Attorney, Tri Nguyen of Tri Nguyen Law Office PC joins us to talk about methods for protecting your corporate shield.
Please excuse any typos in this hasty transcript.
Jay Curry: Hello, Texas. Welcome back to Texas Business Radio. We’ve got a dandy for you today. We’re going to spend the entire hour on necessary knowledge that you should have on legal services. Where do you go get the services? We’re going to have four specialists in, four attorneys in, each one with different specialty areas. We’re kicking it off in this first segment with a person who has a lot of general corporate business, as well as mergers and acquisitions. I’ll let Tri tell you himself.
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I’m Jay Curry, your host for this segment. Matt has stepped out. He should be back shortly. Let’s get started, because Tri has some very informative things to tell us. We’re going to focus on protecting your corporate shield, and I’m going to ask Tri to explain that. First let me introduce Tri Nguyen of Tri Law Office.
Tri Nguyen: Thank you.
Jay Curry: Tri, thank you for joining us.
Tri Nguyen: Thank you for having me.
Jay Curry: Take a minute here before we get into the corporate shield and tell me what Tri Law Office is all about.
Tri Nguyen: Yes. We are a transactional law firm, which means that we serve small and medium-size businesses in corporate mergers and acquisitions, general business contracts and negotiations, and commercial real estate. We’re not a litigation firm, but we help do deals. We help advise founders and C-level executives.
Jay Curry: Doing deals and doing transactions, that’s what it’s all about.
Tri Nguyen: Yes.
Jay Curry: We’ve asked you to specialize in, how do you protect your shield? Folks out there, you know that if you have a corporation, whether it’s a limited liability, whatever the structure of it is, the whole purpose of forming that is to protect you as an individual so that if you do something wrong, your company can be sued, but it protects you. We call that a shield between the company and you, and you have to protect that shield. Tri, can you explain it better? Tell us how we do that.
Tri Nguyen: Sure. I think you said it perfectly. The whole point is to maintain the ability to get liability protection. In order to do that, you’ve got to follow certain corporate formalities. We say corporate, but it could be for an LLC or corporation.
Jay Curry: Right.
Tri Nguyen: Some of the things that I always see as being issues are not using the proper company legal name on contracts.
Jay Curry: Whoa. So, I can’t say, “Jay Curry.” I’ve got to say, “Jay Curry, LLC.”
Tri Nguyen: Right. Yeah.
Jay Curry: Because if I don’t, it might not be binding.
Tri Nguyen: Well, now with that-
Jay Curry: It might be binding to me and not to the corporation.
Tri Nguyen: Exactly, yes. Exactly, yeah. Like, for instance, recently I had a client who’s set up as a limited partnership, but when the other side gave us the contract, the client just had put down the entity name-
Jay Curry: Client name?
Tri Nguyen: … which is the limited partnership, and he was going to sign as the manager. That turned out to be a problem, because limited partnerships need to have a general partner who’s responsible for all the liabilities. So, he was actually going to sign it his personal name, and he was going to take the full liability on that.
Jay Curry: So, you’ve got to be careful about how contracts are signed.
Tri Nguyen: Yes, that’s right.
Jay Curry: What else?
Tri Nguyen: The other thing is co-mingling, and this is an important thing, I think, that many people are not as disciplined on doing. That just basically means that you’ve got to keep the company’s funds and expenses separate and distinct from your own and from all the other companies that you may have.
Jay Curry: Keep it crisp, keep it clean, and keep it separate. Right?
Tri Nguyen: Keep it separate. You’ve got to keep it separate. Otherwise courts can say, “Well, if you’re treating the company’s funds like your own, because you’re using the company’s funds to pay your mortgage, or vacation, whatever, then why should we treat it any differently?”
Jay Curry: Right. So, bingo, the shield drops, and they sue you.
Tri Nguyen: The shield drops. That’s right.
Jay Curry: Wow. Another one, something about meetings and things like that, we talked about.
Tri Nguyen: Right. Yeah.
Jay Curry: What’s that about?
Tri Nguyen: Meetings are important, because that’s something that’s required under, usually, the by-laws or the company LLC agreement. They lay out whether it’s required to have annual shareholder meetings and whether you need to have annual board meetings. At a minimum, you need to have those two meetings. Whether it’s an LLC or a corporation, even if it’s a single member, there needs to be an annual occurrence. It could be something simple as the two shareholders going down to a local bar, open up a bottle of beer or two, and then talk about the company’s business. That could constitute it, but it needs to be recorded, which is the thing.
