John Doe just received his certificate from the Oregon secretary of state. He is the proud owner of a new Oregon business entity.

He places the certificate on his desk, soon to be completely hidden from view as he gets to the business of being in business. He fails to hold company meetings, uses his own bank account for entity matters and even ignores the renewal notice from the secretary of state.

One day, both John and his entity are sued and a judgment entered against him personally for something that happened in the course of his entity’s operations. How can this be? Isn’t a business entity supposed to offer protection from personal liability for entity matters?

Sadly, this scenario could be a potential reality for more Oregon business owners than people may realize. Too often, business owners who have formed business entities become lax in their observance of corporate formalities.

The most terrifying result can be an “alter-ego” or “piercing the corporate veil” action wherein the owners of a business entity may be held personally liable for the bad or negligent actions of the entity. Formality failure may also lead to an entity being denied for needed operational financing or a missed opportunity to sell the business because the buyer was worried the true health of the entity was not as advertised.

Happily, it is not difficult (though perhaps boring and tedious) to care for and maintain a business entity. Necessary corporate formalities are found in the Oregon Revised Statutes governing each of the Oregon business entities, but common sense will also be helpful.

Following are some key guidelines to keep a business entity doing business and increase protection from personal liability. Please note that these guidelines are not comprehensive and an attorney should be consulted to provide complete guidance.

• NEVER commingle or mix personal money with a business entity’s money. The business entity should have its own bank accounts for its own transactions.

• Ensure that the business entity has enough capital to carry on the business for which it was formed. Undercapitalization is a factor considered by courts in alter-ego cases.

• For all entity transactions (i.e. leases, sales, purchases), the entity’s name must be listed as the transacting party on any documentation.  The owner, or a duly appointed representative, will have to sign any agreements, but only in a representative capacity.

• All of the entity’s signage, advertising materials, invoices, letterhead and any other form of written communication directed to third parties should clearly show the name of the business entity, and not a personal name.

• Do not “milk” money away from an entity via excessive dividends or distributions. If the business entity cannot make its regular payment obligations in the ordinary course of its business following a dividend to the owners, the dividend should be reduced or avoided.

• As necessary, and in some cases required, the business entity should hold annual and special meetings evidenced by written minutes of actions taken.

• Keep current any registered agent and other corporate information with the Oregon secretary of state. A corporation could miss important notices if addresses are not up to date.

• All business assets, including real estate and vehicles, should be held in the name of the business entity and, where appropriate, the entity’s name must appear on any certificates of title or deeds.

The bottom line is this: Don’t lose out on the benefits of a business entity by not taking time to maintain it.

Some diligence is required to maintain a valid Oregon corporation, limited liability company or other business entity, but the consequences of neglecting necessary maintenance can be devastative. Team up with a good attorney and accountant, follow their counsel, and become confident that the business entity will survive for as long as needed.

Dustin Moyes is an attorney in Sussman Shank LLP’s business group. Contact him at 503-227-1111 or dmoyes@sussmanshank.com.

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Dealing with land-use violations, or taking care to avoid them, can be time-consuming and expensive. However, with proper due diligence, patience and cooperation with appropriate officials, the likelihood of a favorable outcome increases.

The term “land use” encompasses a broad spectrum of real estate matters, including permits, zoning, partitions, development entitlements, design review, historic district restrictions and others. Following is a look at zoning and permit violations on property already developed.

A zoning or permit violation on developed real property is like a quagmire. The best practice is to avoid it because during the process to remedy the violation, the official reviewer may find additional undiscovered violations.

For example, a client was cited for maintaining a business on his home property that was forbidden by relevant zoning. The client and his legal counsel worked with the county officials to obtain a home office permit, which allowed the client to run his business from his home property, but not before he had to correct numerous other violations that were discovered solely because of the application process.

Purchasers of real property should not let land-use violations become their problem. A buyer, a broker and an attorney should conduct a thorough review of all applicable zoning restrictions, permitting requirements, title reports, surveys, hazardous materials reports and flood zone reports. Determine whether the target property fulfills needs and if intended use violates any applicable regulation. Be creative and watch for preexisting violations. Land-use violations can exist unnoticed for decades, and just because a previous owner used the property in a certain manner does not mean such use is or was legal.

If buyers discover preexisting land-use violations on target properties but still want to proceed with purchases, they can either: 1, negotiate with the seller to reduce the purchase price; or, 2, require the seller to satisfactorily remedy the violation before taking possession of the title.

