Month: August 2022

Thomas D. Rees | August 31, 2022

Non-Solicitation Agreements- The Third Rail of Employee Mobility Law

When an ex-employee works for a competitor, the violation of a non-compete covenant is clear-cut. But few employment contracts define what it means to "solicit."

What is a non-solicitation agreement?

As a restrictive covenant, non-solicitation agreements prevent a departing employee from soliciting the old employer's customers or workforce to do business or work with a new employer. But, these clauses are less burdensome than non-compete agreements that prohibit any work for a competitor or bar any service to a former employer's customers.

Like its stricter cousins, a non-solicitation agreement is a restraint on competition. However, it must not tie the ex-employees hands too tightly. Non-solicitation clauses must include consideration. For example, some benefit to the employee to compensate for the post-employment restriction. And the agreement must be reasonably necessary for the employer's protection and reasonable in time, geographic scope, and scope of the prohibited activities. These are the minimum requirements for an ex-employer who seeks a court injunction against violation of a non-solicitation agreement.

These agreements can be confusing. So, if you are looking for an employment lawyer near you to review these documents, contact us at 610.275.0700.

What does it mean to "solicit" and violate a non-solicitation clause?

When an ex-employee works for a competitor, the violation of a non-compete covenant is clear-cut. But few employment contracts define what it means to "solicit."

As a result, courts have developed workable definitions of "solicit" on a case-by-case basis. In Meyer Chatfield v. Century Business Servicing, Inc., 732 F.Supp.2d 514, 520 (E.D. Pa. 2010), Judge Slomsky used Black's Law Dictionary's definition of "solicit":

To appeal for something; to apply to for obtaining something; to ask earnestly; to ask for the purpose of receiving; to endeavor to obtain by asking or pleading; to entreat, implore, or importune; to make petition to; to plead for; to try to obtain; and though the word implies a serious request, it requires no particular degree of importunity, entreaty, imploration, or supplication. To awake or incite to action by acts or conduct intended to and calculated to incite the act of giving. The term implies personal petition and importunity addressed to a particular individual to do some particular thing.

Under this definition, an ex-employee violates a non-solicitation agreement by contacting or inducing former contacts to bring business to the ex-employee. However, an ex-employee must be proactive in violating the agreement. For example, responding to a former customer who initiates contact with the ex-employee is not "solicitation."

In Harry Blackwood Associates v. Caputo, 434 A.2d 169 (Pa. Super. 1981), the Pennsylvania Superior Court held that a non-solicit clause did not prevent an ex-employee from doing business with a customer who had sought out the ex-employee.

What about other ways to inform the business community of new employment?

For example, is it a solicitation to post-employment announcements or send out business cards where some recipients are former contacts? A statement or mentioning a new employee's name in marketing materials does not constitute a solicitation. However, when targeted only to customers inviting them to move their business may be a solicitation. See PharMerica Corp. v. Sturgeon, 2018 WL 1367339, *8 (W.D. Pa. March 16, 2018)

Does a LinkedIn profile post about new employment violate a non-solicitation agreement?

Courts have held that a simple posting or invitation to connect on LinkedIn is not a solicitation. Bankers Life and Casualty Co. v. American Senior Benefits LLC, 83 N.E.3d 1085 (Ill. App. 2017).

But a posting that morphs into a sales pitch constitutes a solicitation. Mobile Mini, Inc. v. Vevea, 2017 WL 3172712 (D. Minn. 2017). For example, in an unpublished 2017 decision, the Pennsylvania Superior Court enjoined as unlawful solicitation a veterinarian's creation of a Facebook page for a new practice containing postings from former clients and other links about animal and pet care. Joseph v. O'Laughlin, 2017 Pa. Unpub. Lexis 3191, 175 A. 3d 1105 (Pa. Super. August 22, 2017). The moral of these cases is that actions beyond a plain vanilla new employment announcement can cross the line into solicitation.

