2024 Essentials of Business Law

It is often stated that one of the benefits of organizing an entity as a limited liability company is that this form of entity offers the owners and governing authority of the entity the flexibility to agree to provisions for the economic terms and governance that are more flexible than available with respect to a corporation. This is true, and indeed limited liability companies are sometimes used to create highly complex structures with multiple classes of ownership interests and highly customized provisions regarding management and governance of the entity, including complicated provisions for voting and management succession. However, given the large number of entities now being created as limited liability companies in Texas and other states, it is likely that many of these new entities are not entities with complex structures with multiple classes of ownership and complex bureaucracies for governance. Statistics compiled by the Internal Revenue Service show that for the tax year 2020 (the most recent year for which statistics are currently available), approximately 67% of the Scorporation returns are for single-shareholder S corporations and approximately 24% have only two shareholders. The Internal Revenue Service does not publish similar statistics for limited liability companies, and single-member limited liability companies are typically disregarded entities that do not file tax returns. But if one assumes that most limited liability companies are closely held entities, then by analogy, it is likely that a large portion of limited liability companies have one or two owners. Therefore, it is much more likely that practitioners will find themselves needing to draft simple limited liability company agreements suitable for entities with one or two or a very few owners, rather than more complex documents.The purpose of this paper is to present and discuss models for governing agreements for limited liability companies when a simple structure is needed.

An “earnout” is a deal mechanism used in a merger and acquisition transaction (“M&A Transaction”) which structures the terms upon which a buyer agrees to pay additional consideration to the seller after the closing of the M&A Transaction if certain specified performance targets are achieved post-closing by the acquired business or upon the occurrence of specific events. An earnout is a particularly useful deal mechanism when the buyer and seller have differing views on the value of a business, which often is based on the estimated future performance of the business or the likelihood that a specific event will occur in the future related to the acquired business. Earnouts are also commonly used in a number of other scenarios, such as where: i) the seller will remain involved in the business post-closing and the earnout is intended to incentivize the seller to continue operating the business in a profitable capacity or grow the business for the buyer’s benefit after the closing of the M&A transaction; ii) the acquired company has little operating history but significant growth potential as a result of the M&A Transaction; iii)the acquired company now has access to new technology which may increase its profitability or value; iv) the acquired company experienced a drop in earnings prior to the M&A Transaction which the seller thinks is temporary; or v) the acquired company is operating in a volatile economy or industry which can adversely affect the acquired company’s profitability or cause its value to fluctuate widely.

No one goes into business planning to file bankruptcy. But even thriving businesses may be drawn into bankruptcy if one of their customers or suppliers files for bankruptcy protection. And when faced with economic headwinds, businesses that thoughtfully plan for a potential bankruptcy filing early on tend to fare better than those businesses that hold out until the bitter end and file only as a last resort. While an actual bankruptcy case calls for a specialist, all business lawyers should have a working understanding of bankruptcy basics to identify opportunities and threats.

In 1995, under the leadership of then Chief Judge Judith Kaye, New York State established the Commercial Division of the Supreme Court. Upon its creation, the Commercial Division was one of the first state court trial divisions devoted entirely to business cases.

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For many business lawyers, cryptocurrencies became a conversation topic circa 2013 or 2014 – in the early years when Bitcoin experienced enormous upward - and then downward - volatility. At the time, cryptocurrency and blockchain were fledgling technologies that were not widely understood, and that were primarily used by computer programmers, cryptologists, and individuals dedicated to avoiding government scrutiny. As Bitcoin enjoyed some price appreciation and publicity, entrepreneurs and programmers issued other cryptocurrencies. Public awareness of cryptocurrencies increased dramatically, even if public adoption of the new forms of monetary instruments increased only modestly. And government scrutiny has followed. As we enter 2024, cryptocurrency companies include a broad range of players, from respected, publicly-traded entities with nine-figure market caps to disgraced, bankrupt exchanges to underground, criminal enterprises. Given the potential opportunities and pitfalls, the business lawyers have an increasingly important role in advising clients regarding the legal issues surrounding cryptocurrencies and blockchain.

