Free Business Fact Sheet

Classes. Corporations may generally authorize more than one class of stock (for example "common" stock and "preferred" stock), each with different rights and privileges regarding such things as voting and the payment of dividends. However, most simple corporations authorize only one class of stock.

Number. "Authorized" shares refers to the total number of shares that can be sold ("issued"), either upon formation or at a later time. The number authorized need only be large enough to be able to reflect the percentage ownership of the owners. For example, if Bob and Ted intend to own the entire corporation in a 60-40 ratio, respectively, the corporation could authorize 100 shares and issue 60 to Bob and 40 to Ted. In fact, the corporation could issue 6 to Bob and 4 to Ted, and, as long as the other 90 shares are retained by the corporation, Bob and Ted still own their desired percentages of the corporation because they own all of the stock that the corporation has "issued."

Par Value. Many companies choose to authorize stock with no par value. Delaware and most other states allow "no par stock." In the past, corporations designated a par value of, for example, $5 per share, in order to set a minimum price at which the shares could be initially sold by the corporation. More importantly, for the protection of the corporation's creditors, the corporation could not distribute cash to the shareholders which would deplete the corporation's "capital" below the aggregate par value of all issued shares. However, today's creditors typically restrict such distributions by separate agreements with the corporation, so there is little necessity to designate a par value merely to satisfy creditors.

A real estate Lease is a written document that sets forth an agreement between a Landlord (lessor) and a Tenant (lessee) regarding the responsibilities and obligations of each party. A Landlord is an owner of real estate (also known as "premises") who Leases (rents) that property to a Tenant for the Tenant's use. A "residential" Lease applies to real estate used as a residence, while a "commercial" Lease applies to business property

A Lease should be used whenever property is rented to reduce the likelihood of conflict between the Tenant and the Landlord based on the terms or conditions of the rental arrangement.

A corporation is a separate legal entity owned by one or more shareholders, and the shareholders have "limited liability." The shareholders elect directors who have overall responsibility for the management of the corporation. The directors elect officers who carry out the wishes of the directors. Thus, a corporation is more complex than either a sole proprietorship or a partnership. However, some of this complexity can be simplified in many small companies by having the shareholders serve as both directors and officers.

1. Organizational Formalities. Organizational formalities include such items as: articles of incorporation, organizational minutes (or consent), bylaws, stock certificates, federal employer identification number, and minutes and annual reports.

2. Limited Liability. The owners of the corporation (the shareholders) enjoy "limited liability," that is, the shareholders are only liable for the debts and expenses of the corporation up to the amount of their respective investments in the corporation's stock. However, some state laws may impose liability on the shareholders for unpaid wages in small corporations. Additionally, creditors frequently require the majority shareholder(s) to guarantee the debts of the small corporation or co-sign its notes in their individual capacity, or pledge their personal assets as security for the corporation's loans.

3. Income Taxation. The income and expenses of a corporation are reported on a separate tax form (Form 1120). Unlike the other forms of business entities, the corporation then pays its own taxes on its net income, instead of allocating the income to the owners. (However, alternative tax treatment is available if a "Subchapter S" election is made, described below.)

4. Fringe Benefits. Generally, corporations have the most flexibility in deducting the costs of providing fringe benefits to employees, which is especially attractive for employees who are also officers and shareholders.

5. Double Taxation. Shareholders can authorize the payment of dividends to themselves as a means of withdrawing accumulated profits from the corporation. The payment of dividends results in taxable income to the recipient shareholder, even though the corporation already paid tax on that income. This "double taxation" significantly reduces the "after tax" dollars for the owners. However, this double-taxation consequence is easily avoided in closely-held corporations because the shareholders can simply pay themselves greater wages or bonuses (subject to reasonableness) which are deductible by the corporation (taxable to the shareholder) and therefore a means of "distributing" the corporate profits which are taxed only once.