Courts are less likely to crack down on violations of employee non-solicitation contracts than customer non-solicits. However, an ex-employer should be ready to show a court that the purpose of the solicitation is to "cripple and destroy" competition to stop an ex-employee from soliciting former co-workers. Generally, a court will not prohibit solicitation or recruitment of skilled or gifted employees. Nor will courts punish less aggressive contacts with former co-workers, such as telling former colleagues to look for a job posting.

Documentation is Essential

Like all restrictive covenant cases, non-solicitation disputes involve three key participants- the former employer, the ex-employee, and the new employer. Real-time factual documentation is essential for each player in a non-solicitation case. For instance, ex-employees should record all contacts with former customers and co-workers. The record should include information on:

  • Who initiated the communication?
  • Steps the ex-employee took in responding to the contact
  • When they took those steps
  • Whether and how the contact generated new business

A spreadsheet is an excellent way to preserve this information. First, the new employer should monitor the employee's actions. Next, the ex-employer can try to document the loss of business or employees. Finally, customers who don't want to do business with the ex-employee may be willing to provide information on improper conduct. But other customers may want a better deal and freely give business to breakaway employees.

Employers must also resist the temptation to be heavy-handed in dealing with customers and employees. Ex-employers and departing employees must avoid misleading customers or disparaging each other, or litigation for business disparagement or contractual interference may result. And overly adversarial behavior may lead customers to stop doing business with both the ex-employer and the ex-employee. In that case, everybody loses.

If you require an employment attorney near you, contact Thomas D. Rees of High Swartz in Norristown, PA, at 610-275-0700.

Tom Gabor | August 31, 2022

William F. Kerr, Jr. named the Best Lawyers® 2023 Real Estate Litigation Lawyer of the Year in Philadelphia

High Swartz LLP is pleased to announce that real estate attorney William F. Kerr, Jr. has been recognized as the Lawyer of the Year in the Philadelphia Metro region for 2023. Best Lawyers® selects only one attorney in each legal service to represent a city's region. Mr. Kerr represents land developers, property managers, and owners in real estate matters including real estate tax assessments and various transactions.

Although this is his first recognition as Lawyer of the Year, Bill has been included in editions of Best Lawyers® in America since 2018, in multiple categories including Municipal Law. Kerr serves as a Zoning Board Solicitor and special zoning, development, and real estate tax counsel to several southeastern Pennsylvania municipalities. He also provides outside counsel on real estate matters to the Philadelphia International Airport.

Of special importance to Mr. Kerr is his work as a member of Habitat for Humanity of Montgomery and Delaware Counties Board of Directors. Habitat has helped thousands of our region's families build, repair and improve their homes, while assisting them in becoming financially stable.

Additionally, Bill represents numerous Pennsylvania affordable housing developers in various aspects of the affordable housing development process. These include properties financed with Federal Low Income Housing Tax Credits. Bill has been commended for his work with an affordable housing industry group that successfully pursued an amendment to Pennsylvania’s assessment law as it affects affordable housing.

Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Almost 108,000 industry leading lawyers are eligible to vote (from around the world), and we have received over 13 million evaluations on the legal abilities of other lawyers based on their specific practice areas around the world. For the 2023 Edition of The Best Lawyers in America©, 9.4 million votes were analyzed, which resulted in more than 67,000 leading lawyers being included in the new edition. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor.

Joel D. Rosen | August 17, 2022

Choosing a Business Structure

Starting your own business can be rewarding and energizing. And yes, it can be a bit stressful. You have numerous essential decisions to make during the critical start-up phase. One of the most significant decisions is choosing a business structure.

It’s best to seek counsel from an accountant, business counselor, and business lawyer when deciding. Your business structure impacts day-to-day operations, taxes, personal liabilities, how you raise money, and more. So when choosing a business structure, do so wisely.

Factors That Determine Your Business Structure

You can choose several options when setting up your business, including a sole proprietorship, partnership, Limited Liability Company (LLC), or corporation.