When corporate lawyers say that a traditional law school education does little to prepare you for a transactional practice, due diligence often comes to mind. It is fundamentally a business skill that requires the ability to understand the client’s commercial objectives, analyze industry documents, identify key business issues and present relevant information in plain English. For this reason, many will say that the best way to learn how to conduct a due diligence review, is to do it. The authors of this paper do not disagree; we note here only a few key considerations that may provide some helpful context for learning this essential skill in the practice of business law.

Litigation is part of doing business, and costs businesses millions of dollars annually. Thirty states have created specialized courts to address complex business litigation with greater efficiency and consistency. With the passage of House Bill 19 (HB 19) by the 2023 Texas Legislature and Governor Abbott’s signature on June 9, 2023, Texas now has a business court that will open its doors in 2024, becoming the thirty-first state to undertake this judicial innovation.This followed unsuccessful efforts to pass business court legislation in the 2015, 2017, 2019 and 2021 sessions of the Texas Legislature. What made the difference in 2023?The creation of a Texas business court was identified by each of Governor Abbott, Lt. Governor Patrick and House Speaker Phelan as a top legislative priority in 2023. Chief Justice Hecht’s 2023 State of the Judiciary message noted that while the proposed creation of Texas business courts by HB 19 “is not without controversy” . . . “I believe business courts would benefit the Texas justice system, and I support their creation.”Despite strong opposition from Texas trial lawyer organizations, HB 19 was broadly supported by Texas businesses, and received overwhelming legislative approval. The hard work and skillful negotiation of primary authors Representative Andy Murr (R-Kerrville) and Senator Bryan Hughes (R-Tyler), supported by 77 joint and co-authors,produced floor votes in the Texas House of Representatives of 90 to 51 and 86 to 53, and in the Texas Senate of 24 to6, favoring passage of HB 19.The jurisdiction of the Texas business court provided in HB 19 is narrowly tailored to reach disputes between businesses, or among businesses and their owners, directors and management, relating to matters such as breach of contract, breach of fiduciary duty, governance and control disputes, and violations of state and federal securities and trade regulation laws. The minimum amount in controversy for most actions before the business court is set at $5million or $10 million depending on the nature of the specific claims asserted. The amount in controversy requirements do not apply to a limited set of actions - those seeking only injunctive or declaratory relief and cases addressing claims of breach of fiduciary duty, governance and control disputes and securities and trade regulation litigation if a publicly traded company is a party.The Texas business court when fully operational will have statewide jurisdiction, supporting the creation of consistent business case law and court rules, and complementing the state’s innovative business laws as codified in the Business Organizations Code, the Business & Commerce Code, the Finance Code and the Texas Securities Act. The specifics of the business court’s jurisdiction are addressed in more detail in Part II below.

