A company can minimize such risk by taking the few important actions suggested by the authors of "Whistleblowing Claims Under Sarbanes-Oxley":

1. Publish to all employees policies and procedures intended to govern the reporting of alleged wrongdoing.

2. Train employees in these policies and procedures.  (Document the training.)

3. Develop independent "channels" for employees to report alleged wrongdoing.

4. Conduct thorough but discrete investigations of alleged wrongdoing using independent personnel.

5. Counsel personnel on appropriate conduct.

5. Document, document, document.

10. Contracts. Most businesses execute contracts for space, services, and supplies. Businesses often have agreements between partners, investors, and employees. It is important to get it right so you don’t end up in court.

9. Registering, Licensing, and Permits. Some business entities are required to register with the state in order to be recognized. Even businesses that are not required to register may be required to obtain licenses or permits.

8. Control. The choice of business entity likely dictates the manner in which the business is operated. Choosing the wrong entity may make you personally liable for the wrongs of employees or partners.

7. Multi-state Business. The preconditions to forming and conducting a business entity in one state may not be accepted in another state. If you are not careful, the protections you have in your home state of operations may be lost if you do business in another state.

6. Strict Conformity. With some business entities you must strictly conform to the state law governing that business form or you lose its benefits and protections.

5. Capital. Businesses need to raise money, keep records of income and distributions, and behave in a fiscally responsible manner. Different business entities may require different procedures for raising capital and making distributions.

4. Variety of Entities. Although there are five basic business entities, there are other options within these entities that determine things like double taxation and liability for the acts of partners.

3. Autonomy. With many business entities, the things you don’t decide are decided for you. Most states have adopted "Uniform Laws" that fill in the gaps for business entities where their charters, by-laws, and other organizing documents are silent. You may be subject to a whole set of laws and regulations that you don’t even know exist.

2. Tax. Different business forms provide different tax advantages and disadvantages. The only thing more crucial to a new business is liability.

1. Liability. Different business forms provide different protections and risks to the business owner/investor. Personal liability means that your business puts everything you own at risk. An attorney can help you avoid this situation or minimize your risk. Knowing about your personal liability and reducing the risk that your business may devastate the economic well-being of you and your family is worth the visit to your attorney.

[via Findlaw] 

DO know the tax and personal liability consequences of a business entity before making your choice.

DO develop a business plan. Your business plan may dictate the options you have in choosing a business form.

DO strictly meet the state requirements if your business entity is required to file organizing documents with the state.

DO ask your attorney if something doesn’t make sense. Your attorney works for you, and should help you understand every part of the business start-up process.

DON’T assume that the business entity you choose is authorized to do business in other states as well. While a sole proprietorship and general partnership may be able to do business in other states fairly freely, other business entities may not even be recognized outside of their home state. This strips away the protections that the business entity provides its owners. At a minimum, limited partnerships, limited liability companies, and corporations need to register in the states where they will conduct business.

DON’T panic. Choosing a business form can be complicated. An attorney can make sure that you choose a business entity that is right for you.

[via Findlaw] 

2. Ease. A sole proprietorship is easy to set up; sometimes all it takes is opening up a business checking account. Similarly, a general partnership is easy to set up, although a partnership agreement is something that the partners should create prior to beginning operations. A limited partnership, limited liability company, and corporation involve more work. Since all three entities must be recognized by the state, it is important to adhere strictly to the state requirements or run the risk of losing the advantages that the particular business entity provides.

3. Termination. Some business entities automatically terminate upon such events as death, the withdrawal of a partner, or even divorce. In addition, some businesses are allowed to exist only for a state-mandated period of time.

4. Public Information. How much information do you want the public to know about your business and finances? A corporation is required to provide much more information to the state, which is then available to the public, than a limited liability company or a limited partnership. Sole proprietorships and general partnerships offer the individuals involved a great deal of privacy.

5. Risk. If the business involves a great deal of risk a sole proprietorship or general partnership may be a bad idea because the owner and general partners are personally liable for the business debts and obligations.

6. Operation. The form of the business entity may dictate how it is operated. If you want total control, a sole proprietorship provides the businessperson the greatest degree of control (and the greatest degree of potential risk).

7. Capitalization. An undercapitalized business may result in a loss of protection provided by the business entity. In addition, some business forms make it easier to raise capital when it is needed.

8. Selling. A sole proprietorship is easy to sell; usually you sell the assets of the business, and your business ceases to exist. Selling a partnership interest or a member’s interest in a limited liability company can be tricky because it requires approval of the other partners or members.

9. State Taxes. Some states have begun to levy taxes on the business entity itself. This is becoming a big issue with limited liability companies. You should know whether your state will tax your business entity before setting it up.

10. Expansion. Every entrepreneur wants to be as successful as possible. Some business entities are limited to the number of shareholders they may have. A sole proprietorship ceases to exist the moment the sole proprietor takes on a partner. It is important to choose a business form that allows you the greatest room to grow if that is what you envision. Although the business form may be changed, this involves additional expense and energy.

 [via FindLaw]

Chris describes some basic problems he sees with Buy-Sell Agreements:

     • Never updated (10 year old agreements might be a bad idea)
     • Formula pricing (Long term they can have disasterous results)
     • Multiple appraisers (Bad idea)

Chris’s bottom line: 

"You probably don’t spend much time at night thinking about your (or your clients’) buy-sell agreement(s). Take my word for it, you shouldn’t. You should be thinking about your buy-sell agreement now, in the light of day, and working to get a clear agreement that works for you and your fellow shareholders or partners."

“You have no liquidity to buy them out, but they need the cash, so they may offer to sell their share to a third party, maybe even a competitor. The third party buyer, knowing the company has lost a key employee/owner, may make a lowball offer. The deceased partner’s family, desperate to replace their husband/father’s income will settle for any price and they sell. The only thing worse than your partner’s family as your partner is a complete stranger, who may even be a competitor, as your partner.”

Check out the first part of the series here.