6. Use of the Regular Corporation. Corporations are formed to gain "limited liability," and in some cases, gain an advantage in deducting fringe benefits.

When a party is sued, a notice of the lawsuit is formally delivered by sheriff or process server to the individual or the business, the company's registered agent, or the company's officers or directors. The notice will state the name and address of the plaintiff(s) and the type of complaint filed.

If you receive notice that you have been sued, you must answer by a designated date. If you fail to answer the lawsuit, the judge may enter a "judgment" against you for all money or property claimed by the plaintiff(s) and require you to pay all court costs. A judgment is an official court order which may be enforced by garnishment of your wages or bank account or by having the Sheriff seize and sell your property. You can attempt to have the judgment set aside if you do not receive proper notice, but this happens infrequently; other excuses for not answering are usually ignored.

Even after the suit has been filed, the defendant has an opportunity to settle the difference out of court. All parties may save both time and money by resolving the case prior to a court hearing. The defendant should contact the plaintiff and offer to discuss the dispute, possibly offering a settlement. If an agreement is reached, a "release" will have to be prepared and signed by both parties, and filed with the clerk of court. Once it is filed with the court clerk, both parties will be required by law to obey it. The plaintiff should also dismiss the action, to remove the suit from the court system.

After considering the plaintiff's claim, the defendant may determine that someone else (some third party) owes all or part of the amount being claimed by the plaintiff. In that event, the defendant should file what is known as a "cross claim" to bring in the additional party. Also, a "counterclaim" against the plaintiff may be filed by the defendant, asking for damages from the plaintiff to offset or exceed the claim made by the plaintiff.

Some possible defenses available to the defendant are: "lack of jurisdiction," "failure to state a claim," "statute of limitations," "comparative negligence," "assumption of risk," and "failure to mitigate damages."

The case will be heard by a jury if the suit was filed in the type of court which allows for jury and either party demands a jury. For example, no jury is allowed in a court of Equity, which is a court that grants relief in the form of personal decrees as opposed to money damages.

After the corporation is formed and is operating, the shareholders elect the directors of the corporation who are generally responsible for managing the affairs of the corporation. The directors, in turn, typically appoint officers -- the president, one or more vice presidents, the secretary and the treasurer -- to carry out the day-to-day tasks and implement the policies established by the directors.

Because the function of the incorporator typically ends once the corporation is operating, it is recommended that the "initial directors" be named in the Articles so that there is a continuous provision of authority. The initial directors serve only until the first annual shareholders meeting, at which time "regular directors" are elected. Some states require that the initial directors be named in the Articles. In other states, the initial directors need not be named until the "Organizational Minutes" or a substitute, the "Organizational Consent," is prepared following the incorporation.

Although some states other than Delaware require a minimum of three directors (unless there are fewer than three shareholders), most states, including Delaware, allow for a single director.

If there will be more than one regular director (those elected by the shareholders), consider dividing the directors into two or three classes with terms of two or three years, respectively, so that one class of directors expires each year (after the initial shareholder's meeting). The use of this method provides continuity on the board because only one-half or one-third of the board is replaced at any one time.

An Employer Identification Number (EIN) is a nine-digit number (for example, 12-3456789) assigned to sole proprietors, corporations, partnerships, and other entities for federal tax filing and reporting purposes. An entity must obtain an EIN if the entity (a) pays wages to one or more employees, or (b) files a tax Schedule C (Profit or Loss from Business) or Schedule F (Profit or Loss from Farming) on Form 1040 (U.S. Individual Income Tax Return) and has a Keogh Plan or is required to file excise, employment, or alcohol and tobacco or firearms returns.

Corporations must obtain and use an EIN even if they do not have any employees. If an entity already has an EIN, it may need to get a new one if either the organization or ownership of the business changes, for example, by incorporating a sole proprietorship. On the other hand, a new EIN should not be obtained if only the name, but not the type, of the business changes.