Should property owners discover land-use violations on their own real property, understand that the remediation process requires patience, time and often a good deal of money. Frustration can arise easily, but lashing out at land-use officials is counterproductive.

Once a land-use violation is discovered, either by way of citation or an investigation, a buyer or owner can work to bring the property into compliance quickly and efficiently. Cooperation with the land-use official may prevent a more thorough investigation. Some people may recommend that an owner of non-compliant property keep quiet and hope no one notices, but this often results in either a citation at an inconvenient and more expensive time or the inability to sell the property for its best use.

If a quick remedy is not possible, schedule a one-on-one conference with the appropriate land-use official. It is best to meet with the person authorized to clear the violation. Review with the official the applicable law governing the violation, where that law is found and, perhaps most importantly, ask for that official’s suggestions on what action can be taken to remedy the violation.

The land-use official will be making the final decision relating to the property and there is no one more suited to cooperatively navigate someone to a satisfactory solution. That does not mean the land-use official’s analysis should simply be accepted. After the meeting, review and analyze the applicable law with legal counsel to look for alternative solutions.

It is rare that a land-use violation on developed property is resolved quickly, efficiently and with little cost. However, these methods you can lower levels of risk, create a better relationship with governing officials and draw people closer to complete compliance with land-use laws.

Dustin R. Moyes is an attorney in Sussman Shank LLP’s business group. Contact him at 503-227-1111 or dmoyes@sussmanshank.com.

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When considering a commercial lease agreement, focus on costs and responsibilities, and keep in mind that almost everything is negotiable. Of course, economic conditions and other factors often dictate whether terms favoring the landlord or the tenant will prevail in negotiations.

Commercial lease agreements should address the following critical deal points:
• who will be responsible to pay for and perform maintenance, repair and replacement of core systems;
• what will be the standards and requirements for assignment and subletting of the lease; and
• who will be responsible for compliance with current and future laws and regulations affecting the leased property.

Commercial buildings usually have numerous systems that are serviced; some are HVAC, plumbing and electrical, which can be tremendously expensive to repair or replace. Also, these systems generally require regular maintenance. It is critical to establish who will be responsible for these tasks and who will bear the costs – and the responsibility and the cost burden need not lie in the same party. Remember, almost everything in a commercial lease is negotiable, and it is reasonable to split the burdens between the landlord and tenant, depending on each party’s leverage and negotiating skill.

An assignment or subletting clause could let a tenant eliminate or reduce the burden of making rental payments – a very useful option if business goes bad. A tenant should attempt to include a flexible assignment clause that provides for its full release from all obligations and liabilities under the lease. Of course, as an added layer of protection, or in lieu of a full release, the tenant should seek indemnification from a subtenant. A tenant also should note that the landlord will likely include a provision that may deny assignment or subletting of the lease. In this case, the tenant should at least require that the landlord’s approval of an assignee or subtenant may not be unreasonably withheld.

Landlords should determine whether to allow assignment or subletting, and how to maintain control over the assignment or subletting process. If a landlord wishes to place any restrictions on assignment and subletting, it should be contained in the lease agreement to eliminate confusion or loss of leverage in the future. Further, it is recommended that a landlord retain final approval of any subtenant. The lease should require a comprehensive review process, including the right to analyze the subtenant’s credit report. A landlord will generally attempt to keep the initial tenant responsible for lease payments after an assignment or sublease occurs. A landlord should always retain the ability to assign the lease to a new landlord, to hold open the opportunity to sell the building or otherwise restructure their business.

Nearly every commercial building is subject to city, county, state and/or federal regulations. For example, the Americans with Disabilities Act sets certain standards for access to buildings, and local fire codes may limit occupancy and set standards for fire extinguisher systems. However, landlords and tenants frequently do not negotiate who will be responsible to pay for, or implement, compliance with regulations. If, for example, applicable fire codes were to be updated to require installation of a sprinkler system in a building that is not already equipped, the responsible party would have to pay for some potentially very expensive improvements.

As you consider these and other variables, remember that the results of negotiations will depend on economic conditions, each party’s potential leverage and market standards for leases. Given the current state of our economy, it is difficult to determine whether landlords or tenants have more bargaining power; it seems that both are struggling. Gain an advantage by analyzing market conditions and increasing your leverage by researching alternatives.

Dustin R. Moyes is an attorney with Sussman Shank LLP. He focuses on business transactions, commercial financing, corporate law and real property transactions. Contact him at 503-227-1111 or dmoyes@sussmanshank.com.

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