Atlanta Business Attorney Blog

Many people in the metro-Atlanta area turn exclusively to the courts to solve business disputes and overlook other forms of effective alternative dispute resolution, such as mediation and arbitration. A pro to using mediation or arbitration is that resolutions can be reached much faster than in the court system, whereas a con is that the parties will have to pay for the time of third-party neutral (mediator or arbitrator), as opposed to a judge who does not charge for his services.

Mediation is designed to allow the parties to reach their own agreement in a confidential environment. This is a huge advantage over the court system, where the parties have no control over the ultimate ruling of the judge aside from presenting their cases. Instead, mediation is a cooperative process where the parties (and their attorneys) meet with a mediator who helps them work toward a settlement. The mediator effectively guides the parties through the process by assessing each party’s position, pointing out how the dispute would likely play out in a court of law and keeping communication open between the parties. The mediator does not represent either party, and all possible settlements and issues discussed between the parties are not admissible in a court. It is a testament to this form of alternative dispute resolution that many courts encourage mediation, including the courts of Gwinnett County, which publish a list of approved mediators online.

Arbitration is more similar to the court system than mediation. In this process, the parties select one or more arbitrators to act as judges in resolving their disputes. These arbitrators are usually experts and/or attorneys practicing in a specific legal area, which can be beneficial to the parties if the dispute is of a technical or specialized nature. The parties work with the arbitrators to determine how they want the arbitration process to unfold, including the time period and what procedures they want to use in conducting discovery and hearings. Ultimately, the parties present their cases to the arbitrators, who then issue a decision and determine the outcome. Though it is possible to conduct a non-binding arbitration, it is more common to see binding arbitration.

Despite being around for almost two decades, many Atlanta business owners still have questions about the extent of protection an LLC provides to its owners in contract disputes. Fortunately, Georgia appellate courts are upholding the corporate veil of the LLC. In the case of Milk v. Total Pay and HR Solutions, Inc., 634 S.E.2d 208 (Ga. App. 2006), Joseph Milk formed Burrito Joe’s Holding, LLC (“Burrito Joe’s”) to open a fast food Mexican restaurant in Canton, Georgia. Milk was the sole managing member and Jay McGhee and Frank Struck were to manage the restaurant without compensation with the goal of eventually becoming LLC members if the restaurant was successful. The managers entered into a client-service agreement on behalf of Burrito Joe’s with Total Pay and HR Solutions, Inc. (“Total Pay”). However, the restaurant never operated at a profit and was closed due to mounting financial difficulties. Total Pay brought suit in the trial court against Burrito Joe’s and Milk for damages. Fortunately for Milk, the Court of Appeals noted that LLCs have a legal existence separate from their owners just like any other corporation. As Milk’s signature did not appear on the agreement with Total Pay and no evidence was introduced on the record that Milk ever executed a note personally guaranteeing the payment of payroll services, the Court of Appeals maintained the corporate veil of the LLC in favor of its owner.

In this case, Milk never prepared a written operating agreement, and Total Pay argued that the Milk should be personally liable because he did not have a written operating agreement. The Court, however, reinforced its longstanding corporate law principle and applied it to LLCs, stating that Georgia officers and shareholders are not personally liable for corporate acts until such time that the corporate veil has been successfully pierced. The Court also found that the filing of the Articles of Organization with the Secretary of State were conclusive proof that all conditions of the formation of the LLC had been satisfied. There was no requirement for an operating agreement to be typed up and therefore, the lack of an operating agreement was not a proper basis to pierce the corporate veil.

As a general rule, when a Georgia corporation (which would include a Limited Liability Company) is formed, it becomes a living entity that “exists” separate from its owners. The Georgia Corporate Code allows the corporation’s owners to operate a business under a legal “veil” of protection. That veil can provide certain layers of protection from certain kinds of liability.

There are three broad categories of potential liability: tort, contract, and tax. An example of a “tort liability” would be an employee causing an automobile accident while working for the corporation. Contract liability arises out of a breach of a contract between the corporation and an individual or another business. An example of a tax liability would be the corporation making a sale and it fails to collect the necessary sales tax.

If Georgia business owners take the right steps, they can shield themselves from a variety of liabilities by incorporating their business in Georgia. Incorporating, however, is just the first step. Many business owners fall prey to self-help incorporation services and find themselves in legal trouble later. Competent legal counsel can make sure that business owners do the right things to stay incorporated.

Georgia recognizes certain business entities, such as Limited Liability Corporations (“LLC”), S-Corporations, and C-Corporations, as “legal persons” separate from the individuals who form them. People organize these entities for a variety of reasons, one of which may be to stem their personal liability and protect their individual assets. As business attorneys in Atlanta, one of the most frequent mistakes we see in business cases is the failure of a business owner to properly sign agreements in a corporate capacity. Thus, these unsuspecting small business owners make themselves personally liable for whatever agreement they are entering into thereby defeating the very purpose of setting up the corporation in the first place.

In order to lessen the risk of exposing themselves to personal liability, representatives and agents of such entities in Georgia should ALWAYS sign contracts in a format that includes: (1) the person’s name, (2) the entity he represents, and (3) the person’s title with the company (such as owner, vice president, etc)..

Example that may create personal liability: “John Doe” or “John Doe, President.”

Example that doesn’t appear to create personal liability: “Fulton Corp., by John Doe, CEO” or “DeKalb LLC, by John Doe, Managing Member.”

So before you sign that next vendor agreement or sales contract, pause and make sure all of your efforts in setting up and properly maintaining your corporate immunity veil are complete by taking the very basic action of signing your name properly on all contracts and agreements in such a way it is clear that you are acting on behalf of the company, and not yourself.

Thank you for visiting our new online blog page for business law matters. Our firm, Meriwether & Tharp, LLP, was formed in 1998 and its main office is in Alpharetta, Georgia. We have satellite offices in Atlanta and Canton and would love the opportunity to help you with all of your business law needs. Our firm handles a variety of business law needs from transactional matters to litigation. In particular, we handle a variety of contract disputes from basic debt collection cases to complex litigation matters including uniform commercial code disputes, noncompete agreements, landlord tenant disputes and general business litigation. Our transactional experience includes small business startups, joint ventures, mergers and acquisitions, general and employment contract drafting, commercial leasing and negotiation, business planning and business “divorces”.

We plan to develop this web page by initially providing a series of blogs regarding basic business law matters that we see most frequently. In addition, we plan on adding a series on case law updates that will track critical changes to the law in a timely fashion. Your thoughts, recommendations and proposed topic areas for future post are always welcome as we look to serve the greater north Atlanta area business law needs and concerns.