Contract Amendments – Always in Writing

Signature by Sebastien Wiertz from Flickr (Creative Commons License)

When a lawyer writes a contract for a client, it usually includes provisions that say that the all the terms of the agreement are contained in the document and all changes to the contract must be in writing. It may look something like this:

This Agreement is the entire understanding between the Parties concerning the subject of this Agreement. This Agreement replaces and supersedes any and all prior oral or written agreements and discussions between the Parties on that subject. All amendments to this Agreement must be in writing and signed by the Parties.

Contracts are relationship management documents. They keep everyone on the same page to prevent problems down the line or to help resolve problems when they occur. One of the challenges I encounter with contract clients is they often don’t follow the contract they signed and amend the agreement that is documented only in an email exchange, or worse, a undocumented verbal agreement.

Always Get It In Writing
The purpose of the “entire agreement” clause is to put all the terms of the contract in a single document. All written amendments should be stored with the original agreement – in hard copy and/or electronically, so if there is a question or dispute, the parties only need to review the single or amended document. They don’t have to piece together the contract from the parties’ communications and actions.

If you don’t get your amendments in writing, you’re asking for trouble. There could be confusion about what the change is, or worse, the other side could deny the existence of an amendment and screw you over. Remember, the law does not care about what you know, only what you can prove. If you don’t get your amendments in writing, and you have an “entire agreement” clause, if you have to go to court, the judge could say the amendment doesn’t exist.

Contract Amendments Can Be Easy
Why don’t people put their contract amendments in writing. I suspect it’s because they think it will be a hassle, cause a delay in a project, be time-consuming, or maybe they don’t even think to put in it writing because “it’s not a big deal.” In general, contracts exist, not for when things go right, but when they go wrong. What you think is a minor verbal change when both sides are getting along can become a big problem if things turn sour.

If you spend $100s or $1,000s to have a lawyer draft your contract, don’t revise it without their involvement. You’ve invested time and money to protect your interests. You don’t want to inadvertently throw that away with a damaging and undocumented revision.

Contracts are your Friends
These are some of my guidelines when it comes to reading and drafting contracts:

  • Never sign a contract you don’t understand. Don’t be afraid to ask for clarification.
  • Whomever writes a contract does so for their or their client’s benefit. Keep that in mind when a contract is written by the other side. (Lawyers have an obligation to represent their clients zealously.)
  • Substantial business contracts should always be reviewed by a lawyer to ensure it’s complete and protects your interests.

A contract should be written to protect everyone involved – to make sure everyone understands and agrees to the same course of action.

I’m constantly reviewing and drafting all types of contracts for clients. If you want to keep up with what I’m doing or if you need help, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Year-End Visit to the Accountant

Money Tunnel by Lomo-Cam from Flickr (Creative Commons License)

Every business owner needs an accountant, and a good accountant is worth their weight in gold.

I’ve been saying that for years. Actually, I recommend visiting your accountant twice a year – once during tax season and once at the end of the year. And just to show I “eat my own dog food,” I wanted to share my experience seeing my accountant this fall.

Planning Ahead for Next Year’s Taxes
Visiting my accountant is a great way to begin the process of winding down the year. I brought him a copy of my Quickbooks. (I’m probably his only client who keeps their USB on a Star Trek keychain.) He did a quick review my books for the year to date, made sure everything is categorized properly, and he gave me an estimate of what I should expect to pay in taxes come next April. (I don’t get upset when I have to pay taxes. It means I made money.) I find it reassuring that my tax bill isn’t a big mystery looming in the future. With his estimate, I can budget in my expected tax bill starting December or January.

Avoid the Tax Season Insanity
When I meet with my accountant in November/December, we get to have a laid back conversation about my business for the last year and what’s on the horizon for the next year. This gives him a chance to provide more thoughtful advice since he’s not in the middle of the insanity of tax season. Meeting before the end of the year gives him a chance to give me any advice regarding an end-of-the-year spend-down or if I have a big purchase coming up, whether it matters which tax year it happens.

Connecting with a Fellow Entrepreneur

My accountant is also a fellow entrepreneur who meets with other entrepreneurs for a living. When I share my ideas for my business with him, he gives me suggestions from his own experience and from watching what’s worked for other clients.

