Business Litigation

Tuesday, June 17, 2014

Common Pitfalls of Commercial Real Estate Transactions

Entering into a commercial real estate transaction can be risky business.  Considerations necessary prior to getting involved with a commercial real estate transaction are different in many respects from those in a residential real estate transaction and often times more complex.  There are many pitfalls to avoid when considering buying or selling commercial real estate due to the high stakes often involved.

Property valuation can become a problem in a commercial real estate transaction.  Determining the value of commercial real estate is difficult because the property might be completely unique without any comparable sales.  Often, there is also an income component to consider.  If the property has an income stream that has to be factored into the deal.

Commercial real estate can also be subject to fierce negotiations.  Buyers are responsible for doing their due diligence in these transactions because they cannot rely on consumer protection laws.  Buyers have to be mindful at the outset that outside of fraud, there are no robust legal mechanisms to protect them or provide recourse if the deal goes bad.  For example, the mandatory disclosures afforded to residential purchasers are often not available to purchasers of commercial real estate.

Over-reaching can also be a major problem for buyers and sellers.  Parties involved should be wary of deals that are likely to require more capital or expertise then they currently possess.  But, the key is to realize when you are in too deep before the deal if affected.

It is crucial to memorialize every detail possible in the commercial real estate contract.  Since courts usually only consider the four corners of a contract in order to settle disputes, all critical details of the deal should be covered in the contract.  Too many individuals involved in commercial real estate use standard contracts that do not cover the unique contingencies that only exist in these types of transactions.

Lastly, it is important to consider environmental risks relating to commercial real estate transactions.  Properties with environmental issues, such as those previously contaminated by hazardous material can cost their owners substantial sums in cleanup and even expose them to litigation. These environmental issues are not always readily apparent when the transaction is taking place.  It could take years to discover that there is an environmental issue with the property caused by a previous owner.  At that point, the current owner may be primarily responsible for the cleanup, which can be a substantial unexpected cost.  Hence it’s important to hire experts to perform thorough legal and business due diligence prior to entering a commercial real estate transaction.

For information regarding commercial real estate transactions contact Harras Bloom & Archer LLP at our Melville, Long Island office at 631-393-6220 or our New York City office at 212-922-9545. 

Monday, May 5, 2014

Steps 6-10 of Incorporation

We went over the first five steps for incorporating your Long Island business in our last blog, we'll finish up here with the remaining five parts of the incorporation process that apply if you want to incorporate an existing firm or would like to do business in New York and are headquartered outside the state. The attorneys of Harras Bloom & Archer LLP handle all business matters on Long Island, and will help guide you to success by using their profound knowledge of the legal system to represent your best interests, whether you simply need guidance or require aggressive court representation.

Here are the basic steps for forming a corporation in Nassau or Suffolk county. For steps 1 - 5, click here.

6. Appoint Initial Corporate Directors

Initial corporate directors must be appointed by the incorporator, the person who signed the articles. These directors must serve on the board until  the first annual meeting of shareholders, when the shareholders elect the board members who will serve for the next term. An "Incorporator's Statement" signed by the incorporator must include the names and addresses of the initial directors. A copy of the statement should be filed in the corporate records book.

7. Schedule and the first meeting of the corporation's board of directors

During this meeting, the directors can appoint corporate officers, adopt bylaws, select a corporate bank, authorize issuance of shares of stock, set the corporation's fiscal year, and adopt an official stock certificate form and corporate seal. The incorporator or any of the directors must record the meeting minutes and edit them over the course of a week or two before sending them to all directors to sign.

8. Issue Stock to Each Shareholder

Small corporations typically issue paper stock certificates, though they are not legally required anymore. Include each shareholder's name and contact information in the corporation’s stock transfer ledger.

9. File Biennial Statement

All New York corporations must file a Biennial Statement with the Department of State, due every other year in during the calendar month in which the corporation's original certificate of incorporation was filed.

10. Comply with Tax and Regulatory Requirements

There are additional tax and regulatory requirements your corporation must adhere to, including:

  • EIN: Your corporation must obtain a federal employer identification number (EIN). You can obtain an EIN by completing an online application on the IRS website for no filing fee.
  • S Corporation Filing: In order for a corporation to elect S corporation status for tax purposes, it must submit a 'Election by a Small Business Corporation' form (signed by all the shareholders within two months and 15 days after the beginning of the corporation's first tax year. Then, file Form CT-6, Election by a Federal S Corporation to be Treated as a New York S Corporation.
  • New York State Taxes: Under New York State Tax Law, a corporation must file franchise tax reports and pay franchise taxes annually even if the corporation loses money or doesn't conduct business. Franchise tax requirements begin on the date of incorporation and continue until the corporation is legally dissolved by the Secretary of State.
  • Business Licenses: The State of New York may require that you either obtain a license or permit depending on the nature of your business.
For legal guidance on any business litigation matter, contact the Long Island law office of Harras Bloom & Archer LLP at 631-498-5505.

