Masonry Magazine September 2004 Page. 42
Legal Issues
Top 10 Legal Issues Facing Construction Companies
Elisa A. Eisenberg, Esquire
Director, Jackson & Campbell, P.C.
Okay, I'll admit it: I am not a big Letterman fan. Like most of you, my alarm goes off well before dawn, which makes it next to impossible to watch this cult show (notice the implication that if I did watch, I would be a fan). So, while I am not sure whether Letterman has ever done a "Top 10" list for construction companies, he should have. In writing this article, Mr. Letterman, I mean no disrespect or infringement.
Running a successful construction business requires the orchestration of a number of competing issues, including balancing business realities and legal concerns. Being responsible for the constant weighing of interests requires knowledge of the issues, savvy to strike the correct balance, and a bit of humor to navigate around the crushing seriousness of it all. In this article and the articles that follow, we will identify the legal issues and provide suggestions for how to best deal with them.
What are the top 10 legal issues facing construction companies, you ask? Without the $2,000 suit, the wide-toothed grin and the 12-piece band, we present...
The Top 10 Legal Issues Facing Construction Companies:
Number 10-How to Select a Business Entity for a New Construction Company...
If you want to form a company with some of your buddies, you need to decide which entity is right for your new business. You can form a general partnership, where all of the partners are personally liable for the debts of the company.
You can also form a limited liability partnership (LLP), in which one or more of the partners has limited liability. A LLP has a general partner, which can be a corporation to shield liability, and limited partners. It is important to note, however, that the general partner will be liable for the company's debts. If you decide to form a LLP, you will need to file a certificate of limited partnership with the appropriate state offices, otherwise your business will be considered a general partnership by operation of law.
Finally, you can form a limited liability company, where all of the members have limited liability, or you can form a corporation. If you form a corporation, you can make an election under Subchapter S of the Internal Revenue Code, and all amounts earned by the corporation and distributed to the owners are taxed only once, thereby escaping the so-called "double tax." A C-corporation, on the other hand, is subject to the "double tax" as income received by the corporation is subject to corporate tax and profits distributed to the owners or shareholders is subject to their personal income tax.
Number Nine - How to Finance a New Business Venture...
Starting a company or just need to make payroll and do not have the capital? There are a number of funding options, including private and public financing. If you do not have the capital to start a new business, you could apply for a loan with a bank, including small-business loans that are guaranteed by the Small Business Administration at traditionally lower rates than regular bank loans. You could also seek to raise funds through a private placement, where money is raised through accredited investors and syndicated bank loans, where a number of banks join in the loan. If you want to take the company public to raise capital, you can offer your shares to the general public through a public offering. This, however, is a very expensive proposition because of the required filings with the SEC and other regulatory bodies.
Number Eight How to Defer Business Risks...
Insure against risks that could otherwise impair or even bankrupt your company. In addition to Comprehensive Liability Insurance that was discussed in Cassidy's "Insurance Issues" article (pg. 42, June 2004), and depending on the type and size of your business, you should consider other types of coverage. These include: Contractors General Liability - this coverage is usually for specialty trade contractors and heavy construction contractors; Workers Compensation; Management Liability including Directors & Officers (D&O), Employment Practices Liability (EPLI), Fidelity Bond for corporate crime, and ERISA Liability (arising out of a company's fiduciary responsibility for employee pension and welfare benefit plans as regulated by the Employee Retirement Income Security Act of 1974); Environmental Liability; Accidental Death & Dismemberment (AD&D); and Excess Casualty and Umbrella coverages - for protection against catastrophic loss.
Number Seven-Contracting from Beginning to End...
Before you submit that bid, make sure you have thoroughly considered all angles