The one you select depends on several factors:

  • Flexibility: Determine your expectations for business growth and ensure your structure provides ample flexibility to accommodate that growth. Generally, an LLC offers the most flexibility for growth potential.
  • Liability: You’ll need to examine the risks and your potential personal liability. You’ll also need to consider insurance, credit, and assets. For example, corporations offer the most significant liability protection.
  • Taxes: Sole proprietors, partnership owners, and S corporations classify income as personal income, while a C corporation separates business income from personal. Your structure impacts tax burdens because business income is taxed differently than personal income.
  • Operating Costs: Keeping updated records and paperwork can be costly, so you will also want to factor in these expenses. Sole proprietorships are usually the business type requiring the least amount of time and money invested in recordkeeping.
  • Fundraising: Your structure dictates how you raise funds. For example, sole proprietorships typically can’t offer stock, whereas corporations can.
  • Control: A sole proprietorship is typically the best route if you want complete control over the business. However, you also assume total liability for potential lawsuits, taxes, and losses.

If you need more information and guidance on the factors impacting choosing your business structure, talk to a business formation attorney in our Bucks County or Montgomery County law offices.

After Choosing Your Business Structure, Can You Change It?

The answer is yes. Actually, it happens quite often. For example, many businesses change from a simple structure like a sole proprietorship or partnership to a more complex structure like an LLC or corporation.

A business structure change can happen for any number of reasons:

  1. Personal Liability: As businesses grow, so do the risks. Consequently, the owner of a sole proprietorship may want to remove their liability by moving to an LLC or corporation.
  2. Taxes: Generally, tax considerations are the prime motivator for a business structure change. For example, the IRS views businesses as partnerships or corporations. The latter pays taxes on profits before distributing those profits to shareholders. However, the former is a pass-through entity where profits and losses go through the individual partners and require reporting on tax returns.
  3. Attracting Investors: Venture capitalists and angel investors prefer investing in C Corporations for tax purposes. In addition, a more formal structure like a corporation or LLC establishes the business arrangement upfront and what the options are.
  4. More Employees: As your employee numbers increase, liabilities attached to them do as well. So moving from a sole proprietorship to an LLC or C Corporation protects you.
  5. Financing: Many banks want to see a more formal business structure before providing funding.

Changing your business structure differs based on your initial business setup. For example, moving from a sole proprietorship to an LLC, partnership, or corporation requires registration with the state where you conduct business.

You’ll want to create an LLC operating agreement when moving to an LLC. Moving to a corporation requires selecting officers, a board of directors, and shareholder agreements.

You’ll want to involve a business lawyer to help you sort through the details and ensure you manage all the requirements for the business structure change.

What are the Types of Business Structures?

How to form your business legally is controlled by the law of the state where you create your business. Your decision must consider liability, taxation, and recordkeeping.

The most common forms of business structures are:

  • Sole Proprietorships
  • Partnerships
  • Limited Liability Companies (LLC)
  • Corporations

So, let’s take a closer look at which to select when choosing a business structure.

Sole Proprietorship

Generally, this option is the most simple and most common. With a sole proprietorship, your business is unincorporated and run entirely by one person – you as the owner. Although this structure entitles you to all the profits, you are also individually responsible for all debts and liabilities.

You obtain the necessary licenses and permits for your business when operating as a sole proprietorship. However, they vary by state and industry. Also, if you operate under a business name, you may legally have to file for a fictitious name.

In many states, such as Pennsylvania, registering a fictitious name does not protect the name or give you any right to block others from registering the same fictitious name. Instead, it serves only as a notice to the public that you are trading under that name. In addition, you must file with the IRS for an Employer Identification Number (EIN) if you hire employees.

Because you are the sole owner, your business entity is not taxed. Instead, you report the income and losses on Schedule C to Form 1040.

Partnerships

A business is legally structured as a partnership when two or more people share ownership. As a result, each partner contributes to aspects of the company, and both share liability and income.