The United States Bankruptcy Code is a federal law that permits qualified debtors to:

1. discharge some or all of their debts in exchange for giving up all of their nonexempt assets, or
2. reorganize their debts in an attempt to pay them back under relaxed terms.

By filing the petition, the debtor permits the creation of the bankruptcy "estate" which has control over all of the debtor's assets, except those assets that the debtor successfully claims as "exempt" (those that are necessary so that the debtor can live and work). The rules for determining what property becomes part of the bankruptcy estate are complex. A court-appointed bankruptcy trustee administers the estate.

There are several different types of bankruptcy to choose from. Each type is referred to by the Chapter of the Federal Bankruptcy Code in which it appears. In general, a Chapter 7 bankruptcy results in a sale of all of the debtor's non-exempt assets, but most debts are then discharged. Note that a debtor will not be given a discharge of debts if the current petition is filed within 6 years of a prior bankruptcy petition. In a rehabilitation case filed under Chapters 11, 12, or 13, the debtor retains his assets and makes payments to the creditors, usually from the post-bankruptcy earnings, pursuant to a court-approved payment plan which is more relaxed than it had been before bankruptcy.

Lawsuits can be filed in federal court (verses state court) if at least one of the following is true:

(i) the suit is between citizens of different states AND the amount of the claim is over $75,000;

(ii) a federal law provides the plaintiff with a cause of action and a remedy; or

(iii) the plaintiff is alleging a violation of a patent, copyright, or trademark.

The Trial
In federal district court, as in state court, the parties involved in the dispute go to the court at a pre-assigned time and tell their side of the story to the judge or jury. The plaintiff has the burden of proving that there is legal liability on the part of the defendant, that the defendant caused the damages suffered by the plaintiff and the amount of the damages. The losing party is allowed to appeal the judgment.

Under new "check the box" regulations, LLCs consisting of two or more members will be automatically taxed as partnerships unless they affirmatively elect to be taxed as a corporation. Single-owner LLCs will be taxed as a sole proprietorship unless they affirmatively elect to be treated as a corporation. In other words, for federal taxation classification purposes, the old four-factor test is no longer relevant. LLCs can enjoy partnership -, or sole proprietorship -, "pass through" taxation of income even though they may be organized to have (a) unlimited life, (b) centralized management, (c) limited liability, and (d) free transferability of interests.

A general partnership is like a sole proprietorship except that it is owned and managed by more than one owner.

1. Organizational Formalities. Generally, organizational formalities are not required by law to form a partnership, but often the partners adopt a partnership agreement that explains how the partnership will be operated and governed.

2. Personal Liability of Partners. Similar to a sole proprietorship, each partner is personally liable for all of the debts and expenses of the business, that is each partner's liability is "unlimited." Further, each partner is liable for the acts of the other partners.

3. Income Taxation. The income and expenses of a partnership must be reported on a separate tax return (Form 1065). The net income of the partnership is then allocated to the partners, and the individual partners report their respective shares of the income on their individual income tax returns.

4. Taxation of Fringe Benefits. A partnership may have more flexibility in deducting the costs of providing fringe benefits to employees than a sole proprietorship, but the costs of such benefits provided for the partners themselves may not be deductible.

5. Use of a General Partnership. The partnership form of business is most often used for small businesses whose owners want to avoid the tax consequences that result from corporate ownership and are willing to accept personal liability. One of the main drawbacks of the general partnership is that the partnership is dissolved or liquidated whenever a general partner ceases to be a partner for any reason, unless the remaining partners agree to continue the business, which consent is often difficult to obtain.

A legal description helps identify the real estate. The legal description will be found in the legal documents (perhaps a deed) under which the property ("premises") was purchased. The legal description may also be available from the local taxing authority responsible for real estate tax assessment and collection. Some legal descriptions are too lengthy for the space provided by this program. If that is the case, a copy of the legal description can be attached to the Fact Sheet as an exhibit. The legal description should be entered EXACTLY as it appears on the deed or other legal document.

