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Strategic Legal Solutions
Assisting Clients with their Business Needs

Business Organizations & Contracts

Skilled Massachusetts Business Law Attorney

As an entrepreneur looking to start a business, you are moving one step closer to realizing a dream. It is important to have all of your i's dotted and t's crossed before becoming fully operational. At the Newburyport, Massachusetts, law firm of Mark J. Guay, P.C., we can help you make certain you are on the path to success by creating strategic legal systems throughout your business formation and beyond. Contact our business law attorney to discuss your goals.

Business Formation

A company can operate under many different entities depending upon its needs, tax incentives and personal liability to owners. These operational forms can include such risk management entities as Limited Liability Companies (LLC), corporations, or Limited Liability Partnerships (LLP). Choosing an entity that best suits your goals and establishing a strong start-up system can be complex. Our goal is to help you navigate the process as smoothly as possible.

Phase I - Risk Management

First, we will evaluate your operational entity options and review various risk management and tax issues involved in a small business start-up. Attorney Mark J. Guay will also discuss key contract law concepts and their relationship to your risk management strategies. Your biggest risk is that your don't know what you don't know, so we spend time educating you on various key strategies.

Phase II - Organization

Next, you will be given a questionnaire to complete which provides us with information about your proposed business. We will then supply you with an organizational outline and a cost-estimation for your business formation process. If a corporation, the outline will include the information concerning development of a Board of Directors, shareholder meetings, bylaws and other necessary documents. It may also contain data pertaining to the following:

  • Tax consequences of stock types
  • Corporate taxes
  • Organizational expenses
  • Debt/equity characterization
  • Buy-sell agreements

If you choose a limited liability company, we will prepare and review with you the Operating Agreement which is the governing document crucial to managing your entity properly. We will also work with you on your charter documents and related tax issues with your accountant.

Phase III - Operation And Governance

Many small companies have what is referred to as their OPERATIONAL PLANS. As the definition states, this is how they "operate" their daily business working IN their company as a W-2 employee. Congratulations, that is a good start but it is not a good finish unless you just wanted to create a job for yourself and others? If not then you need to work ON your company. In fact, working ON your business is just as important because you want more than income, you also want profit and equity ["ROE"] which are the results of ownership work - not just employee work.

The biggest mistake you will make this year is equating working IN your company with working ON your company, according to the well-known book author Michael Gerber entitled, "The E-Myth Revisited". He states that P&Ls and tax data are static because they look backwards - not forward. Ownership work gets beyond Income only and into Profit and Equity [ROE] strategy. And isn't that why you went into business in the first place - to go beyond income? You simply can't be effective long term until you integrate what you do IN with what you do ON your company. So stepping back and doing some critical decision-making is the key. But that raises the question of who does it and how to do it? So let's answer the first question of who is responsible for governance? In a corporation the Board of Directors sole job is to "govern" the company. So HOW does a Board "govern"? The answer lies first in defining the difference between management and governance. Most people have a good idea of what management is so I will restrict my remarks to governance issues. Some top 10 good governance director practices are the following:

  1. Strategic Planning addressing sustainability, competitive advantage, etc.
  2. Corporate performance and valuation planning
  3. Risk and Crisis Oversight [e.g., data security]
  4. Oversight of company core principles, ethics and culture
  5. Oversight of human resources [e.g., management] and recruitment of directors
  6. Financial Oversight [e.g., review of P&L, Balance Sheet and Budgets]
  7. Oversight of sustainability matters and stakeholder relations
  8. Create/approve company-wide policies and procedures
  9. Manage Board of Directors education, meeting processes, committees, etc., and
  10. Oversight of corporate social responsibility.

I recommend that these key governance issues be addressed by your Directors. (See also NACD Directorship Board Intelligence, survey report dated 1/2011, p. 40). Managers manage the company. Directors govern [direct] managers. They are both important but very different. The Massachusetts Business Corporation Act ["MBCA"], Section 8.30(a) defines the standard a director must comply with. It states, in pertinent part, that a director must, generally speaking, act (i) in good faith, (ii) with the care that a person in a like position would reasonably believe appropriate under similar circumstances; and (iii) in a manner the director reasonably believes to be in the best interest of the corporation. So how does a director comply with this legal standard? The comment section to Section 8.3 provides advice by stating: "The process by which a director informs himself will vary but the duty of care requires every director to take steps to become informed about the background facts and circumstances before taking action on the matter at hand. [However], a director may rely on information, opinions, reports, and statements prepared or presented by others as set forth in Section 8.30(b)."

So who are these "others" referred to? Section 8.30(b) lists the individuals and groups (the "others") that a Director may rely on. Generally speaking, they are as follows:

I. corporate officers or employees whom the Director reasonably believes to be reliable and competent with respect to the information, opinions, reports or statements presented,
II. professional advisors as to matters within their professional competence, and
III. a committee of the Board, where the Director is not a member, if the director reasonably believes the committee merits confidence.

But there are two major caveats. The first is that "a Director so relying must be without knowledge concerning the matter in question that would cause his reliance to be unwarranted". The second is that "…in order to rely on a report, statement, opinion, or other matter, the Director must have read the report or statement in question, or have taken other steps to become familiar with its contents."

In summation, Directors must become actively engaged in the governance of the company or else they should resign. Ask yourself "is your Board living up to the legal standards of the laws in your state"? If not, your company is at an increased risk. Haven't started yet to address the governance systems of your company? I suggest you do so at your next annual board or directors meeting if not sooner before a third party discovers you are running a high risk business - and that high risk is the result of your decision-making.

Our practice serves as a resource for you and your business. We are experts in the fields of critical thinking, decision making, tax planning, getting your business back on track, digital rights management, intellectual property, dot com planning and strategies, and doing business as a profitable entity. We work with you to create a symmetrical business strategy for success while still addressing asymmetric risk.

At the law offices of Mark J. Guay, P.C., our experienced lawyer represents clients throughout the Merrimack Valley, the North Shore of Massachusetts, and throughout New England. We also serve clients in Europe. The Massachusetts cities we serve include Amesbury, Andover, Bedford, Beverly, Boston, Cambridge, Danvers, Gloucester, Hamilton, Haverhill, Ipswich, Lawrence, Lexington, Lowell, Lynn, Marblehead, Newbury, Newburyport, Peabody, Reading, Rockport, Salem, Salisbury, and Swampscott.

Essex County ▪ Middlesex County ▪ Suffolk County

The information you obtain at this site is not, nor is it intended to be legal advice. You should consult an attorney for individual advice regarding your own situation.