Contracts: The Importance of “Boilerplate” Clauses

In business, the word “boilerplate” is often a negative term. However, common contractual clauses, or “boilerplate” clauses, are often significant and helpful. They should not be overlooked or dismissed.

Attorneys’ Fees and Expenses

One common boilerplate clause relates to an aggrieved party’s ability to recover attorneys’ fees and expenses that they have incurred as the result of the other party’s breach of contract. Generally, U.S. courts follow the “American Rule,” which means that each party to a lawsuit will bear their own attorneys’ fees and costs, regardless of the outcome of the case. A common boilerplate clause allows for such an aggrieved party to recover the attorneys’ fees and costs that they have incurred because of the other party’s breach of contract.

Notably, the presence of such an attorneys’ fees clause can be particularly helpful even in cases of lesser value. For example, one party to a contract owes the other party $10,000 and refuses to pay. Employing an attorney to file suit to recover that $10,000 will be very expensive relative to the amount that might be recovered. In fact, if there is any complexity to the case, then hiring an attorney can quickly become prohibitively expensive – without an “attorneys’ fees” clause.

Providing Notice

Clauses relating to the methods for providing “notice” to the parties can also be helpful and significant.  They can determine to whom notice must be given, how the notice must be given, or when the notice is deemed given.

State Law Applied/State for Litigation

Often transactions or agreements will span multiple states. In such cases, helpful clauses include determining which state’s law will apply or in which state the dispute will be litigated. Continue reading »

Advantages of the Single-Member LLC and the Disregarded Entity Rules

The limited liability company (LLC) is a relatively modern invention that has grown rapidly in popularity and for good reason. Generally, an LLC is a business entity that is legally distinct and separate from its owners, or rather its members.  As a result, the LLC provides its members with significant protection from liability to third parties, like a traditional corporation provides to its shareholders.

However, the LLC has some advantages over the corporation, including :

• An LLC is generally subject to less administrative requirements than a corporation.
• An LLC may elect to be taxed as a partnership, corporation, or s-corporation.
• An LLC that is wholly owned by a single member may be treated as a “disregarded entity” for federal income tax purposes.

What are the benefits of a disregarded entity?

• A disregarded entity will not need to file a separate income tax return because its income or loss will pass-through to its sole member.
• A single-member LLC that is not taxed as a corporation, has no employees, and is not subject to excise taxes does not even need to apply for a separate Employer Identification Number (EIN).[1] Instead, such a disregarded entity may use the taxpayer identification number of its sole member. However, if another party, such as a bank, insists that the disregarded entity provide its own EIN, then the disregarded entity may obtain one for convenience.

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