Tag Archives: business

What’s an Advisory Board? And Does Your Business Need One?

By Louis Pashman, Esq.
lpashman@pashmanstein.com

An advisory board is a group of professional and business people who meet as a board to review the activities of a business and offer their perspective and constructive ideas.

Who should lead the board? The leader can be the business owner or another individual. The board should have about five to nine members and should represent a cross-section of people with different skills and expertise, demographics, and geographic location. In many instances, the boards also include individuals from similar businesses who operate in a different part of the country. Usually, employees should not be on the board, although at times one or more might attend a meeting to discuss a specific issue.

Once a business owner chooses the members of  the board and has personally invited those individuals to join, each member should be given a letter appointing him.  The letter should address issues such as compensation, term of service and expectations. Each member should agree to confidentiality and non-interference in the business’ relationships with its employees, customers and vendors. Since the business owner will want the members to view this position seriously, members should be compensated for their board job, even if the compensation is intended only to cover expenses.  No member should ever have to be out of pocket in order to serve.  Each member should serve a term of one to three years and the terms should be staggered.

Now that the board is assembled and members have accepted the invitation, meetings need to be carefully planned and scheduled. Meeting in-house is a good idea if the facility is appropriate.  If it is not, business owners must think through travel arrangements, food service, availability of audio-visual equipment, etc. before settling on a location.

Remember, no board member will have accepted the board position for the money, so the members should benefit from the experience as well.  It is a networking opportunity for them.  Businesses should show their appreciation by seriously considering their suggestions and advice and be sure to follow up with them. There are many other details before a board is formed and implemented. Business owners should discuss this with their professional advisors (attorney and accountant).

Don’t Forget the Basics

By Joseph Goldman, Esq.
jgoldman@pashmanstein.com

It’s April 2012 and the clock is ticking.  The federal estate and gift tax exemption is $5,120,000, the highest amount ever, but only until December 31.  Add an environment of low interest rates and relatively low market valuations and the time is ripe for estate tax planning.  But while you’re watching the estate tax bottom line, don’t forget the basics.

You need a Will, a Power of Attorney and a Health Care Proxy and Directive.  If you don’t have these documents – get them as soon as possible.

What’s more – communication is the key!

Does your family know that you executed estate plan documents and where to find them?

Does your family know your assets?  You should keep a list of bank accounts, credit cards, stocks and bonds, investments, real estate and mortgages, IRAs, pensions and other retirement plans.

Do they know your key advisers – attorney, accountant, investment and insurance – and how to contact them?

You should provide your family information about safe deposit boxes, combinations and keys.

Especially important in the digital age, you should provide them with your user name and password(s).

If you own a business, have you made plans for business succession?  This can be especially important if some of your children are involved in the business but others aren’t.

I often recommend that clients write a letter to family explaining their wishes, financial and otherwise, to supplement their estate plan documents.  This letter can provide useful guidance and a degree of comfort.

Estate planning should not be a secret.  Let your family in on the process and they will thank you for it.

What’s the “Corporate Opportunity Doctrine”?

By Bruce Ackerman, Esq.
backerman@pashmanstein.com

In New Jersey, the law imposes certain obligations on all owners, officers and corporate directors.  As a general rule, all such corporate “insiders” as they are called, have a heightened duty of loyalty to the corporation, described as a fiduciary duty.  As part of that fiduciary duty, the New Jersey Supreme Court has imposed a particular duty on such insiders called the “Corporate Opportunity Doctrine”, which restricts all corporate insiders from taking advantage of outside business opportunities while serving the company.  Recently, the New Jersey legislature has provided a unique opportunity to corporations to renounce this doctrine.

In essence, the officers and directors of a corporation have a high duty of loyalty to the corporation and cannot use this position of trust and confidence to further their own interests.   In other words, this duty requires that insiders not profit at the expense of the company they serve, whether by self-dealing or by otherwise diverting company opportunities presented to them.  When found to have violated that duty, the insider can be directed to pay to the corporation all the profits he or she earned from that outside opportunity.

It seems so logical to a business owner to want to restrict the company insiders from taking on these competitive opportunities without first offering them to the company.  However, despite this doctrine guiding the conduct of company insiders in New Jersey for more than 50 years, in 2011 the Legislature chose to allow any corporation to renounce this doctrine and set its insiders free to compete, so to speak.  Why would the Legislature take decisive action to allow any corporation to renounce the doctrine, thereby setting its officers and directors free to compete?  The answer lies in providing flexibility by leveling the playing field between corporations and limited liability companies, by removing a potential disincentive to investing in a New Jersey corporation, and to enhance the ability to attract outside business expertise to join New Jersey companies.

It is commonplace for limited liability companies to provide in the operating agreement that its members, even managing members, may take on any other business opportunity without liability to the LLC.  Until this new law, corporate insiders did not have the right to do the same.  Now, even a smaller company that wants to use the corporate form can have that flexibility by stating its intentions in either its certificate of incorporation or by resolution of its Board of Directors.

That flexibility is often needed on several fronts.  Mostly for mid-size and larger entities, it is often a condition of investment by third parties that they control one or more seats on the corporation’s Board of Directors.  No such investors, or their nominated directors, can permit themselves to be limited in their other business interests by taking on that position.

When a company is seeking outside business expertise to join the company either on its Board of Directors or in another official capacity, the corporate opportunity doctrine may stand in the way.  Rather than having such an obstacle, the Board can remove the application of the doctrine, even if only for a specific outside interest in order to attract a particular expert to assist the company.

Whether to renounce the corporate opportunity doctrine requires a careful analysis of company needs now and in the future.