Frequently Asked Questions on Alabama Business Law
Below are answers to some of the questions most frequently encountered by the attorneys at the Crosby Law Firm as we advise and represent businesses in and around Mobile on Alabama business matters. If you have other questions or need specific advice and representation on a particular commercial transaction or business dispute, please contact our firm to speak with one of our experienced Alabama business lawyers.
Which is the best corporate structure to use to run a business?
Alabama recognizes many different business corporate structures, including for-profit corporations (known in Alabama as Business Corporations), non-profit corporations, limited liability companies (LLCs), limited partnerships (LPs), limited liability partnerships (LLPs), and limited liability limited partnerships (LLLPs).
The choice of business entity has consequences in many different areas. For instance, shareholders in a corporation are generally shielded from liability for debts and obligations of the corporation but are subject to double taxation as corporate earnings are taxed once as corporate income and again as individual income when paid out as dividends. Partners in a partnership are only subject to single taxation, but they may be held personally responsible for partnership debts.
A third option is the LLC, where members are subject to single taxation like a partnership but with some shielding from liability like a corporation. In addition to taxation and liability, the choice of business entity impacts other areas, such as who may exercise daily management and control over the business, how the business may be transferred or dissolved, the duration of the business, and issues of business succession planning.
Are covenants not to compete enforceable in Alabama?
Alabama law starts from the premise that contracts restraining business are void. Although noncompete covenants are generally disfavored and strictly construed in Alabama, the courts will tend to uphold them if the restrictions are reasonable in time and place and do not place an “undue hardship” on the employee. The restrictions must also be reasonably related to some protectable interest of the employer’s, such as a customer list or proprietary information. To be enforceable, the noncompete must have been signed after the employee began employment and not before.
What is the difference between mediation and arbitration?
In a mediation, the parties work collaboratively toward creating a mutually-agreeable solution. This process is facilitated by a trained neutral mediator who assists the parties in finding areas of mutual agreement and resolving conflicts. In the event an agreement cannot be reached, the parties are free to enter or resume litigation.
An arbitration, on the other hand, is more like a hearing, with the arbitrator acting more like a judge. The rules for an arbitration or less formal than in a trial, but the outcome of the arbitration may give the parties a good idea of how the matter might be resolved in court, which can help them resolve a previous impasse and negotiate a reasonable settlement. The arbitrator may make recommendations or release findings of fact and conclusions of law (nonbinding arbitration), or the arbitrator may make a decision which the parties are bound to follow by previous agreement (binding arbitration).
What is a “deceptive trade practice” under Alabama law?
The Alabama Deceptive Trade Practices Act lists 27 different activities which may be counted as deceptive acts or practices, including passing off goods or services as those of another, representing goods as original or new when they are not, disparaging the goods of a competitor with a false or misleading representation, advertising goods or services with an intent not to sell them as advertised, and misrepresenting the authority of a salesperson or other representative to negotiate the final terms of a transaction. The Act contains lengthy prohibitions surrounding the selling of a vehicle and dealing with tax stamps on cigarettes. Also, the final deceptive practice listed is a catchall phrase prohibiting any “unconscionable, false, misleading, or deceptive act or practice in the conduct of trade or commerce.” Violators may be subject to a restraining order and steep civil penalties from the Attorney General or a private lawsuit brought by the consumer for money damages.
What steps are required to dissolve a business in Alabama?
To dissolve an LLC or Business Corporation under Alabama business dissolution rules, it is necessary to file Articles of Dissolution along with the appropriate filing fees with the Office of the Judge of Probate in the county where the Certificate of Formation was recorded. The decision to dissolve the business generally requires written consent or a vote of the members of the LLC or the shareholders of the Corporation; look to the Articles of Incorporation or Operating Agreement to see if a particular process to follow is spelled out.
In addition to business dissolution, there are still many factors to consider in winding up the company, including dealing with property, resolving any existing claims or legal proceedings, discharging liabilities and distributing assets in accordance with legal preferences, priorities and other aspects of Alabama business law.