The LLC is a form of business entity which represents a second attempt (in addition to the "S" corporation) to combine the "limited liability" feature of the corporation with the tax advantages of the partnership. LLCs are a relatively new form of business entity. Wyoming enacted the first LLC statute in 1977 and, as of this writing, LLC statutes are in effect in all fifty states.

1. Organizational Formalities. The formation of an LLC is similar to the formation of a business corporation � by filing Articles of Organization with the Secretary of State. The Articles must include basic information regarding (1) the name and address of the LLC and its registered agent, and (2) its period of duration, for example, 10 to 35 years, although most states now permit perpetual duration.

   The Articles can also include provisions regarding (A) the management of the LLC by all members (the owners) or certain persons (who can, but need not be members), known as "managers," a term similar to corporate directors, (B) limited liability of its members and managers, and (C) whether less than a unanimous vote of the members is required to dissolve, sell or merge the LLC or amend its governing documents (Articles of Organization and Operating Agreement). Some states still have statutes requiring an LLC to have two or more persons as members at the time that it is formed, but most states now allow single-member LLCs.

2. Operating Agreement. The LLC must also adopt an Operating Agreement that describes the rights and obligations of the members and how the LLC will be operated. The Operating Agreement is similar to a partnership agreement and somewhat similar to corporate bylaws.

3. Federal Tax Employer Identification Number. A federal tax Employer Identification Number should be obtained, as well as possible permits and licenses, depending upon the activities of the LLC.

4. Limited Liability. Similar to a corporation, the owners ("members") of an LLC have "limited liability."

5. Income Taxation. The LLC is usually structured to avoid corporate taxation. For LLCs formed prior to January 1, 1997, it was necessary to carefully structure the LLC to avoid the characterization by the Internal Revenue Service that the LLC was so similar to a corporation that it should be taxed as a corporation. These objectives may still be important for purposes of state income taxation. However, effective January 1, 1997, the Internal Revenue Service adopted new regulations which, for federal income tax purposes at least, abandons the old "four-factor" test and allows most LLCs to be taxed like a partnership or a Subchapter S Corporation. See Satisfying the Four-Factor Test (Pre-1997) and Federal Taxation for Entities Formed After January 1, 1997

6. Use of LLCs. The LLC form of business entity is used primarily by small businesses that want:
   1. the limited liability protection of a corporation;

   2. the flexibility of organization and tax benefits of a partnership;

   3. the ability of the members to take part in the management of the business, unlike the prohibition that applies to limited partners in a limited partnership and the cumbersome three-tiered management structure of shareholders, directors and officers of a corporation;

   4. the protection to members afforded by many state statutes that disallow the transfer of any member's management rights in the LLC (versus "financial rights" which can often be transferred without restriction) without the consent of the non-transferring members; and

   5. freedom from the "S" corporation eligibility requirements. Although there are a few uncertainties involved with the formation of an LLC because it is a relatively new form of entity, there is an increasing trend toward the use of LLCs for small businesses, particularly service-oriented businesses.

A further variation of the general partnership is the LLP. The specific provisions of the LLP depend upon state law, but generally a partner in an LLP is not liable for the obligations of the partnership arising from the negligence, wrongful acts, or misconduct of another partner. However, each partner remains liable for the general contractual and commercial obligations of the partnership and for his or her own acts. The LLP entity is popular primarily with multi-state accounting firms.

The limited partnership is a variation of the general partnership, designed to cure the "unlimited liability" disadvantage. A limited partnership has one or more of both "general" and "limited" partners. The general partner is responsible for the management of the partnership, receives a share of the partnership profits and losses, and is personally liable for the debts. The limited partners share in the profits and losses but are not permitted to have any management responsibilities. In return, their liability is limited to their investment in the partnership. The limited partnership form of business is most often used for specific projects, for which a developer (the general partner with technical and management expertise) wishes to attract investors (limited partners) who do not want the risk of personal liability and are comfortable in allowing someone else to manage the project.