In choosing this business structure, developing a legal partnership agreement is essential to document how you will make future decisions. In addition, the contract should include terms for dissolving the partnership if necessary. Although a legal agreement is not mandatory, it’s strongly encouraged since operating a business without one is risky.

If you choose a partnership structure, you can form a general partnership. Consequently, everything is divided equally among the partners. On the contrary, a limited partnership allows a partner to have limited responsibility.

You can register partnerships with the state with an established business name and all licenses and permits. The business must also register with the IRS and file an “annual information return” to report its income and losses.

The company itself does not pay income tax. Instead, profits and losses are “passed through” to the partners.

Limited Liability Companies

An LLC, or Limited Liability Company, is a legally recognized business structure combining corporate and partnership aspects.

To form an LLC, you must first choose a name that complies with state rules. The next step is filing articles of organization with your state’s business filing office, typically with the Secretary of State. These are generally short and simple documents that take only a few minutes to fill out.

After filing with the state, it’s imperative to work with a business lawyer to create an LLC Operating Agreement that sets legal rules for the ownership and operation of the company.

Finally, make sure to obtain all licenses and permits required. Also, some states may ask you to publish notice that you intend to form an LLC in a local publication.

Corporations

Becoming a legally recognized corporation is more complex. First, states determine the formation of corporations. In addition, corporations pay corporate income tax at the federal and state levels.

Certain small corporations can elect Subchapter S status and be taxed like a partnership, avoiding corporate taxes. In that case, profits flow to the shareholders as ordinary income.

In a corporation, the business becomes a corporate entity, and the corporation is taxed and held legally liable for all business responsibilities.

The business first needs to choose a corporate name not used by another corporation or limited liability company and prepare and file articles of incorporation to become a corporation in the Commonwealth of Pennsylvania.

Pennsylvania corporations also need an agent for service of process in the state that agrees to accept legal papers on the corporation’s behalf. However, a corporation with a Pennsylvania address need not have a separate agent to service the process.

To complete the legal requirements of forming a corporation, you must publish legal advertising, create corporate bylaws and hold an organizational, board of directors-style meeting.

You can learn more by reviewing A Guide to Business Registration in Pennsylvania.

Which Business Structure Do I Choose?

This answer depends on your business, current ownership structure, and goals. You should assess your individual needs and choose the proper business structure.

It’s best to talk with business experts and a business lawyer near you to guide your selection. They can also ensure you complete any required paperwork and file it appropriately.

U.S. News cited our law firm as a “Best Law Firm.” So, you can depend on our attorneys to provide the best advice, particularly as a Pennsylvania Business. Our firm can also support you with various legal services, including business litigation, intellectual property, restrictive covenants, and workers’ compensation.

The information above is general: we recommend you consult an attorney regarding your circumstances. This information does not represent legal advice or a substitute for legal representation.

 

 

Mary Cushing Doherty | August 10, 2022

How Will Divorce Affect My Business?

Divorce and business. For the owner, running the company can be never-ending and all-consuming. In many cases, the commitment and passion for it can contribute to strains in your personal life, leading to a struggling marriage and divorce. Consult with a divorce attorney if you own a business and are facing a divorce proceeding.

Will I Lose My Business in a Divorce?  

When a person facing divorce owns a business or is a co-owner, the question arises whether the divorce will force the company's liquidation. In most cases, the simple answer is "no."

However, courts will consider your business marital property valued as part of the financial analysis in the divorce.

Marital property is all income and assets acquired by either spouse during the marriage. It includes savings, real estate, stocks, bonds, debts, and business ventures. Marital property also covers compensation generated from the business in savings. Plus, courts divide any investments and retirement savings through the date of separation equitably.

The owner's spouse's income determines future child and spousal support.

Beware: With a business value based on excess earnings, you can argue the non-owner spouse cannot double-dip. For example, if the non-owner receives the value of the extra earnings as equitable distribution, you should remove them from the income available for support. A good business divorce attorney should be alert to this potential concern.