I’m always happy to meet with my accountant and never flinch at paying his bill. If you haven’t scheduled your year-end meeting with your accountant, I strongly recommend it. If you don’t have an accountant for your business, get a referral from a trusted professional. Your accountant is your partner for your success.  If you want to connect with me and my thoughts about why every entrepreneur needs an accountant, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

I Want to Humanize Contracts

The Anxious Type by JD Hancock from Flickr (Creative Commons License)

The Anxious Type by JD Hancock from Flickr (Creative Commons License)

A friend from my business mastermind group asked me to draft a nondisclosure agreement for her for an upcoming meeting she has to discuss a future project with a potential collaborator. She wants to be able to discuss the project to see if they want to participate in it without fear that the other person will decline the opportunity but then steal her idea and compete against her. (My friend is very smart.)

The first thing I did was grab my legal pad and start jotting down ideas for clauses to include – scope of the agreement, nondisclosure provision, non-compete provision, dispute resolution, severability, etc. As a lawyer, it’s my job to go through my mental checklist of all the terms the contract should have. I’ve always said that contracts are relationship management documents and they need to be written to cover that extent of it accordingly.

This morning, as I was walking my dog, I started looking at this contract from a different perspective – how can I humanize this agreement?

In my experience, many people are afraid of contracts or they don’t read them because they assume that they are full of legalese that they won’t understand or they’re just an annoying hurdle to clear as part of a more desirable event. When I was in law school, my friends and I went to Ladies Paintball Night; the worker behind the desk said he’d never seen anyone read the waiver prior to signing it. (We altered it, then we signed it.) When I moved to my current home, it took me hours to read the CC&Rs for my HOA. They were 78 pages long, and filled with excessive legalese I swear you needed a first-year law school education, at least property class, to understand them.

Contracts should be written in plain English, be as short as possible (cover the scope then stop), and set both sides up to feel secure in what they’re getting into. Whenever I write a contract, I prefer to refer to the parties as “I” and “you” because that’s how people speak and think. In regards to this current project, I want to phrase the provisions in a way so that when my friend presents the contract to prospective collaborators, they don’t feel like there being attacked or distrusted. This document should help both sides feel comfortable speaking candidly. Here are a few of the thoughts I have about how I want to phrase some of the provisions:

  • I would not have asked for this meeting if I didn’t think you were an ideal collaborator for this project. But because this project is not only a central component of my future business plan and projected livelihood, it’s also dear to my heart, as a business owner, it’s essential that I protect it and myself. This agreement protects you too. This meeting, regardless of whether we work together on this project, should not be a hindrance to your ability to continue your professional pursuits.
  • Although I don’t anticipate there being any problems between us as a result of this meeting (otherwise we wouldn’t be having it), this is how we will address problems should it occur. I hope neither of us is in a situation where we must resort to these extreme measures, but as business people we know we must be prepared for the worst-case scenarios, even when working with the best of expectations.

There is nothing wrong with contracts using the verbiage that humanizes both sides. In fact, I encourage it. People do business with people; therefore, contracts should be written from that perspective first. When appropriate, I also encourage clients to personalize their contracts and include a touch of humor or “Easter eggs” (because I’m weird like that). You can put anything you want in a contract, as long as it’s not illegal.

I love writing contracts, and I hope I get more opportunities to write agreements that are effective for the needs of my clients’ businesses and also who they are as individuals. If you want to connect with me and my experiences as a contract writer (including how I change almost every liability waiver I sign), you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Choosing a Business Entity

"Leap" by Sabrina C from Flickr (Creative Commons License)

“Leap” by Sabrina C from Flickr (Creative Commons License)

Just like you wouldn’t ask your plumber to change your car’s oil, don’t ask a lawyer what type of business entity you need. Ask your accountant.

What your Accountant Can Do
Anyone with access to their state corporation commission website can see the different types of corporations and limited liability organizations are available where they live. Determining which one is the ideal for your situation is best left to your accountant, an accountant who does business accounting. The tax code is too complex and has too many changes year-to-year for a regular person to navigate on their own. Get yourself an accountant which whom you can have a candid discussion about your current financial situation and your future plans, so they can tell you what’s the right business entity for you. What’s right for your friend, may not be the best plan of action for you.

And I’ve always said, a good accountant is worth their weight in gold. I’m happy to pay my accountant’s bill because handles the tax side of my business for me and he always answers my random questions.

