Let’s look at the importance of the legal aspects of financing a business. Financing is something every small business must confront eventually, and there are many ways to do so. For example, you might save up with your partners and buy equipment you need from your cash flow. But often, businesses need to borrow funds to finance growth or reach the next revenue milestone. In some cases, you have no choice. Your savings may be insufficient for expanding to a new location, or you may need a new fleet of trucks in order to secure a large contract. In these situations, the failure to plan can come back to bite entrepreneurs. Some contracts or otherwise legally binding agreements can prohibit a company from operating effectively, like the employment of a former partner who it can’t bring into the fold. In this blog post, we will use a post about kansas non-compete law to demonstrate the importance of financing structures and obligations in the business context.
If you forgot to discuss contractual obligations with advisory counsel, then your business is at a competitive disadvantage compared to one that did. This is because, with pre-wrap contracts, it is possible to structure obligations in ways that are the most beneficial for the company. Say that your business gets into a bind because of an obligation you overlooked, like a non-compete agreement. Without additional source of funds or a loyal investor base, it may be difficult to avoid running afoul of it or losing key employees and customers in the transition. If you needed to ask your investors for money to cover this shortfall, you might fail to convince them to provide funding. This is because they trust you and understand that you know your business best. After all, it is why they invested in you in the first place. So under these circumstances, your investors would likely tell you to consult with legal counsel in the future. They might even suggest that you get that advice from a firm with experience on the topics of both financing and business law.
To start, let’s discuss what legal obligations a business might have.
These obligations might not necessarily just come from contracts. Federal, state, and local laws might require or prohibit a company from doing certain things. The company might also owe fiduciary duties to its business partners. For example, in Texas, most partnerships don’t involve a written agreement. This means that you need to look to the Texas Partnership Act. If you and your partners formed a business in Kansas, then the Fiduciary Duty Law might apply. So it is less important what you or your partners want, and more important what the law requires.
When businesses work with GoKapital, they get loans that solve their problems. They can obtain a line of credit to cover short-term cash flow obligations, a fixed rate loan to pay for equipment, and other similar products. GoKapital also provides financing solutions that are ideal for businesses dealing with adverse circumstances. The problems that lead them to GoKapital include:
For example, under Kansas non-compete law, a business may be restricted from competing for a certain period of time after a sale of its assets, shares, or business unit. It may also be restricted from hiring employees if the agreement was created “in conjunction with” the sale. There is also a general Kansas law that prohibits restrictive covenants, which are evaluated under a reasonableness analysis. This includes non-disclosure, non-solicitation, and non-compete provisions that make it difficult to operate effectively. For example, a business may be asked to disclose its trade secrets to other companies who go through the same merger. This would likely defeat the purpose of the merger and make the transaction less appealing. In that case, a bridge loan that pays off after the merger would be useful.
How can you obtain financing for an early stage business? You might want to consult with your company’s strategic advisory counsel to ensure that your business has the necessary flexibility to operate. This means that your company’s internal policies and procedures would allow it to take advantage of valuable business opportunities as they become available. For example, perhaps your company has contractual obligations that would discourage a merger with a business it wants to acquire. Had the issue been discussed with advisory counsel prior to entering into the agreement, specific language could’ve been negotiated that would satisfy both parties. One solution is to include a “most-favored-nation” clause in the contract. This means that any future amendments to employee policies or the like would also be made to the agreement.
It is important to understand how the Kansas business laws affect companies with a contract that restricts them from competing or hiring away current employees. So for example, Kansas law permits non-compete agreements so long as they are “drawn with sufficient clearness and precision that the employee may learn from them what he is prohibited from doing.” Specifically, a Kansas company “is not free to operate only a portion that is within the geographical scope of the restrictions placed upon [it].” So that means the business can’t just hire away the former employees of the business unit it is trying to buy. In addition, Kansas does not permit non-solicitation agreements, which means that it has no ghost employees. However, it could include terms that would make the business unit more compliant with the non-compete agreement than the original company. Without financing, it could be difficult to obtain the former employee’s consent in the first place. That’s why you can ask GoKapital to draft the contractual documents that would leave your business in the best position going forward. By using a DoFollow link to the article, you can establish links to our Kansas non-compete law page.
For more information on business law and regulations, you can visit USA.gov.