DON*T GO TO HELL! - Burch & Cracchiolo, PA

The Ten
The Ten Commandments of
Business Law and How Following
Them Will Keep You Out of Court
By Melissa Iyer
A general word to the wise
The last place any business owner wants
to find themselves (aside from bankruptcy
court) is in a lawyer’s office.
 Lawyers are expensive and you’re usually
there if you’ve got a problem you can’t
solve yourself.
 So key to happiness in business is
avoiding lawyers.
 And the key to avoiding lawyers is
avoiding litigation.
Commandment 1:
Thou shalt think twice before
going into business with your best
Every good lesson starts with a good
story . . . . Where somebody does
something a little dumb and learns
from their mistake
Avoid business partners
Do not own a minority percentage of any
small business
Business partners (in good times and bad)
often disagree with how the business
should be run
Minority shareholders don’t have any say
at the end of the day
This usually makes them more likely to
resort to litigation to get what they want,
which then becomes a giant headache for
Commandment 2:
Thou shalt respect the
corporate form
Corporation: an ingenious device for obtaining
profit without individual responsibility. ~ Ambrose
…unless you use your corporate account to
expense a two-week vacation to Tahiti that has no
business purpose whatsoever, in which case you’d
better stay in Tahiti.
The purpose of a business is to AVOID
personal liability
If you treat your business as yourself
(i.e., the legal world refers to it as your
“alter-ego”), you will be personally liable
The moral of this story: Do not play fast and
lose when you spend the company dough.
What to do and not to do:
◦ File your tax returns with the help of an accountant
◦ Do not comingle your business and personal funds
◦ Pay your self a reasonable WAGE commensurate
with others in the field with your job title
◦ Maintain your entity in good standing with the
Arizona Corporation commission at all times
◦ Document your business activities (maintain a
corporate book, with all operating agreements, by
laws, articles of incorporation, annual meeting
minutes and agendas)
◦ Do not authorize the company to loan you or other
shareholders money without a benefit to the
company and adequate documentation/collateral.
Commandment 3:
Thou shalt think before ye
At the last break here, how many of you
checked your phone? Email? Facebook?
Twitter? Text messages?
How long did it take you to shoot off 5
email replies?
◦ Email is the single most useful and damaging
piece of evidence that ends up being on display
in commercial cases.
◦ It’s far too simple for us to shoot off a
damaging email without thinking about the
◦ Emails are essentially forever
◦ So think before you send a business email,
don’t be light or sarcastic (it doesn’t translate
well enough) and be sure you’re saying what
you want to say
Commandment 4:
Thou shalt get non-compete, nonsolicitation, and non-disclosure
agreements from key employees
Noncompetes, nonsolicitation, and
nondisclosure agreements are standard
forms in employment agreements.
◦ A noncompete – means the employee is
prevented from obtaining another position with one
of your competitors in a limited geographic location,
for a limited period of time
◦ A non-solicitation – prevents an employee who
leaves from stealing your customers.
◦ A nondisclosure – prevents a former employee
from giving your business trade secrets to his or
her new employer
◦ These agreements insulate your business to some
degree from interference by competitors through
your former employees
◦ They are important to have, but their limits are
worthy noting
◦ Noncompetes are very limited and construed
strictly by Arizona courts – they cannot be
broad. Must limit to 1 year and a reasonable
geographic radius.
◦ Nonsolicitation/nondisclosure agreements are
much easier to enforce.
◦ Make all former employees turn in all company
products, customer lists, computers, etc before
they leave the building!
Non-Competes in Business Sales
◦ Noncompetes are also utilized often during the
course of a business sale.
◦ The selling owner will be required to sign a
noncompete so he or she doesn’t turn around
and start up the same business he or she is
being paid for
◦ These ARE much more likely to be enforced
because the same policy considerations don’t
Commandment 5:
Thou shalt tender your claim to
your insurance carrier promptly
Coverage often means your insurance
company will hire you a lawyer, pay for your
attorneys’ fees and litigation costs, and cover
any judgment against you if one is rendered.
Obviously, litigation gets significantly less
stressful when you discover that your
insurance company is responsible for paying
your attorneys’ fees.
Look at your errors and omissions and
any other commercial general liability
policy to determine whether you can
tender the defense to the insurance
 Look at contractual indemnification
provisions you have with those you do
business with
 If the claim is covered through such an
indemnity provision, you may be able to
tender the claim for coverage to that
company’s insurers or the insurers of any
entity potentially owing indemnity to the
business by contract.
