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Law Offices of Ronald W. Rutz
Coloradoan Archives

June 19, 1998: Corporations and Personal Liability; Agents and Pro Contracts

Q: About three years ago, my financial advisor and my accountant put together a corporation for me. My business is now being sued and my lawyer says that my corporation probably will not protect me from personal liability. Is this what you were addressing in your recent column?

A: No, in that column I pointed out that just having a corporation, LLC, LLP, LP, or similar entity in and of itself will not limit the personal liability of an owner if, for example, the entity is not initially adequately funded, if certain personal liability issues are present, if an owner held certain positions in the firm, etc.

In your case the initial incorporation process was done improperly and the documentation was partly defective. In addition, you did not hold your annual meetings. Even a one or two person entity must follow the statutes because if you do not follow the rules, why should you expect the IRS and the law to treat you as that kind of entity?

But the good news is that legally it is not that hard or expensive to set up the entity properly in the first place or run it in the right way, including the correction of past defects such as happened in your case. Unfortunately it may be too late for the present litigation but not to put the business on the right tract for the future. Your attorney should be the business quarterback, so please do not hesitate to rely on him or her.

Q: I am about to be offered a pro contract. My coach recommended a certain sports agent but I do not want to go down that road after learning his fees and after the way he treated me during the meeting. I'm small potatoes, so do I even need an agent?

A: Congratulations on being given this opportunity. I have been very pleasantly surprised at the number of northern Colorado athletes in various sports being offered pro contracts. But once the mystique wears off and the smoke and mirrors are removed, you will probably find that there is not a lot of give and take for the vast majority of first-time signers, unless you happen to be a top choice or much in demand.

Since this is your first contract, you need to be sure that the contract terms are fair and that you receive proper compensation. The players' organization, the league office, and even the internet (so I have been told) are easy sources to find pay and bonus information for people in your position, experience level, place in the draft (if applicable to you), year, your team, other teams, etc. You should not have a problem coming up with figures that match what you can expect to receive.

Most teams, leagues, and players' organizations have prototype contracts which will give the basic contractual clauses. Also by checking with other players and the players' association you can see which standard clauses have been modified and then decide if you should seek similar modifications.

Finally, take the information and the contract that you have been offered to your attorney to be sure that any agreed changes have been included in the contract and that everything fits together. But for any serious compensation or contractual negotiations you probably need to rely upon the experience and skills of an agent.

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