Jay Curry: It needs to be recorded. It’s best to do it, not just to write it.
Tri Nguyen: That’s right.
Jay Curry: It’s best to do it and then get it in the records.
Tri Nguyen: That’s right. Yeah. Getting in the record means noting it, but then also making sure that it makes it into the company’s minute books or some kind of record documentation.
Jay Curry: Now what about shareholder meetings? I know everything’s based upon your agreement when you set the corporation up. So, folks, be careful how you set your company up to begin with. If you’re already set up, go back and read it and find out what it says.
Tri Nguyen: Yeah. Shareholder meetings the same way. I mean, if you’ve got yourself … You’re the only shareholder or member of the company … you can still note in the books and records. You can make a writing, “On this date the shareholders held an annual meeting, and there being nothing to discuss, we adjourned the meeting.”
Jay Curry: Adjourned, yeah.
Tri Nguyen: Something simple like that.
Jay Curry: I used to have my wife in my business with me, and we would always take the kids for pizza and then we would talk business a little bit. Then I’d go back and write it up, put it in the books.
Tri Nguyen: That’s it. Yeah.
Jay Curry: You’ve got to do it.
Tri Nguyen: Got to do it.
Jay Curry: You’ve got to get it in the books.
Tri Nguyen: Got to have the discipline to do it.
Jay Curry: Another way to kill it. If you don’t do that, they will break that shield, and they’re going to come after you personally. Any other suggestions?
Tri Nguyen: I think the other thing to really keep in mind is, whoever’s signing the contract needs to have the authority to sign on behalf of the company. If you’re a founder or the CEO/president, and you’re giving authority to various people: manager, salespeople-
Jay Curry: Sales manager, for example.
Tri Nguyen: … to sign contracts, one, let’s make sure that that’s properly documented that they have that authority. Two is to limit that authority. So, if they have the authority to sign a sales contract, let’s keep it to that. If it’s a sales contract that’s above a certain dollar amount, let’s make sure that the president, CEO, whatever knows about it, because sometimes they may be signing up the company to obligations that is not proper, that a company doesn’t want to do.
Jay Curry: Make sure you have it documented and in the books. Right?
Tri Nguyen: Right. Yeah.
Jay Curry: What about if you have multiple companies? You should have a different EIN from the IRS for every one of them? Is that necessary or recommended?
Tri Nguyen: Right. I like to recommend that they each have their own separate ID number. Now, some companies they take the consolidated approach, where they consolidate all the books and records. But, really, to have it where each company needs to have its own bank account, you really have to have a separate tax ID number.
Jay Curry: Each company should have its own bank account?
Tri Nguyen: Each company should have its own bank account, now, unless there’s some sort of inter-company agreement, where you can all agree to one account. Now, just think of it. If one company gets sued, its assets could be subject to a lawsuit. Do you want its fund to then be found in a general bank account where other companies funds are held? Then you’ve got to figure out, “Well, how much of it is this? How much of it is this company’s? How much is that company’s?” It gets complicated. So, better to just keep it separate.
Jay Curry: It really is just common sense, but we’re talking about the law. We’re talking about the government: the federal government, the state governments, the local governments. We’re talking about the IRS. It may be simple, folks, but you need to do these things.
Tri Nguyen: Yeah. That’s right. Yeah.
Jay Curry: Wow, powerful stuff. Tri, thank you so much for helping us understand that. If somebody wants to get ahold of you, either it might be one of your specialties, which is commercial real estate, mergers and acquisitions, and then just-
Tri Nguyen: Corporate business, right.
Jay Curry: … general corporate business advisor, how do they get ahold of you?
Tri Nguyen: Thank you. They can go to my website. It’s World Wide Web.trilawoffice.com. It’s Tri Law Office. Tri is spelled T-R-I. T-R-I lawoffice.com.
Jay Curry: T-R-I lawoffice.com.
Tri Nguyen: Right.
Jay Curry: All right, you got it. Folks, this is Jay Curry. We are going to have to sign off, because we’ve got another outstanding segment on legal services for the mid-market industries. Don’t go anywhere. We will be right back.
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Jay W. Curry
Along with hosting “Texas Business Radio”, Jay is a Professional Certified Coach and Master Chair facilitating four Houston-based Vistage peer groups. In addition to being a best selling non-fiction author, the 2015 release of his award winning novel, Nixon and Dovey: the Legend Returns, adds novelist to his title. Jay holds a BS in Mathematics from Oklahoma State and an MS in Computer Science from Kansas State. You can learn more about Jay HERE.