What is Marital Property as it Relates to Divorce and Business?

Since business and divorce focus on marital property and its distribution, let's take a closer look at what constitutes marital property.

If you formed your business during the marriage, it's marital property. That holds even if your spouse doesn't own any portion of your business. So, your spouse shares an ownership interest and has a claim against your company.

Even if the business is your property, your spouse may have a claim against increases in the company's value during the marriage. Generally, it's best to talk with a business divorce attorney to get a business valuation.

When determining whether or not your business is marital property or an individual asset, these factors come into play:

  • When you formed the business
  • Amount of time between business formation and your marriage
  • The success of the business before and after your marriage
  • Your spouse's involvement in business formation
  • Your spouse's contribution to business operations or growth
  • Changes in business valuation over time

Nine states view marital property as community property. As a result, they award each spouse a 50/50 split.

In other states, Pennsylvania included, courts use equitable distribution to determine what each spouse receives. You can learn about it here. So, again, you'll likely need a business valuation to support divorce proceedings.

Four Exceptions to Marital Property

As mentioned above, a variety of factors determine marital property. However, there are four exceptions:

  1. Gifts, Bequests, and Inheritances

    Any gifts, bequest, or inheritance one party receives from a third party, kept in a separate title, are not considered marital assets and are valued as of receipt. However, the increase in value is considered marital property.

  2. Property Acquired Pre-Marriage

    Marital property doesn't cover assets owned before the marriage kept in a separate title. Again, however, the increase in value during the marriage is.

  3. Property Acquired Post-Separation

    Any asset acquired after separation with non-marital funds is not marital property.

  4. Property Protected by a Prenuptial Agreement

    A well-drafted prenuptial agreement protects all assets acquired before and sometimes during a marriage. So, you'll want to consult with a family lawyer near you.

The business requires a valuation following a divorce filing when identified as a marital asset or with some marital component. The non-owner spouse has the right to know if it is marketable, if the business has significant assets, and if it successfully generates excess income for the owner.

In some circumstances, however, a business succeeds almost entirely upon the personal goodwill of the owner. As a result, it may have modest value to distribute. In most cases, the courts want the business to survive the divorce as an asset of the owner spouse, primarily where the family has been relying on the company to produce income.

Determining the Business Standard of Value in Divorce Cases

Often, a divorcing couple disagrees about the company's value, leading to a business appraiser defining the standard of value before proceeding with an appraisal. The standard of value presents a set of hypothetical conditions to determine the value.

There are three primary approaches to determining that valuation:

  1. Assets: In this approach, assets minus liabilities equals value. Assets include physical assets like inventory, equipment, and real estate. Intangible assets cover intellectual property, accounts receivables, etc.
  2. Market Value: Similar to a real estate valuation, appraisers value the business based on comparable companies sold.
  3. Income: The most common valuation method uses business history and various formulas to predict cash flows and profits for a business.

It's important to note that these standards may generate significantly different values. If you have a simple business model, it may be easier to determine a fair value. However, other cases require the services of a business appraiser.

Make sure you talk with your business divorce attorney for guidance on what comprises a particular standard of value. They can review past cases within a jurisdiction to uncover disallowed procedures or determinations. And that could benefit you greatly.

Other Considerations Involving a Divorce and Your Business

Typically, courts seek to limit damage to the business. So, they often accommodate a buyout over time of the non-owner's economic interest in the company rather than trigger financial hardship for the business owner.

If your spouse works in the business and isn't an owner, you should be wary of them actively hurting the company. For example, a spouse who calls customers or comes to the office and misbehaves may be at fault for trying to retaliate against you for personal reasons.

These actions could hurt the business asset's value and the source of future income. If you employ your spouse and they engage in this behavior, termination is an option.