How a Lawyer Can Help
A business lawyer can describe the differences between the types of corporations and LLCs, what it costs to file the documents in the state to start an entity, whether an annual report is required, and other legal obligations and suggestions accompany different business entities. If you have a limited budget, filing your documents with your state by yourself is one way to save on legal fees. If you can afford it, and you don’t want to take the time to do it yourself, you can hire a lawyer to do your filing for you and take care of the require publication.

Your lawyer can also create the documents that accompany the creation of a new business – bylaws, operating agreement, terms of service, and/or contract templates. They can also advise you about how to protect your intellectual property and the importance of maintaining your corporate veil. Even if you don’t need a lawyer to create your business entity, it’s pragmatic to bring your lawyer into the loop sooner than later, just to make sure you have your ducks in a row.

Being a business owner and running the business are two full-time jobs in one. As an entrepreneur, I sympathize with what my clients go through with the challenges of providing for their customers and managing the nuts and bolts of being a business owner. If you want to connect with me and my experience as a business owner, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Getting Fired because of your Side Hustle

Explosion by Charles Dyer from Flickr (Creative Commons License)

Don’t Blow Up Your Master Plan | “Explosion” by Charles Dyer from Flickr (Creative Commons License)

When I was on one of the weekly calls with my mastermind group last week, one of my fellow Shankminders asked me to comment on a phenomenon amongst entrepreneurs – working on your side gig while at your full-time job.

Wait . . . what?! There are people out there sitting at their desks, and while they are supposed to be working for their employer, they are working on their side hustle? I was incredulous, but the members of my group knowingly nodded their heads.

I thought my head was going to explode. How can anyone think this is ok?

Am I the only person who read in their employment contract? What are you supposed to do on the first day of work besides read the company handbook? Even before I went to law school, I remember signing off on company policies that said employees couldn’t use company time or company resources to run a side business. At the time (2005ish), I assumed this policy primarily applied to people who might be realtors or the like on the weekend, but now I see how this applies to anyone who has a side business – including bloggers and other social influencers.

The notion that people are running their side gig during regular work hours raises a lot of red flags for me.

  • If you are an at-will employee, you can be fired for any reason, or no reason at all. Working on a side project when you’re supposed to be doing your work tasks seems like a good reason to fire you, especially if you’re neglecting your work duties to do it.
  • Employers can easily track what employees are doing at work with technology like keystroke trackers. You may be telling your employer a lot more than what websites you’re visiting – like passwords and your company’s trade secrets.
  • Your contract may have a provision that says anything you create during company time or using company resources is owned by your employer. If your contract has this provision, you may unwittingly forfeit your business to your employer, without any options for recourse.

Some employees have a provision in their contract that says that anything they create during the ten-year of their employment that is related to the work of their employer, is owned by the employer. This could apply to projects done even outside the office.

In general, I am an advocate of employer’s staying out to of employees’ business – personal or otherwise – and that comes with the obligation that employees keep non-work issues out of the office. I understand why it makes sense for someone to occasionally check social media at work, or like during their lunch break. And unless there is a security reason to prohibit it, employees should be allowed to have their phones at their desks to take phone calls or respond to text messages related to their families, permitted it doesn’t interfere with doing their jobs.

But work on a side gig while at the office? No no no. (At least, not without permission.) There are too many risks, the least of which is losing the job which is paying your bills while you’re getting your side hustle off the ground.

If you don’t know what the rules are at your office, go back and read them. Ignorance of the company rules, particularly the ones you signed off on, will not save you from discipline or worse. If you need help understanding how to work on your side gig while at your current employment, talk to a business attorney her knee or a resource that helps entrepreneurs in your community. If you want to see me pontificates more about this and related topics, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Severability: Lifesaver of Contracts

Cut out and collect! by Rob Brewer from Flickr (Creative Commons License)

Cut out and collect! by Rob Brewer from Flickr (Creative Commons License)

Part of my job as a lawyer is writing and reviewing contract. I love writing contracts – you put in creative and crazy clauses as long as they’re legal. I get many clients who draft their own agreements or get a contract from a peer or template website (shudder) and ask me to review it.

Most clients do an adequate job getting the basics terms into the document – offer, acceptance, and consideration – but where they falter is boilerplate legalese that every contract should have. (I swear we don’t put this stuff in there just to make it look fancy. It serves valuable purposes.) One of the most important provisions people who draft their own contracts forget is severability.

