Noncompete clauses incorporated into a Contract

A noncompete clauses seem to be consistently attacked in employee-employer. The rule seems to be that a noncomplete clause must be self sustaining in that the noncompete must have its own consideration separate from the rest of the contract.

Ok, lets take a basic emplyment contract. Parties to a contract, Company and Employee, contract so that a company pays Employee $100 per month in consideration for the Employee providing his or her labor efforts to the company in the form of a usual 40hr work week. Now, if the Company wants to throw a noncompete clause in there, the company must provide for separate consideration (it cant be just the salary bc that's the original consideration). Thus, in the majority of examples, a Company would need to incorporate in its noncompete clause that Company provides Employee "confidential information" (such as marketing/client lists, intellectual property info, etc.) in consideration for Employee agreeing to not compete against Company after employment period. Of course, the noncompete clause requires reasonable and legally enforceable terms such as time length and geographic distances. However, I won't touch a discussion involving these terms since this is not a labor law blog.

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Contracts can help you avoid litigation?

Most people believe that the main reason for entering into an enforceable contract is so that they will have proof of the agreement if the other side breaches the contract. This is partially true?

If litigation ensues, it is a wonderful thing to be able to waive a signed contract in front of the jury and/or judge.

However, in my opinion, the most important reason to have a written contract is to avoid litigation and related attorney's fees. A written contract allows for each party to have a clear understanding of its own responsibilities. Even though a handshake deal may be an enforceable agreement, the obligations of each party may become misconstrued over time or there may even be an unknown misunderstanding from the beginning.

So the next time someone wants a handshake deal and says that there is no need for a written contract because they trust you. You should respond, "I value our relationship too much not to put the terms down on paper."

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Why should I incorporate?

When a corporation enters into a transaction, it is the corporation and not the shareholders who is responsible. When starting up, a bank may require a personal guaranty since your company doesn't yet have a credit history but, as a rule, a shareholder's liability is limited to the amount invested into the company. Creditors cannot reach beyond the assets of the company in normal circumstances. The same is true with lawsuits. It is the corporation not you who will be sued (assuming the lack of unusual circumstances such as fraudulent undercapitalization.)

Tax Considerations! It's true that the potential exists for double taxation (see What is "pass-through taxation?) However, you can avoid this with the use of a LLC or by electing to be treated as an S Corporation. With the corporate form of ownership, you can usually elect to implement various tax-free benefits such as life and health insurace and retirement plans

Transfering ownership and raising capital are usually easier through the use of stock. Corporations usually have a perpetual life as well, distinct from that of the shareholders.

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TX Business Legalist - Introduction

DISCLAIMER: The commentary contained hereafter should not be considered legal advice. The following commentary is only expressed for informational and educational purposes. The commentary included hereafter is not protected by the attorney-client privilege since the commentary is not legal advice. If you are seeking legal advice, you should contact an attorney licensed to practice law in your particular jurisdiction. IANYA

Welcome to TX Business Legalist. This blog will address legal matters that arise within TX businesses. As mentioned in the above disclaimer, the commentary provided herein should not be construed as legal advice. All commentary in this ongoing blog is only for an educational and informational purpose.
Over the next several weeks, I intend to discuss numerous topics affecting the legal complexities of today's companies in Texas. I will introduce a series of weekly discussions dealing with different subject matters. I intend to begin by addressing the importance and elements of various types of business contracts and agreements including partnership agreements, distributor agreements, and purchase agreements. Following this series on contracts and agreements, I will lead into other subject matter series involving employment matters, collections, breach of contract issues, collections defense, and import/export matters.

Please feel free to give your input.

Regards,

Shae Armstrong
shaearmstronglaw@gmail.com
www.armstrong-lawfirm.com
Law Office of Shae Armstrong, PLLC