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Intellectual Property (IP) generally refers to products or creations of the mind, which can include inventions,literary and artistic works, designs, and symbols, names, and images used in commerce. Inherently, these products of the mind are intangible, even if they might be symbolized, represented, or otherwise expressed through a tangible form.IP law has been developed over a long time and represents a category of legal provisions that establishes a mechanism to grant creators and inventors rights over their creations. This IP legal framework is designed to recognize and protect the intellectual labor and innovation of individuals and organizations. The core objective of IP law is to foster an environment where creativity and innovation can flourish by ensuring that creators can reap the benefits of their inventions and works.The importance of intellectual property law cannot be overstated. It serves as the backbone of the modern economy, promoting progress by encouraging the development of new technologies, arts, and cultures. By providing a mechanism for protecting their creations, IP law gives inventors and artists the confidence to invest time, resources,and effort into their creative endeavors. This legal protection is critical because, unlike physical property, intellectual creations can be easily duplicated by others who have not contributed to the original creation’s development. This protection not only helps in securing a financial reward for the creator but also contributes to the overall growth of society by making new and innovative goods and services available to the public.Moreover, IP rights play a crucial role in the global economy. They encourage healthy competition by ensuring that competitors cannot freely copy and profit from the innovations of others. This competitive environment pushes companies to continue innovating, leading to a dynamic and evolving marketplace. Additionally, IP rights can be significant assets to individuals and businesses, often forming a substantial part of a company's valuation through licensing agreements, franchising, and other commercial arrangements.In essence, intellectual property law is vital for protecting the rights of creators, promoting innovation, and driving economic growth. It balances the interests of inventors and the public, ensuring that the benefits of creative works and inventions are shared broadly while rewarding those who contribute to progress and development.IP law is typically divided into four specific types of IP protection frameworks, each with its own particular history, nomenclature, and legal framework. The four main types of IP protection include patents, copyrights,trademarks, and trade secrets. In this article, our focus will be in providing information that we are hopeful will allow a practitioner to identify what IP the client has and, even more critically, which of the IP protection frameworks can be used to protect the client’s IP. To that end, this article will emphasize practical examples that can be applied while providing a cursory look of the different IP protection frameworks without delving into an in-depth discussion of the nuances and intricacies of the legal doctrines of each IP protection frameworks.

Every year businesses organized in, having a presence or principal office in, or otherwise actively engaging in business in, the great state of Texas enter into hundreds of thousands of written contracts to govern their business arrangements (“Texas contracts”). Many of these Texas contracts include provisions expressing the parties’ agreements regarding the state, or subdivision of a state, in whose courts any litigation arising in connection with the contract will be conducted (choice of forum) and the specific county, city or court within that forum in which litigation arising in connection with the contract is to be conducted (choice of venue). Those agreements have been formed based upon the parties’ understanding of the laws of Texas and other leading commercial states governing the subject matter jurisdiction and geographic jurisdiction of their courts as established by statute and judicial decision.

Example Stock Purchase Agreement

Capital formation efforts by businesses small and large continue to contribute to the vitality of the Texas economy. The Texas Securities Act and the regulations, thereunder, provide avenues to raise capital while also establishing standards and processes intended to protect investors. As such, business owners and their lawyers commonly face questions like “Do I have to file anything if I want to find investors?,” “Who can I raise money from?,” “Can Jane help me raise money if I don’t pay her?,” and“What is the penalty for doing this wrong?” The easy answer – and the least satisfying one for all involved – “It depends.” This article outlines for counsel certain key initial considerations raised regularly by businesses seeking to raise capital or other activity involving securities.

Under the Texas Business Organizations Code (the “TBOC”), there are three kinds of shareholders agreementsfor a Texas for-profit corporation. First, there are shareholders agreements between the corporation and one or moreof the corporation’s shareholders or agreements between two or more shareholders that are not executed by all of theshareholders of the corporation. The TBOC has no specific provisions governing this first kind of shareholdersagreements other than to state that the statutory provisions governing the other two kinds of shareholders agreementsdo not prohibit or impair such agreements. Second, there are written shareholders agreements that are executed by allof the shareholders at the time of the agreement and made known to the corporation. Third, there are shareholdersagreements that are contained in the certificate of formation or bylaws if approved by all of the shareholders at the timeof the agreement. The latter two forms of shareholder agreements are authorized and governed by Subchapter C ofChapter 21 of the TBOC. These latter agreements may be amended only by all of the shareholders at the time of theamendment, unless the agreement provides otherwise.4 This article refers to the latter kinds of shareholders agreementsas “statutory shareholders agreements”.

Although the classic Deadly Sins do not ordinarily impact the process of drafting a Confidentiality Provision, the dramatic title is appropriate since this paper will focus on seven issues that arise in negotiation and drafting of contract terms related to "confidentiality" (and to Non-Disclosure Agreements - "NDAs") that can present significant difficulties for practitioners and clients.