A severability clause saves a contract in the event that one of the provisions is invalid or illegal. It lets the party (or the court) cut out the invalid provision and allow the remaining terms stand as the contract. Here’s a simple severability clause I’ve used in other contracts:

If any provision of this Agreement is held invalid by a court of competent jurisdiction, such invalidity shall not affect the enforceability of any other provisions contained in this Agreement, and the remaining portions of this Agreement shall continue in full force and effect. If a provision is found to be invalid, the Parties hereby request that the intention of the invalid provision be upheld wherever possible.

 

So what happens if your contract doesn’t have a severability clause?

If all the terms of your agreement are legal and valid, nothing. You don’t need a severability clause to save it.

If you don’t have a severability clause and you have a term in the agreement that’s invalid, it could invalidate the entire contract. (Yeah, that’s bad.)

So if you’re in a situation where you have written contract with someone, and you think they’ve violated it, you could sue them for breach of contract (assuming the contract allows for this). If the alleged breacher shows the court that there’s an invalid provision in the contract and no severability clause, the court could declare that the entire contract invalid. If that happens, there’s no written contract between you, which means there might not be a legally-binding agreement. If that’s the case, there can’t be a breach – and you just lost your case.

Severability clauses are short provisions that can have a big impact in a contract dispute. It’s one of the provisions I include whenever I draft a contract and one of the first provisions I look for when reviewing an agreement for a client, especially if there’s a suspected breach.

I always caution people who look to friends, colleagues, or the internet for free contract templates or who draft their own documents. At the very least have a lawyer review your agreement before you start using a document to make sure it addresses your needs and protects your interests.

If you need help with a contract or are looking for more information about contracts, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Starting a Comic Book – What Does it Cost?

Atom vs. Ant-Man (334/365) by JD Hancock from Flickr (Creative Commons License)

Atom vs. Ant-Man (334/365) by JD Hancock from Flickr (Creative Commons License)

I had the privilege of doing two panels at Phoenix Comicon this year: Fan Art/Fiction and Fair Use and Comic Book Creator Rights. The latter was a panel with writer/artist Josh Blaylock. He has experience licensing others’ work and creating his own.

Someone in the audience asked us how much a person should set aside to cover legal fees when starting a comic book.

Create Quality First
If your goal is to create a comic book and possibly a business from it, start by working on your craft. You won’t have any legal issues if no one cares what you’re making.

Start with a Consultation
When you’re ready to take your work from a hobby to a professional endeavor, schedule a consultation with a lawyer. Choose someone with experience in entrepreneurship and intellectual property – business formation, copyright, contracts, and trademarks. You need someone who can help you understand when you need a lawyer. Expect to pay $200-350/hour for a lawyer’s time, more depending on where you live and the person’s experience level.

It doesn’t cost much to get started with a new venture, but you do want to be thoughtful about what you can afford and act accordingly. A good lawyer will respect your budget and tell you what you can do on your own, and when it’s imperative to hire a lawyer. For instance, in many states, it’s easy to file your own business entity. Check with your state’s corporation commission for instructions and the forms. In Arizona, you can file an LLC and complete the requisite publication for less than $100.

Nuts and Bolts information by Josh Blaylock

Nuts and Bolts information by Josh Blaylock

Protect your Intellectual Property
The most valuable asset in your work is your intellectual property. Before you fall in love with a name for your comic book, run a search on the USPTO trademark database to verify that someone else hasn’t claimed the same or a similar name. Even if you can’t afford the $225-325 filing fee to register your trademark at first, you can put a superscript “TM” next to your work’s name, logo, and anything else you claim as a trademark. The USPTO has videos about how to submit a trademark application if you want to try to file your own, but I usually recommend that clients have a lawyer shepherd their application through the process. If you want to do this, expect to pay an additional $1,000 for their time.

In regards to copyright, I tell my clients, it’s not if your work gets stolen, but when so plan accordingly. For a new comic book creator, my recommendation is to register each edition with the U.S. Copyright Office. Their website is not the most user-friendly experience, but you can hire a lawyer for an hour to walk you through your first registration and then you can submit your subsequent copyright applications by yourself. The filing fee for a single work is $35-55.

Manage Relationships with Contracts
Every relationship related to your business should be documented with a written signed contract. This applies to co-owners of your business, writers, artists, colorists, licensors, licensees, vendors, and if your comic book turns into a job offer, your employment contract. Contracts are relationship-management documents. They keep everyone on the same page in regards to expectations, compensation, ownership, and they provide a course of action if there is ever a dispute. A contract is an investment and worth the cost to hire a competent lawyer to write or review your document to ensure it is effective for your needs.