Protecting Your Business from a Divorce

Although it isn't something you want to consider, 50 percent of marriages end in divorce. So, you should take steps to protect your business to survive a divorce. It's best to talk with an attorney near you to consider your options.

Here are some steps you can take:

  1. Marital Agreement

    An agreement, whether pre- or post-nuptial, allows you to designate your business or future companies as separate from the marriage. Although courts sometimes fail to uphold marital contracts, they protect your business in the event of a divorce.

  2. Buy-Sell Agreement

    This agreement controls when owners can sell their interest, who can buy their interest, and the price paid. It comes into play when an owner retires, goes bankrupt, becomes disabled, gets divorced, or dies. In short, a buy-sell agreement is a sort of prenuptial agreement.

  3. Shareholder Agreement

    A shareholder agreement can define guidelines in the event of a divorce. For example, it can determine the mechanisms for valuing each spouse's interest in the company, assign business ownership with a divorce, and restrict ownership transfer.

  4. Business Structure

    In conjunction with a shareholder agreement, structuring the business as a partnership or limited liability company (LLC) can protect you from a divorce and your business.

  5. Employment

    Don't allow your spouse to work for or with you. As a married couple, it may seem like a good idea. But, it can lead to issues during a divorce.

  6. Trust

    In a trust, it owns the business, so your business doesn't count as a marital asset.

Another critical protection is remembering to pay yourself a salary versus investing cash flow into the business. Doing so prevents your spouse from claiming you deprived them of monies during the marriage.

Talk with a Business Divorce Attorney

The end of a marriage is stressful enough, but the fear of potentially losing one's livelihood at the same time can be frightening. Plus, there's the toll divorce litigation can play in allowing you to keep up the same pace of work.

Talk to a business divorce attorney immediately if you're facing a divorce. They can help counsel you on your best options to maintain your business with minimal damage. Apart from divorce lawyers, our law firm can support you with real estate concerns and marital agreements. We have law offices in Bucks County and Montgomery County, PA.

The information above is general: we recommend you consult an attorney regarding your circumstances. You should not consider this information as legal advice or a substitute for legal representation.

 

 

High Swartz | August 2, 2022

How to Write a Valid Will

Do you need a lawyer to create a valid will? Short answer: no. If you have a basic, straightforward estate, you can use an online service to create one. Even so, there are some essentials to ensuring your will is valid.

Each state has laws defining what constitutes a valid will. Consequently, making sure you fully comprehend Pennsylvania will laws is a must regarding how to write a valid will. For instance, if you elect to use an online service, select one that has a customized template for Pennsylvania.

However, as your estate grows in complexity, it becomes more critical to consult with an estate attorney or will lawyer near you. They'll ensure that you cover all necessary details and that the will is valid in Pennsylvania.

Writing a Valid Will in Pennsylvania

The rules for writing a valid will in Pennsylvania are pretty straightforward.

You must:

  1. Be 18 years or older and of sound mind.
  2. Create the will on paper. It can be typed or hand-written (aka a holographic will). However, alternative forms like audio, video, or other digitally created files render the will invalid. So, courts will not recognize it.
  3. Sign the will. However, there is no legal requirement for the will to be witnessed when signed to be considered valid.

Although you don't need witnesses to make your will valid, they may be required at probate to prove the validity of your will. However, Pennsylvania law allows for creating a self-proving will to avoid this requirement.

Self-Proving Will

A self-proving will requires that you sign your will in the presence of two witnesses, known as subscribing witnesses. Then you, as the testator (the will creator), and they as witnesses sign affidavits stating who you are and that you signed your will in the presence of witnesses.

The process requires a notary who then notarizes your signatures. A self-proving will is readily admitted to probate as valid in Pennsylvania.

If you have questions about creating a self-proving will when you want to make sure you write a valid will, you should consult with a will lawyer or estate attorney.

Authenticating Your Will in Pennsylvania

If a will is not self-proving, the Register of Wills for your PA county requires witness testimony to validate the will. So, they must authenticate the will before admitting it to probate. Most often, this testimony comes in the form of an affidavit.