Wednesday, April 30, 2014

5 Tips of Incorporation

If you're establishing a new firm on Long Island, wish to incorporate an existing firm or seek to do business in New York as an existing corporation headquartered outside the state, there is a certain process you must follow in order to ensure the legal validity of the entity. The attorneys of Harras Bloom & Archer LLP guide their clients on a path for success in business matters through their extensive legal knowledge and experience, and their determination in the courtroom.

Here are the basic steps for forming a corporation in Nassau or Suffolk County.

1. Name Your Corporation

Although those seeking to establish a corporation in New York have a fair amount of freedom in choosing their business name, there are some requirements entrepreneurs must adhere to when naming their corporation. One such requirement being that you have to include "Incorporation," "Incorporated," "Limited," or an abbreviation in the business name.

In addition, the corporation's name must be unique, or at least noticeably different from all other business entities registered with the New York Secretary of State. Make sure the name you decide on is available by checking the New York Department of State Division of Corporations business name database []. For a filing fee of $20, you can reserve a name for 60 days with the New York Department of State Division of Corporations- file the Application for Reservation of Name [] by mail.

2. File a Certificate of Incorporation

In order for your business to become incorporated, you must file with the New York Secretary of State.  Along with the corporate name, the certificate must include its street address; number of shares the corporation is authorized to issue, and the name and address of the incorporator.

3. Appoint a Registered Agent

Corporations must appoint a registered agent to accept and forward legal papers on the corporation's behalf if it is sued, among other things. In New York, corporations must appoint the New York Department of State for service of process.

4. Create a Corporate Records Book

Be sure to store all information pertinent to the process of incorporating your business. Important items include minutes of director and shareholder meetings, stock certificates and stock certificate stubs. Use your own method of organizing these documents or order a special corporate records kit through a corporate kit supplier.

5. Prepare Corporate Bylaws

Although corporate bylaws- basically the ground rules for your corporation's operations- are not a legal requirement in New York, it is recommended that you prepare them for the purpose of establishing rules of operation and to help establish the legitimacy of your corporation to banks, creditors, the IRS, and others. A business law attorney can assist you in developing these bylaws.

For legal guidance on any business litigation matter on Long Island, contact the Law Office of Harras Bloom & Archer LLP at 631-498-5505.

Friday, January 31, 2014

Is bad faith a defense in deadlock dissolution proceedings?

In a corporation where shareholders maintain a 50/50 ownership structure, differences in opinion among shareholders on important business matters could lead to the involuntary dissolution of the company. Deadlocks occur when disagreements evenly divide shareholders, rendering them unable to reach the majority vote that is customarily required in business. As a result, the company's ability to conduct business becomes severely compromised. But, what if one shareholder uses the "bad faith" defense? Does the petitioner’s so-called bad faith have a bearing in a deadlock dissolution case when the 50/50 owners suffer a communication breakdown and reach an impasse? Justice Vito DeStefano recently dealt with this situation in the Supreme Court's Nassau County Commercial Division in the case of Feinberg v. Silverberg, equal-share co-owners of L&E International Ltd., a Long Island company.

Plaintiff Feinberg sought injunctive relief against defendant Errol Silverberg based on the latter's bad faith, more specifically, his alleged attempt at "freezing" Feinberg out of the company.  

The judge originally assigned to the case, who is now retired, did grant injunctive relief to Feinberg due to evidence of Silverberg's scheme to phase Feinberg out of the company. Evidence presented in court included an audio recording in which Silverberg and his devoted comrades discussed shuttering L&E and reassigning its business to another company under their ownership, without Feinberg. This type of conduct is a clear example of bad faith.

While in proceedings for that ruling, Silverberg filed a deadlock dissolution petition under BCL § 1104 claiming that it was impossible for L&E to conduct business due to the clashing of opinions and eventual dissension between himself and Feinberg. Feinberg's and Silverberg's cases were consolidated by Justice DeStefano in May 2013. 

Feinberg challenged the deadlock dissolution claim, maintaining that Silverberg's actions set the stage for dissension, and therefore his bad faith disqualified his petition. Silverberg argued that a bad faith defense is not relevant to a dissolution proceeding. Based on previous cases cited by the former co-owners and other evidence, Justice DeStefano ruled that evidence of bad faith does have a bearing on deadlock dissolution proceedings. This answers our earlier question: Does the petitioner’s so-called bad faith have a bearing in a deadlock dissolution case? 

The ruling of Feinberg v. Silverberg is the first of its kind in New York, determining that the actions which led to a deadlock make a difference in dissolution proceedings. 

Harras Bloom & Archer LLP is known for providing sophisticated legal representation to sophisticated clients serving Nassau County, Suffolk County, Queens County, New York City and surrounding areas.

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