to obtain capital. This could be beneficial in terms of securing credit, or by simply doubling your seed money.
  • Complementary Skills. A good partnership should reap the benefits of being able to utilize the strengths, resources and expertise of each partner.
  • Partnership Incentives for Employees. Partnerships have an employment advantage over other entities if they offer employees the opportunity to become a partner. Partnership incentives often attract highly motivated and qualified employees.

Disadvantages of a Partnership

  • Joint and Individual Liability. Like sole proprietorships, partnerships retain full, shared liability among the owners. Partners are not only liable for their own actions, but also for the business debts and decisions made by other partners. In addition, the personal assets of all partners can be used to satisfy the partnership’s debt.
  • Disagreements Among Partners. With multiple partners, there are bound to be disagreements. Partners should consult each other on all decisions, make compromises, and resolve disputes as amicably as possible.
  • Shared Profits. Because partnerships are jointly owned, each partner must share the successes and profits of their business with the other partners. An unequal contribution of time, effort, or resources can cause discord among partners.

A corporation, or a C corporation, is an independent legal entity owned by shareholders. This means the corporation itself and not its shareholders is held legally liable for the actions and debts the business incurs. Corporations are more complex than other business structures due to their costly administrative fees and complex tax and legal requirements. Corporations are usually suggested for established, larger companies with multiple employees. Corporations offer the ability to sell ownership shares in the business through stock offerings. “Going public” through an initial public offering, or IPO, is a major selling point in attracting capital investment and high quality employees.

Forming a Corporation

A corporation is formed under the laws of the state in which it is registered. To form a corporation, you will need to establish your business name and register your legal name with your state government. If you choose to operate under a different name other than the officially registered name, you will likely have to file a fictitious name or an assumed name, trade name or DBA name (“doing business as”). State laws vary, but typically corporations must include a corporation designation such as Corporation, Incorporated, or Limited at the end of the business name.

You will need to file certain documents, usually articles of corporation, with your state’s Secretary of State office in order to register your business as a corporation. Some states require corporations to establish directors and issue stock certificates to initial shareholders during the registration process. Contact your state business entity registration office for specific filing requirements.

Once registered, you must obtain the necessary business licenses and permits. Again, regulations vary by industry, state and locality. Use the Licensing and Permits Tool on the Small Business Administration website to find a listing of federal, state and local permits, licenses and registrations you will need to run a business.

Corporation Taxes

Corporations are required to pay federal, state and, in some cases, local taxes. Most businesses must register with the IRS and state and local revenue agencies and obtain a tax ID number or permit. A corporation is a separate tax-paying entity. Regular corporations are called “C corporations” because Subchapter C of Chapter 1 of the Internal Revenue Code is where you will find general tax rules pertaining to corporations and their shareholders. Corporations pay income tax on their profits, and in some cases, corporations are taxed twice – first when the company makes a profit, and again when dividends are paid to shareholders on their personal tax returns. Corporations use IRS Form 1120 or 1120-A, U.S. Corporation Income Tax Return to report revenue to the federal government.

Shareholders who are also employees of the corporation pay income tax on their wages. The corporation and the employee each pay half of the Social Security and Medicare taxes, but this is usually a deductible business expense.

Advantages of a Corporation

  • Limited Liability. When it comes to taking responsibility for business debts and actions of a corporation, shareholders’ personal assets are protected. Shareholders can generally only be held accountable for their investment in stock of the company.
  • Ability to Generate Capital. Corporations have an advantage when it comes to raising capital for their business. They can raise funds through the sale of stock.
  • Corporate Tax Treatment. Corporations file taxes separately from their owners. Owners of a corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends, while any additional profits are awarded a corporate tax rate, which is usually lower than a personal income tax rate.
  • Attractive to Potential Employees. Corporations are generally able to attract and hire high-quality and motivated employees because they offer competitive benefits and the potential for partial ownership through stock options.

Disadvantages of a Corporation

  • Time and Money. Corporations are costly and time-consuming ventures to start and operate. Incorporating requires start-up, operating and tax costs that most other business structures do not.
  • Double Taxing. In some cases, corporations are taxed twice – first, when the company makes a profit, and again when dividends are paid to shareholders.
  • Additional Paperwork. Because corporations are highly regulated by federal, state, and in some cases local agencies, there are increased paperwork and recordkeeping burdens associated with this entity.
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