Why You Should Consider Putting Your LLC into a Trust

Why You Should Consider Putting Your LLC into a Trust

The limited liability company (LLC) is a popular business structure that offers liability protection and avoidance of double taxation. Trusts are popular asset transfer vehicles that allow you to avoid probate and keep assets out of the hands of creditors. By placing LLC membership interests in a trust, business owners can combine the two types […]

Business Ownership Considerations for Non–United States Residents

Business Ownership Considerations for Non–United States Residents

Moving to a new country and starting a life there presents myriad challenges. Founding a business in the United States as a nonresident can be even more challenging. It requires navigating a convoluted immigration system, which specifically lacks a startup founders visa. That is on top of the extensive paperwork and filings required of all […]

Business Ownership and Divorce: What You Need to Know

Business Ownership and Divorce: What You Need to Know

Divorce is rarely simple. When two people’s lives are intertwined—physically, emotionally, and legally—separating the individual strands can be a task akin to untying the Gordian knot. The longer a couple has been together and the more they share, the more difficult this task becomes. It can be even more difficult if the divorcing couple co-owns […]

Considering Bankruptcy for Your Small Business? Here Is What You Need to Know

Considering Bankruptcy for Your Small Business? Here Is What You Need to Know

Starting a small business entails significant risk. You forego the security of a steady paycheck to create economic opportunities for yourself. Business failure rates have remained steady over the years, but the statistics are pretty daunting: by the five-year mark, around half of small businesses have failed. While the reasons for small business failure vary, […]

Considerations Before Owning a Business with Your Spouse

Considerations Before Owning a Business with Your Spouse

Both running a successful business and having a successful marriage require commitment and hard work. Operating a business as a married couple can present its share of challenges, but being devoted to one another as spouses and as business partners can bring higher levels of accountability and trust to the business. If you and your […]

What Is the Difference between a Trust and an LLC?

What Is the Difference between a Trust and an LLC?

Trusts and limited liability companies (LLCs) are both legal vehicles that can be used to manage and protect assets, minimize taxation, and avoid probate. Whether a trust or an LLC is a better choice may depend on the type of asset, but you do not necessarily have to choose between the two. In fact, an […]

How Do I Change the Directors on My Corporate Board?

How Do I Change the Directors on My Corporate Board

Corporate directors act as the governing body of a corporation. They manage the corporation’s business on behalf of the individuals who own the corporation. Directors serve on a board, and the board acts as a group to exercise the corporation’s powers. The board of directors makes major business and policy decisions for the corporation that […]

Personal Guarantees: What They Are and When They Are Required?

Personal Guarantees: What They Are and When They Are Required?

Your new business needs a capital infusion to get off the ground. The only problem is that a new business is not established enough to have generated a business credit report. It may also be lacking assets that can be used as loan collateral. Without a business credit report or business assets, lenders cannot judge […]