If a subscribing witness (a witness who signs the document at the end) testifies, you must file an "oath of subscribing witness" with the Register of Wills. However, if a non-subscribing witness testifies, the non-subscribing witness must verify that they are familiar with the signature of the testator/decedent (person who has died). In addition, they must verify that they recognize the signature of the testator/decedent.

Contrastingly, a subscribing witness must sign the will for it to be valid.

Validity of a Will When the Testator Can't Sign

Pennsylvania law recognizes that some people may not be able to sign their names. Therefore, it allows another person to sign the testator's will. Otherwise, the testator may merely make a mark indicating their consent to write a valid will.

As you may imagine, the standard of proof in these instances is more significant than a will bearing the full signature of the testator. Pennsylvania law requires two subscribing witnesses to verify the signature or mark a case where the testator can't sign.

How to Write a Valid Will: Case Law in Pennsylvania

The case of In Re: Staccio, 143 A.3d 983 (Pa. Super. 2016) tested these Pennsylvania law provisions. In this case, the decedent was weak and sick, so the decedent's girlfriend helped him make his signature.

The testator's attorney witnessed the signature and testified that the testator was fully aware of his actions and the consequences of signing the will. The attorney, however, was the only subscribing witness to the will.

The Superior Court held that a person signing a will, even with another's assistance, doesn't need to meet the higher threshold imposed upon those signing with a mark or by another person.

It's essential to note that the court found that the testator was aware and asked for help signing the will. The testator did not ask his girlfriend to sign the will on his behalf.

What to Include in Your Will

Your will presents your wishes for property distribution and other concerns following your death. Typically, it addresses these concerns:

  • Listing of property and assets
  • Assigning beneficiaries to those property and assets
  • Assignment of an executor
  • The naming of a guardian for children
  • Naming someone to care for pets

Remember, your will addresses settling your estate after your passing. It doesn't address concerns like advanced medical directives or end-of-life care.

Revoking Your Will

A valid will becomes a legally binding document. However, you can change it any time. You can revoke your will by taking any of these steps when writing a valid will:

  • Destroying your will
  • Creating a new will stating that you revoke the previous one
  • Writing a document stating you revoke the will and notarizing it

You can create an addendum or codicil citing the adjustment if the changes are minor. Just remember that the appendix is validated the same way as your will.

The Importance of Writing a Valid Will

A will avoids probate, so your property can pass to your beneficiaries automatically. Otherwise, courts determine the distribution of your assets through the probate process. As a result, your property is subject to intestate distribution based on state laws concerning descent and distribution.

Fortunately, a valid will forgoes the probate process making it far more straightforward and less costly.

Talk to an Estate Attorney or Will Lawyer

Even if you decide to create your own will, it makes sense to consult with an estate attorney or will lawyer on how to write a valid will. They can provide insights into critical items that might impact the validity of your will.

As mentioned, if you have a complex estate, an experienced attorney can not only draft a valid will but also support you with other estate documents like a living will.

Get in touch with our local firm. We have law offices practicing estate planning in Doylestown and Norristown, PA. U.S. News recognized our firm on its Best Law Firm Rankings and cited several of our attorneys on the Best Lawyers List.

Joel D. Rosen | August 1, 2022

What is an LLC Operating Agreement?

An operating agreement is essential if you're forming a limited liability corporation (LLC). An LLC operating agreement, also referred to as an LLC agreement, establishes the business' financial and managerial duties, including rules, regulations, and provisions. In short, it governs the internal operations of the company.

As an LLC, the operating agreement addresses various issues typically governed by the law that enables LLCs in the jurisdiction of formation. In addition, these laws include provisions that protect members from personal liability for the business's debts.

Only California, Delaware, Maine, Missouri, and New York require an LLC agreement. Even though Pennsylvania has no requirements, if you're forming an LLC in the Commonwealth, it remains a worthwhile consideration during business formation.