Commandment 6:
Thou shalt not throw the
summons and complaint in your
“Lucy, you got some ‘splainin to do” ~
Ricky Ricardo
Litigation centers around deadlines, if you
miss them the consequences can be fatal
 Arizona rules give you 20 days from the
date your served with the complaint to
respond to it
 If you don’t, a default judgment will be
entered and they are very difficult to get
 Default means the plaintiff wins before
you have a chance to defend and they will
likely get their attorneys’ fees if its based
on any contract
Busy? Don’t have time for silly lawsuits?
There is an EASY way to avoid this problem
Appoint a lawyer as your statutory agent!
Easy form that can be filed with the Arizona
Corporation Commission
Lawyers (like me and my law firm) will often do it for
free because it gives them an opportunity for new
business they may not otherwise get
Lawyers know the deadlines and have a professional
and ethical obligation to warn you of them
You avoid getting accosted by a process server while
you’re grabbing the newspaper off your driveway in
your underwear on Monday morning.
Commandment 7:
Thou shalt not represent your
company without a lawyer
“A party representing himself has a fool for
a lawyer.” Abraham Lincoln
Arizona Supreme Court prohibits the
unauthorized practice of law by any nonlawyer
 This includes representing your company,
which is considered a separate legal
“person” for purposes of the law
 You can represent yourself (this is
inadvisable and almost guaranteeing a
bad result though)
 But legally you cannot represent your
company. It must be represented by a
lawyer or it will default!!
Commandment 8:
Thou shalt not draft your own
legal documents from something
you found on
If it’s too good to be true, it
probably is.
Googling is appropriate to find out where
the closest Five Guys is when you’re wife
is pregnant and craving french fries at all
hours of the night
Google is NOT appropriate to use when
diagnosing that weird rash on you arm
And it is NOT a good idea to use it for
drafting legal documents that have legal
There is a good way and a bad way to pay a
Lawyers know how to draft contracts in a way that
will protect you in the even that a problem arises
The purpose of a contract is to protect yourself.
You anticipate all potential problems that may arise
and agree to what will happen in the event a
problem does come up.
This PREVENTS litigation.
But it won’t work if you pull something off of
Spending a few thousand dollars now to get good
contracts may save you hundreds of thousands of
dollars later if you end up in litigation
Commandment 9:
Thou shalt not maintain
adequate books and records
with the assistance of a
competent accountant
“I have no use for bodyguards, but I have
very specific use for two highly trained
certified public accountants.”
~Elvis Presley
Business is about money.
Accountants know money.
If you want to protect your money, you need a
good accountant.
a competent accountant will keep your business
running smoothly and your taxes in check, an
accountant is an invaluable tool in most business
Because most business disputes center around
money as well, having untouchable books and
records will often provide the key evidence for
proving your case.
They will also provide a defense if you’re accused
of any financial misconduct.
Commandment 10:
Thou shalt settle early and
often when you can
“The supreme art of war is to subdue the
enemy without fighting.” Sun Tzu
In plain English: Do not argue with an
idiot. He will drag you down to his level and
beat you with experience.
“Going for the jugular” is a terrible litigation
strategy and, more often than not, will result in
dragging out your case over a course of years.
And only after you are bloodied and stuck with a
bill for $500,000 in attorneys’ fees will you finally
settle the case in a heap of exhaustion and debt
for some amount that is frighteningly close to
what you could have settled it for before the
lawsuit was even filed.
Broaching the subject to settlement early is a
good strategy.
thanks to evidence rule 408, any
communications about settlement are
It’s still just business!
Business litigation isn’t personal, it’s still just business.
Divorce yourself from your emotional attachment to being
on the “right” side of the case
Evaluate it from a pure risk/reward perspective just as you
would any other business decision you make.
By making it “personal” and using litigation to settle a
“score,” you are much less likely to ever do business with
your opponent again. And yet there was a reason (and the
reason often persists) why doing business with that person
made sense to you to begin with.
By settling a dispute early, you preserve the potential to
keep doing business with them if it keeps making sense.
By engaging in contentious litigation with them, you
generally kill the option.
Go forth and prosper!
Still Have Questions?
Melissa Iyer
Burch & Cracchiolo, P.A.
(Phone) 602-234-8767
Email: [email protected]

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