Organizational formalities include such items as: articles of incorporation, organizational minutes (or consent), bylaws, stock certificates, federal employer identification number, and minutes and annual reports.

1. Articles of Incorporation. The corporation is formed by filing Articles of Incorporation with the Secretary of State. The Articles must include basic information regarding the names and addresses of the corporation, the registered agent, and the incorporator, as well as the number of authorized shares of stock. In addition, the Articles can include provisions regarding limited liability of the directors, preemptive stock rights, staggered directors' terms, and any unusual shareholder meeting requirements.

2. Organizational Minutes (or Consent). A corporation is also required to hold an organizational meeting to elect initial directors (unless already named in the Articles of Incorporation), elect officers, adopt Bylaws and take care of other organizational matters. These organizational activities can be handled instead by a written "organizational consent" signed by the incorporator(s) or the initial directors, unless such a method is prohibited in the Articles.

3. Bylaws. In addition to Articles of Incorporation, a corporation must have a set of Bylaws which define how the business and affairs of the corporation will be managed and regulated. Typically, a set of Bylaws includes provisions regarding shareholders meetings and voting, and the duties, qualification, election, terms and meetings of the directors. The Bylaws (or the Articles) may also include provisions regarding stock transfer restrictions, the execution of written instruments, higher-than-majority quorum requirements for directors meetings, and indemnification of directors.

4. Stock Certificates. A corporation may choose to issue stock certificates as evidence of the ownership by the shareholders of their respective interests in the corporation. However, physical certificates are not always required.

5. Federal Employer Identification Number (EIN). An EIN must be obtained using Internal Revenue Service tax form "SS-4." Other forms, applications and licenses may be required, depending on the activities of the corporation. For example, there may be a need to register as a contractor, or the need to obtain a sales tax permit.

6. Minutes/Annual Reports. After formation, the corporation must observe certain formalities in order to preserve its separate legal status. Minutes or other records of shareholder and director action must be prepared at least annually. Additionally, annual reports generally must be filed with the Secretary of State.

Professional corporations are a variation of the basic corporate form which are used by professionals -- persons who are required to obtain a license from the state in order to practice their profession, for example, physicians and lawyers. A shareholder in a professional corporation must be a licensed professional in the same profession, and continues to be personally liable for his or her own professional conduct. But the professionals do receive liability protection with respect to the professional conduct of the other shareholders.

In order to avoid structuring an organization which is deemed to be a corporation for income tax purposes, the LLC must have no more than two of the four characteristics that define a corporation: (1) limited liability, (2) continuity of life, (3) centralization of management, and (4) free transferability of ownership.

1. Limited Liability. The members of the LLC have "limited liability" for the debts and expenses of the LLC. Because this characteristic is a given, the LLC is allowed to have only one of the other three characteristics. In fact, state LLC statutes usually try to allow the owners (members) to avoid all of the other three characteristics.

2. Continuity of Life. "Continuity of life" is the continuation of the business entity without regard to the death of the owners. To purposefully violate this characteristic, the duration of the LLC cannot be perpetual.

3. Centralization of Management. A corporation has "centralization of management" because of its management through a board of directors. This corporate characteristic can be avoided by giving all LLC members the right to be involved in the management of the LLC. However, if the owners of an LLC choose to establish "managers," the LLC can still avoid tax status as a corporation by avoiding two of the other three corporate characteristics.

4. Free Transferability of Ownership. Generally, the owners of a corporation can "freely transfer their ownership" in the corporation by selling their shares of stock. To avoid this corporate characteristic, the LLC can impose transfer restrictions, for example, that a member may not transfer his/her shares without the consent of all of the other members.

1. The Business Fact Sheet is not a legal document and does not require any signature, witnesses or notarization. It is merely a worksheet to document and organize information regarding your business.

2. The document should be stored in a location where it is easily available to anyone who might need access to the information included.