Additionally, every entrepreneur should watch the video Fuck You, Pay Me, featuring Mike Monteiro and Gabe Levine. They have excellent advice for all entrepreneurs, especially those who work in creative services.

If you want more information about the nuts and bolts of starting a comic book, check out Josh Blaylock’s book How to Self-Publish Comics: Not Just Create Them. If you want more information about the legalities of starting a business or working in the creative arts, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that’s shared only with my mailing list, by subscribing to the firm’s newsletter.

Know the Fine Print – Dispute Resolution

Fine Print by CJ Sorg from Flickr (Creative Commons License)

Fine Print by CJ Sorg from Flickr (Creative Commons License)

Every contract needs a dispute resolution clause – every contract. It’s something you should look for in every contract you read. If you’re given a contract to sign that doesn’t have one, I strongly recommend adding one in. That’s what I would do.

The dispute resolution clause in a contract is the how-we’re-going-do-deal-with-problems provision. It lays out how and where problems will be resolved when they occur.

How Problems will be Resolved
There are three main ways people general resolve problems in a contract:

  • Mediation: Hire a mediator to help you resolve the problem – more likely to results in “splitting the baby” and not a winner and loser.
  • Arbitration: Hire an arbitrator (or panel of arbitrators) to hear/review your arguments and make a decision. (This is what they used in Erin Brockovich.) Sometimes arbitration is faster and more cost effective than litigation, but not always.
  • Litigation: This is the traditional civil lawsuit. This is what I recommend for most contracts I write for clients.

You’re not limited to only these three options. You can have anything in your dispute resolution clause as long as it’s legal. So if you want to resolve disputes by throwing darts or Rock-Paper-Scissors-Lizard-Spock, you can.

Where Problems will be Resolved
The dispute resolution clause should specify in which county and state disputes will be resolved. If you’re writing the contract, you want the opposing party to have to fight you on your turf if there’s a problem. This is why most contracts I write for clients require them to resolve all disputes in Maricopa County, Arizona and that all parties agree to that jurisdiction. Without such a provision, you may find yourself having to travel to fight disputes in the opposing party’s state, and possibly needed to employ a local lawyer for additional assistance.

Which Law Applies
The laws in each state are slightly different. This is why it’s imperative that your contract state which state’s law will govern the contract for all non-federal claims. Federal claims (like many intellectual property issues) are governed by federal law. You don’t want to have a dispute within the dispute about which law applies to the state-law claims.

There may be other provisions in the dispute resolution clause like a requirement to notify the other party in writing if you believe they’ve breached the agreement and a set time in which they have to cure/fix it before you can take further action against them. Another clause to look for is a provision that requires the loser in a dispute to pay for the winner’s attorney’s fees. I like to add this into contracts I write. It makes people think twice before going after the other.

Next time you buy a ticket for a show, professional sports, travel, or sign up for an account on a website – read the fine print. See what the dispute resolution clause requires. You’ll quickly see that whoever writes the contract, does so with their (or their client’s) best interests (not yours) in mind.

If you need help writing or reviewing a contract, speak to a business lawyer about your needs and options. If you have questions about contracts that you want to discuss with me, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Kesha v. Sony – Cautionary Contract Tale

Microphone by Photo Cindy from Flickr (Creative Commons License)

Microphone by Photo Cindy from Flickr (Creative Commons License)

Last week, a New York Court refused to nullify the contract between recording artist Kesha and Sony, despite Kesha’s allegations that she was drugged and raped in 2006 by her producer, Luke Gottwald (a.k.a. Dr. Luke). Gottwald has not been charged with this crime. Kesha admitted she’s afraid of Gottwald, but she said if she doesn’t work with him (even though Sony offered to give her another producer), she’s worried Sony won’t promote her music properly. If everything Kesha said is true, she is trapped in a situation where she has to risk her personal safety for professional success.

Why Sony Won
The reason Sony won this case appears to be basic contract law – the verbiage of the contract wouldn’t allow for the change. When it comes to creating a contract, it’s a relatively low bar to clear to have a legally binding contract. And if the parties want to change the provisions later, they may only be able to do so under limited circumstances, such as by mutual agreement. If the contract is valid and the other side is not open to making changes, you’re stuck with the verbiage and the commitments of the original agreement. I suspect that’s what happened in this situation; Kesha signed 6-album deal, and her allegations that her producer raped her isn’t sufficient to force Sony to change the terms or release her from the contract entirely.

