Waldron & Schneider has attempted to provide you with some basic information concerning frequently asked questions in various matters such as business law and transactional matters, bankruptcy as well as estate planning.
If you don’t see the particular question that you have, please contact us, stop by our Houston office or call us at (281) 488-4438 and let us know how we can help. More than likely, you aren’t the only one with that question.
Please click on the link below to view questions and answers for each area of law. Be sure to check out the various links under this section as well since there are more Question & Answers there.
Q. I want to start a business, but how do I limit my personal risk?
A. Entrepreneurship is the life-blood of our economy. However, most new businesses fail and many of the others eventually get sued. State legislatures have attempted to reconcile these two facts by setting up laws that allow entrepreneurs to limit their personal risk when undertaking a business venture.
Undertaking a business venture while protecting personal assets is possible through the use of a business entity. When a business entity is formed, the general extent of risk is limited to the assets of the entity itself and generally does not extend to the personal assets of any officer, director, or shareholder. Common business entities include corporations, limited partnerships, and limited liability companies. While each type of entity offers certain legal protections, the structure of each is not appropriate for all business scenarios. To determine which entity will work best in your situation, visit with an attorney in your jurisdiction knowledgeable about the various structures and their costs and benefits in terms of costs to set up, maintain, and various tax treatments.
Q. Now that I have formed a business entity, how do I sign a business contract?
Corporations and other liability-limiting entities are often used to mitigate risk by providing a firewall of protection between business debts and liabilities and personal assets. Too often in defending breach of contract lawsuits against businesses, the personal assets of business owners at stake because the signature on the contract is arguably that of the owner instead of the business. A business entity can only act through its agents–be they employees, officers, or directors. The question is, how should one of these agents sign a contract on behalf of the business entity to minimize exposing the agent to liability on the contract for which the agent’s personal assets become exposed?
In Texas, the answer is two-fold: a) avoid signing a personal guarantee; and b) follow the signature guidelines found in the Texas Business & Commerce Code §3.402. When someone signs a personal guarantee, that person does so with knowledge that personal assets may be exposed to satisfying the guarantee. However, when signing other agreements, it is not as clear that personal assets may be at stake due to improperly signing the agreement.
First, the business should be unambiguously identified within the agreement and signature block. Second, the business’s representative signing the document needs to be authorized to sign on behalf of the business. Third, the signature needs to unambiguously demonstrate that the representative is signing in his or her representative capacity and not signing in his or her individual capacity. An example of a proper signature block is:
Signed: Business, Inc.
By: John Doe, President
Q: What assets are exempt and protected from judgment creditors?
A: In addition to your homestead, the following personal property assets are exempt from garnishment or seizure by a creditor provided the collective value does not exceed $30,000 for an individual or $60,000 for a family:
(1) home furnishings, including family heirlooms;
(2) provisions for consumption;
(3) farming or ranching vehicles and implements;
(4) tools, equipment, books, and apparatus, used in a trade or profession;
(5) wearing apparel;
(6) jewelry as long as its value does not exceed 25% of the total value limitations;
(7) two firearms;
(8) athletic and sporting equipment, including bicycles;
(9) a vehicle for each licensed driver or a vehicle used for the benefit of a non-licensed driver;
(10) the following animals and forage on hand for their consumption:
(A) two horses, mules, or donkeys and a saddle, blanket, and bridle for each;
(B) 12 head of cattle; 60 head of other types of livestock; and
(C) 120 fowl; and
(D) household pets.
Q. What is a Revocable Trust?
A. A revocable trust allows the grantor to alter, amend, or revoke the trust prior to death. Therefore, the trust can be undone if the grantor so chooses.
Q. What is an Irrevocable Trust?
A. An irrevocable trust is permanent. Once the terms and conditions of the trust are written down and the trust is signed, those provisions are fixed. There are two types of irrevocable trusts: (1) simple, and (2) complex.
Q. Can I put my homestead into a trust and still keep my homestead exemption?
A. Yes, a homestead may be placed into trust without losing exemptions. However, Texas Statutes require that the trust instrument contain very specific wording in order to maintain current exemptions. There will also be specific wording needed on the deed transferring title to the trust. Consequently, prior to placing your homestead into a trust, it is important that you seek legal counsel to insure the trust instrument has the required language.
Q. What are the different types of bankruptcy protection available?
A. The three most commonly used types of bankruptcy are Chapters 7, 11, and 13. The difference between a Chapter 7 bankruptcy and a bankruptcy filed under Chapters 11 and 13 is that under a Chapter 7, absent a creditor objecting to the elimination of their debt, you are not required to repay any of the debts listed. Bankruptcy cases filed under Chapters 11 and 13 are commonly referred to as reorganizations because they allow you time to restructure your debt and pay back any arrearage owed. While bankruptcy protection is available for a wide variety of financial circumstances, there are specific requirements to be eligible to file under the different Chapters. You should consult a qualified bankruptcy attorney in your area to determine which Chapter is right for you.
Q. Can I keep my home or car if I file for bankruptcy?
A. While Texas law provides an exemption for assets such as a home or car and keeping your home or car is almost always an option in bankruptcy, the process for keeping the home or car depends on factors such as whether you are current on payments to the lienholder, when you acquired the home or car, how much equity is available and whether you can afford to continue to make the payments required in the future. These types of assets are often secured by a lien which gives the entity loaning the money to you to buy the asset the right to take the car or home back if you fail to pay. If you fall behind on payments due, a Chapter 11 or 13 reorganization may give you the time you need to restructure your debt to “catch up” on the past due payments. If you are current on the payments due but need to file bankruptcy for other reasons, you may be asked to sign a document called a reaffirmation agreement in which you agree to continue to pay the monthly payments and agree that the discharge available in bankruptcy does not apply to the debt owed on the home or car. Each of these situations is unique and fact specific, so you should always talk to a bankruptcy attorney familiar with your state’s exemptions to determine what options are best suited to your needs.
The information provided herein and found at www.askws-law.com is provided for informational purposes only and should not be relied upon as legal advice. Provision of this information does not constitute the creation of an attorney-client relationship. You should consult a licensed attorney to address specific legal issues.