3. The document should be updated on a regular basis in order to keep the information current.

Most states have set up a small claims division of District Court in each county to provide an inexpensive and speedy method to settle most civil disputes involving money or personal property valued at several thousand dollars or less. Each state sets its own maximum value of a dispute that may be brought in small claims court. The procedures of the court are informal and, while some states allow a lawyer to appear with the plaintiff, small claims court is designed to let the plaintiff represent himself/herself.

The amount that may be sought in small claims court varies from state to state. The amounts range from $1,000 to $15,000.

In small claims court, the parties involved in the dispute go to the court at a pre-assigned time and tell their side of the story to the judge. The plaintiff has the burden of proving that there is liability on the part of the defendant, that the defendant caused the damages suffered by the plaintiff and the amount of the damages. The judge makes a decision based on the law governing the facts presented. No juries are used in small claims court. Most states allow the losing party to appeal a small claims judgment.

A sole proprietorship is an unincorporated business owned and managed entirely by the "proprietor," except to the extent that the proprietor may delegate management responsibilities to an employee. It is the simplest form of business. However, simplicity may be the only advantage of the sole proprietorship.

1. Organizational Formalities. There are no organizational formalities required and generally no other agreements necessary. However, if the business will have employees, a federal Employer Identification Number will be required. A sales tax permit and/or licenses may be required, as well.

2. Liability of Owner. The owner is personally liable for all of the debts and expenses of the business, that is, the owner's liability is "unlimited." If the business is unable to pay its obligations, the non-business assets of the owner will be at risk unless protected by an exemption (for example, the homestead exemption for the owner's personal residence). Some protection can be obtained through liability insurance.

3. Taxation. The income and expenses of the sole proprietorship are reported as part of the owner's individual income tax return. There is no extra tax return to be prepared each year. Every other form of business entity requires a separate tax return for the business (except an LLC taxed as a sole proprietorship).

4. Taxation of Fringe Benefits. A sole proprietorship generally has less flexibility to deduct the costs of fringe benefits, which means fewer after-tax dollars.

5. Use of the Sole Proprietorship. The sole proprietorship form of business is most often used for small, low-risk businesses that have only a few employees and no need for more than one owner.

Filing a lawsuit in State "District Court" is more expensive, and usually a slower method of resolving disputes than using small claims court. The amount of time that it takes to resolve a dispute in court, from the time the complaint is filed to the time the court issues a judgment (not including any post-judgment collection proceedings) depends upon the nature and complexity of the lawsuit, as well as the condition of the court's "docket" -- how many cases are awaiting action at the same time. Some courts allow simple cases to be heard ahead of more complex cases, even though the latter were filed first.

The procedures of state court are more formal than in small claims court. Parties should be prepared to go through a process of "discovery," which includes responding to written questions and requests for documents, and participating in "depositions" where testimony is recorded under oath before the trial. The amount of time it takes to resolve a dispute from filing until judgment depends upon the nature and complexity of the lawsuit, along with the condition of the docket in your jurisdiction.

Settlement/Mediation
A state court lawsuit can take months or even years to resolve, which is expensive in terms of time and money. Therefore, at any stage in the dispute � before the lawsuit is filed, after discovery begins, or before (or even during) the trial � the parties should consider further attempts to settle the matter through negotiation or mediation. Negotiation takes place between the parties or their attorneys. Mediation involves an impartial third person who listens to both sides and suggests a settlement.

The Trial
The parties involved in the dispute go to the court at a pre-assigned time and tell their side of the story to the judge or jury. The plaintiff has the burden of proving that the defendant caused the damages suffered by the plaintiff, that there is legal liability on the part of the defendant based on the defendant's intent, negligence, breach of contract, etc. The plaintiff must also prove the amount of the damages. The judge or jury then decides which version of the facts is the correct version. The judge also makes rulings based on the law governing the issues presented. The losing party is allowed to appeal a judgment if a good faith argument can be made that an error occurred in the initial proceeding.