What to Include In Your Service Agreement

Small businesses account for nearly half of the economic activity in the United States. To successfully compete with bigger competitors, small businesses are increasingly outsourcing to improve their efficiency and lower costs. Outsourcing allows companies to expand their competencies in key areas without taking on additional full-time, in-house employees. This is a growing trend among small businesses looking for professional yet cost-effective support. Outsourced business functions are governed by service agreements. These agreements are contracts between businesses and independent service providers. Like all business contracts, service agreements must be carefully written to ensure effectiveness, accountability, and legal protection. Service companies usually provide standard agreements, but since they tend to favor the provider, small businesses should review and modify an agreement with the assistance of their legal counsel before signing it. Common Areas for Outsourcing Small business owners often prefer to keep money inside their business and do things themselves. But economies of scale in a global marketplace have made it necessary for many small businesses to take a page from the playbook of larger companies and outsource some functions. Outsourcing statistics indicate that approximately two-thirds of companies with fifty or more employees outsource, as compared to around one-third of businesses with fewer than fifty employees. Roughly half of all small businesses say they plan to outsource business processes in the future. The most commonly cited reasons for small business outsourcing are increased efficiency, expert assistance, and freeing up employees to do other tasks. The functions most likely to be outsourced are noncore functions. Deloitte notes that small- to medium-sized companies lack the office space or budget for in-house departments that handle functions such as finance and payroll. Small businesses most often outsource technical tasks like accounting and information technology (IT) services. They may also choose to outsource the following roles: ● Marketing ● Human resources ● Customer service ● Recruitment ● Sales ● Invoices and billing ● Administration (i.e., virtual assistants) ● Shipping and logistics ● Manufacturing ● Property management ● Legal services ● Consulting services ● Large or complex projects that fall outside a company’s core functions Due to technology and the increased prevalence of remote work, almost any aspect of a business can be outsourced these days. It is even possible to outsource a company’s C-suite executives, such as a chief financial officer (CFO), chief marketing officer (CMO), and chief technology officer (CTO). Important Provisions in a Service Agreement A services partnership is only as strong as the agreement underlying it. Service agreements have much in common with standard business contracts. Among other points, they should identify the parties to the contract, the contract’s duration, the responsibilities of each party, and mechanisms for resolving disputes. The following additional provisions should also be addressed: ● A description of the work to be performed (as well as what is excluded) ● Duration of the contract ● Expected service levels ● Performance benchmarks ● Reporting processes and methodologies for verifying service levels ● Standards for each level of service (for example, an IT services provider may offer prime-time services with higher service levels during working hours and nonprime after-hours service with lower service levels) ● The compensation to be paid to the provider, the manner of payment, and the frequency of payment ● The circumstances that entitle either party to cancel the agreement ● Noncompete and nonsolicitation covenants ● Confidentiality and nondisclosure covenants ● Indemnification (i.e., the business is legally protected from the actions of the service provider); depending on the contract, this may be applicable to both parties ● Remedies and penalties for a breach of the contract ● Dispute resolution process (e.g., arbitration) ● Liability for attorney’s fees Other Considerations for Service Agreements Any contract you enter into with a service provider needs to be well thought out. Service agreements should align with your company’s broader business aims, set clear expectations and goals for contractors, and include precise definitions of key terms and concepts. Here are some points to keep in mind as you negotiate a service agreement: ● Be mindful of metrics. You should have standards and processes in place to measure a vendor’s performance. The service provider should make relevant statistics available to you. This is typically done through an online portal. Failure to meet service levels can entitle you to service credits or trigger a vendor penalty, depending on the contract’s terms. Performance metrics vary based on the services provided. Keep the metrics as simple as possible to make monitoring effective, and include a contractual protocol for adding and removing metrics. Examples of metrics include service availability, defect rates, security measures, and key performance indicators. ● Make sure to vet partners. A strong contract that protects your interests is essential, but if you get involved with a service provider that does not uphold their end of the bargain, you will still experience headaches. Working with a known and proven service provider—especially one that has a record of success in your industry—will go a long way. Awards or certificates are a good sign of trustworthiness, although you should also make sure they are a good fit for your business. Identify your requirements and expectations before entering into a contract and look for providers that check the boxes that are important to you. ● Leave room for changes. Your service contracts should be adequately flexible to accommodate changes that arise during the course of a business relationship. It is not necessary to scrap the entire contract and start over when the need for revisions crop up. You can facilitate changes to the contract by including a mechanism for making required updates. ● Employee or contractor. The flexibility and cost savings of hiring a contractor could be undermined if you get drawn into a dispute about whether the person you hire is actually a contractor. Federal and state rules about worker classification (employee or contractor) are complex. The bottom line is that if you dictate every aspect of how a provider renders services, it could cross the independent contractor line and enter employer-employee territory. You can avoid this by clearly establishing contractor status in your service agreement. Well-written service agreements set clear expectations for both parties and are the foundation of a strong business relationship. A service provider may have a standard contract, but you should not sign it without first reviewing it with a business attorney. Our law office helps small businesses with all aspects of business contracts, from reviewing and drafting to enforcement and dispute resolution. To schedule an appointment with our team, please contact us.

Small businesses account for nearly half of the economic activity in the United States. To successfully compete with bigger competitors, small businesses are increasingly outsourcing to improve their efficiency and lower costs. Outsourcing allows companies to expand their competencies in key areas without taking on additional full-time, in-house employees. This is a growing trend among […]