It's best to talk with a business lawyer near you to ensure you create a sound operating agreement.

Basic Provisions of an LLC Agreement

At the very least, an LLC agreement should cover some essential elements:

  1. The name of the LLC, including the address.
  2. A statement of intent indicating the agreement is by state laws.
  3. The business purpose, including its nature.
  4. The term generally shows that the business will continue until terminated or dissolved.
  5. Treatment of taxes
  6. How new members acquire a business interest

Other Items Covered by an LLC Operating Agreement

An LLC operating agreement is generally brief, ranging from five to 25 pages. But it presses owners and members to agree on financial and operational arrangements.

The main goal of the operating agreement is to name members of the LLC and their percentage of ownership. Apart from that, most LLC operating agreements cover six critical sections:

  1. Ownership: Who owns the business, and what is their percentage of ownership?
  2. Management and voting: Does each member have a single vote, or is voting based on the percentage of ownership?
  3. Capital contributions of members: Is ownership based on the capital contributions of the members?
  4. Membership: What happens if a member elects to leave the LLC?
  5. Distributions: How will the organization share profits and losses? For example, if a member owns 25% of the business, will they receive 25% of the profits and losses?
  6. Dissolution: What happens if your business dissolves? Who is responsible for liabilities, and how will assets get dispersed?

Although these areas represent primary considerations, your agreement can cover additional areas such as business decision-making, selling interests, right of refusal, dispute resolution, meetings and meeting protocols, and more. Many also consider forming an LLC for an investment property portfolio. 

Why is an Operating Agreement Important?

At the very least, an LLC agreement provides proof of ownership for banks and investors.

More importantly, they help prevent future conflicts and disagreements about significant business decisions because the contract covers terms around most major functions and opportunities.

That's critical. For example, even if you feel you've already come to verbal agreements with co-owning members, misunderstanding may arise as years pass or complications occur. By having terms outlined upfront, you eliminate future conflict.

An LLC operating agreement also protects your company's status as a limited liability structure. Otherwise, your LLC might resemble a sole proprietorship or partnership. And that opens the door to personal liabilities for members.

Overriding State Rules for LLC Operation

Moreover, your state's default rules for how an LLC operates apply without an operating agreement. For example, every state has laws on LCC management, admitting new members, dissolution, and other aspects of governance.

Unfortunately, those rules focus on applying the least common denominator, leading to unwanted results. For instance, your state may, upon your death, default your business to a spouse or child.

However, if you want someone else to assume responsibility for your company following your death, your operating agreement needs to state that. You can override Pennsylvania's default rules by having an LLC operating agreement.

Do I Need a Business Lawyer to Draft the Agreement?

Thanks to the internet, free templates are available to draft an LLC operating agreement. Indeed, here's a resource for creating a PA operating agreement. But remember that the LLC agreement governs your company and its members, so it requires careful consideration.

At the very least, if you want to draft your agreement, take the time to run it by a business lawyer for potential issues. Or better still, have an experienced business lawyer draft a contract for your review. And make sure that the lawyer is familiar with Pennsylvania law.

Need Some Help Drafting an Agreement?

Ultimately, you should construct an LLC agreement to the needs of each unique business. Agreements should comply with the laws of the state where the company operates.

If you're forming an LLC or are already operating a company and need help drafting an LLC operating agreement, get in touch with our local law offices in Bucks County, PA, Montgomery County, PA, and Camden County, NJ.

Our business lawyers can support you with business formation and operating agreement creation. Our law firm can also help you with various other legal concerns, including workers' compensation, employment law, and real estate.

U.S. News recognizes High Swartz on the"Best Law Firm" List and cites 14 of our attorneys on the "Best Lawyers List."

For more information, contact Joel D. Rosen at (610) 275-0700. Visit his attorney profile here.

The information above is general: we recommend you consult an attorney regarding your circumstances. This information does not represent legal advice or a substitute for legal representation.