Both business corporations and professional corporations can make a special "S" corporate election that alters how the income of the business is taxed. After forming a corporation, the shareholders elect "S" status for tax purposes under Subchapter S of the Internal Revenue Code by filing Form 2553 with the Internal Revenue Service on or before two months and 15 days after the beginning of the taxable year in which it is to be effective. The income and expenses of an "S" corporation are reported on a separate tax return (Form 1120S), but like a partnership, the net income of the "S" corporation is then allocated to the shareholders who report their respective shares of the income on their individual income tax returns. Therefore, the "S" corporation combines the "limited liability" feature of the regular corporation with the tax advantages of the partnership.

A disadvantage of the "S" corporation is the number of technical tax rules. For example, the following rules (among others) apply:

1. Number of Shareholders. An "S" corporation may not have more than 75 shareholders.

2. One Class of Stock. An "S" corporation may only have one class of stock.

3. Calendar Year-end. Generally, the corporation must use a tax year that ends on December 31 of each year, unless the corporation can show that it has a "peak period" of business that ends other than shortly before December 31.

4. Fringe Benefits. Some types of fringe benefits (for example, health insurance benefits) are not deductible for shareholders who own more than 2% of the corporation.

The "S" corporation form of business is most often used by service-oriented businesses who want the "limited liability" feature of the corporation, but do not want the tax consequences of a "C" (regular) corporation. These owners want to pay dividends to themselves because significant amounts of corporate income are not needed for the capital needs of the corporation, such as inventory and equipment. These owners do not want the "double taxation" problem that occurs when dividends are paid out of a regular corporation.

There are four basic types of business entities: the Sole Proprietorship, the Partnership, the Corporation and the Limited Liability Company (the "LLC"). In addition, there are several subtypes. See the appropriate topic below for information about each.

The following are examples of the types of lawsuits which can be brought, provided that all of the legal elements can be proven to establish liability on the part of the defendant and resultant loss to the plaintiff:

Breach of Contract
The defendant has breached an oral, written or implied contract. The elements of a binding contract are offer, acceptance (or collectively, an agreement on the part of both parties) and consideration (something was given in exchange for something in return). The consideration can be a promise to do something in the future.

Negligence
The defendant acted negligently. The elements of negligence are: (i) a duty on the part of the defendant to act reasonably under the circumstances; (ii) breach of that duty; and (iii) the breach caused the plaintiff's injuries or property damage. However, if the plaintiff's own conduct contributed to the damages, the plaintiff will need to check the state law regarding "comparative fault." Some states allow the plaintiff to recover for the proportion of damages caused by the defendant; other states deny recovery if the plaintiff was at fault more than 50%.

Intentional Act
The defendant acted intentionally to cause injury or damage to the plaintiff. Here, punitive damages may even be recoverable. However, if suit is brought in small claims court, punitive damages must be allowed in that court and, if so, the amount must fall within the small claims court maximum amounts.

Defective Product
The defendant's product was defective and caused injury or damage.

Breach of Warranty
The defendant's product failed to live up to the seller's oral, written or implied warranty, and the defendant has refused to repair or replace the defective product.

Statutory Right Violation
The defendant has violated a statutory right held by the plaintiff; for example, the plaintiff bought goods from the defendant's door-to-door salesperson and the defendant refused to allow the plaintiff to return the goods for a refund within the time frame provided by law.

Copyright, Patent, or Trademark Infringement
The defendant has violated a copyright, patent or trademark held by the plaintiff.

Workers' Compensation
The defendant has denied the plaintiff workers' compensation benefits even though the plaintiff worked for the employer and was injured on the job.

Discrimination
The defendant has discriminated against the plaintiff because of the plaintiff's age, race, creed, color, sex, national origin, religion, or disability. Discrimination can occur if the plaintiff is either an applicant for a job or an employee of a business.