Personally, I believe Kesha. It’s rare for a person to lie about being sexually assaulted. However, the law doesn’t have this luxury. The court can only make decisions based on what the parties can prove, so without a conviction or a confession, the court can’t determine if her allegations is sufficient to release her from this contract.

Ke$ha by Becky Sullivan from Flickr (Creative Commons License)

Ke$ha by Becky Sullivan from Flickr (Creative Commons License)

Turn Back the Clock
Given that hindsight is 20/20, what might Kesha have done differently when negotiating her contract with Sony? I am not sure it was wise for either party to commit themselves to a 6-album deal. Perhaps it would have been better for the artist to only commit to 2 albums and then renegotiate. Given Kesha’s young age when she signed with Sony, perhaps she, and other young artists, should have provisions geared towards their personal safety such as cameras that record all meetings and security or at least a personal representative all times that she’s working as well as provisions that address physical and emotional abuse. I also wonder if it wouldn’t have been prudent for both sides to have a provision that required regular drug testing to help prevent artists from getting into trouble and from being taken advantage of by people who should be protecting them.

What Could Kesha do Now?
Since a Kesha appears to be legally obligated to work with Sony and her alleged rapist, what should she do now to protect herself? Her safety should be the top priority. In regards to Gottwald, Kesha should never be alone with him. She should have security at her side at all times when he’s present. Gottwald should not be permitted to be within 10 feet of her, be able to contact her directly by phone or using any electronic means, or for any reason except as professionally necessary. I’m also not opposed to Kesha being legally armed (pepper spray, stun gun, etc.) if that makes her feel safer for the duration of her contract.

Contracts are a beautiful thing when they are written properly. However, we can see from this case how it can be a disaster when parties don’t plan for the worst-case scenarios. (I agree that it is an incredibly sad that artists have to consider the possibility that they will be physically harmed by their business partners, but this case shows that it is something that should be discussed at the negotiation table.) If you have a question about writing effective contracts, please contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn.

I’m also going to revive my newsletter later this year. If you want access to my exclusive content, please subscribe.

How to Move a Business from California to Arizona

Arizona - The Grand Canyon State Welcomes You by Peter Zillmann from Flickr (Creative Commons License)

Arizona – The Grand Canyon State Welcomes You by Peter Zillmann from Flickr (Creative Commons License)

California is so weird. (I grew up there. I can say that from experience.) It’s a weird state with weird laws.

I recently helped a client move their business from California to Arizona. Arizona law allows you to simply transfer your company from your old state to your new one with a Statement of Domestication, if the state you’re leaving permits this.

California doesn’t.

Instead of it being a simple process, moving a business from California to Arizona is much more complicated, expensive, and time consuming. The easiest way to do it was to form a new company in Arizona and merge it with the California company, where the Arizona company was the surviving entity.

Here’s how it’s done:

  • Create a new entity in Arizona through the Arizona Corporation Commission and pay the corresponding filing fee.
  • Create and sign a Merger Agreement.
  • Submit the Statement of Merger to the Arizona Corporation Commission and request a Certified Copy of the Merger Certificate. Pay the corresponding filing fees.
  • Once you receive the Certified Copy of the Merger Certificate, send it to the California Corporation Commission with their required filing fee.

The total process took a little over a month – and we expedited the Arizona filings – and the client spent over $300 in filing fees between the two states. Had they been able to file a Statement of Domestication, the Arizona filing fee would have been only $100 ($135 if expedited it).

Dealing with the California Corporation Commission wasn’t the easiest adventure. If I ever have a question and need a crystal clear answer from the Arizona Corporation Commission, I can go down there and talk to the clerk. I don’t have that luxury with California. One day it was impossible to get anyone at the California Corporation Commission on the phone and I ended up using their online contact form to get a call back 2-3 days later. That was a frustration that I’m glad I got to handle instead of my client.

Moving a company from one state to another can be confusing and stressful – especially when you’re trying to sort out which process you have to use and which forms and filing fees you need to submit to each state. It’s not something I recommend doing by yourself. If you have a question about starting a company in or moving a company to Arizona, please contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn.