The Legal Implications of Closing Your California Business

December 28, 2012,

It's a dreaded reality that some business owners may have to face. In fact, in some areas of the California, it's a reality that a firm majority of new businesses have to face. We're talking about the prospect of closing. And whether you're making the decision to close the business because it isn't bringing in the profit you had hoped, or whether you're planning to retire with no one to take up the reigns, closure of the business has several serious legal implications.closed.jpg

First and foremost, you will need to break the news to your employees. Depending on the structure of the business, those employees may be entitled to severance pay, temporary health insurance benefits, and notice of the date of their final paycheck. Regardless of the time of year in which you close, your employees will need to be provided with W-2 forms for whatever portion of the fiscal year they worked. The bad news is best delivered sooner than later so that employees can begin the job search process as soon as possible.

Another legal implication has to do with existing contracts. If, for example, a failing restaurant has an existing contract with a food supplier for fresh vegetables each week, the company operating the restaurant still has the obligation to adhere to the terms of the contract for the duration of the contract period. Contracts are legally binding promises that usually do not expire just because one of the parties becomes insolvent. An experienced California small business attorney can help renegotiate contract terms in this situation so that you're not paying for deliveries of fresh vegetables well beyond your closing date.

In the case of a retail store, existing inventory may become a huge issue. Retail stores that close typically announce an inventory liquidation sale to raise money to pay off their creditors. The idea is to quickly turn items that would be useless to creditors into cash and to apply the proceeds of the sale toward the outstanding debts. Liquidation, in some cases, may prevent the business owner from having to declare bankruptcy.

Finally, you may want to consult an attorney to help officially dissolve the business entity. The charter documents that you filed with the State declaring your intent to operate under a certain legal entity structure may also have specific procedures to follow in winding up the business. Similarly, the State may have its own procedures for declaring the termination of the entity's existence. Proper dissolution of the business is a step that should not be taken lightly, as it can have a tremendous impact on your personal legal exposure on any existing or forthcoming legal claims.

Your business closure is sure to be a stressful and emotionally trying process. The best way to cope is to let a legal professional handle some of the more complicated tasks and ensure that your business and legal obligations have been met in accordance with California law. That way, you can focus on building your new financial future.

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California LLCs: Member-Managed vs. Manager-Managed

December 20, 2012,

We have written several posts in the past about some strategic choices faced by a person or persons who are establishing a limited liability company. These include important considerations such as the method of taxation, the manner in which the constituent members are paid, and the things to be addressed in the company charter or operating agreement. There is one choice, however, that some LLC novices neglect to consider until the choice is laid before them by a California business lawyer: Should the limited liability company be managed by its constituent members, or should it appoint people for the express purpose of handling the managerial duties?4774087006_f73cd99ea1.jpg

The short answer is the same frustrating answer that business clients will often hear from attorneys: "It depends." What does it depend on exactly? More often than not, it depends on the size of the company (the number of members), the aptitude of the individual members to perform managerial tasks, and, distinctly, the desire of an individual member to perform managerial tasks.

For most LLCs, the size of the company is the chief deciding factor. The vast majority of LLCs are comprised of one or two members. Many others are comprised of only a handful of members. When the company size is so small in terms of membership, the individual members are more likely to want a stake in the management of the company. The classic case is that of a small business. Suppose two best friends open a restaurant. Both friends are almost always going to want a stake in the management and direction of the company (such as organizational structure, addition and subtraction of members, or acquisition of company assets) as well as in the day-to-day operations of the business (e.g. employees, recipes, menus, advertising). Although there are two distinct categories of company operations, a team of two members is likely to want to be involved in both.

When the number of members climbs, so too does the likelihood that managerial and non-managerial duties will be delegated amongst the membership. Imagine an LLC comprised of ten members. Not only might it be overly cumbersome for all ten members to have a share of the managerial role, but some of the members may only want an investment stake in the company. These members want their stake in the company to produce profit, but they may not have the aptitude or desire for making management decisions. In this type of situation, it is important that the charter or operating agreement be specific as to the roles of each constituent member, delegating managerial authority only to those want it and can handle it.

An experienced California business attorney should be able to interpret the goals of your LLC and recommend an organizational structure that places managerial duties in the hands of as many or as few people as business needs dictate. The same attorney should be able to craft a charter or operating agreement that effectively communicates the managerial structure to the State, the public, and the company members.

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Safe Workplaces Lessen Legal Exposure in California

December 14, 2012,

Any California small business attorney would tell you that a small business owner should make workplace safety a top priority. It is not only morally right to care for the safety of your employees and customers, but the time and energy a small business owner invests in workplace safety can reap dividends in the form of avoided litigation, better employee productivity, and enhanced reputation with customers.caution.jpg

Many business owners are familiar with the Occupational Health and Safety Administration (OSHA) and its guidelines for a safe workplace based on the type of business you are operating. These guidelines are a good starting point for workplace safety, but it is important to remember that complying with the bear minimum standard does not necessarily safe your business money in the long term. The following are some ways in which you, the business owner, can take personal responsibility for the safety of your workplace and lessen your legal exposure at the same time.

First and foremost, remind yourself to conduct frequent visual inspections of the areas in which your employees and customers are most likely to occupy. In addition to the aesthetic properties of the areas you are inspecting, ask yourself, "Am I observing something on my premises that could remotely result in a lawsuit?" If you see some kind of defect or hazard, be proactive in remedying the problem. If you have to delegate the work to someone else, be specific about what is wrong and exactly how you would like it to be fixed, as opposed to saying, "Take care of it."

On a similar note, make sure that your business has sufficient lighting within and around it. Good lighting allows your employees and customers to navigate your premises without difficulty and to avoid any potential hazards that may arise. Make no mistake: hazardous conditions will arise from time to time on your property. But the degree to which an employee or customer can identify the hazard and avoid it can go a long way toward limiting your legal exposure. And, as a side effect, good lighting makes your business a less optimal target for crime. In some cases, business owners have been held liable for the occurrence of crimes on their premises because the employee or customer was able to prove that the business owner was negligent in deterring crime. Don't be that owner.

Be mindful of ergonomics. If your employees are required to lift and place heavy objects for extended periods, be sure that those employees have the aid of the proper tools, machinery, and safety equipment. If your employees sit at a computer for extended periods, be sure they have comfortable chairs and that they take periodic breaks in which they walk around. If your employees stand for extended periods (like in a store or restaurant setting) provide them with a stool or chair for the less busy times of day. Provide employee training on these issues where appropriate.

Believe it or not, a California small business lawyer can be a valuable preventative tool when it comes to workplace lawsuits. If you think your business might benefit from an attorney's perspective on workplace safety issues, consider contacting one for a consultation.

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How to Protect Your Business's Name

December 6, 2012,

What's in a name? In many cases, it's everything. It's how you connect with your customers and how those customers draw a mental link to the quality of the goods and services you provide. No, we're not talking about your business's reputation or "goodwill" in the community. It's much more tangible than that. We're talking about physically protecting the trade name you selected for your business.2194396197_4c87e6e50f.jpg

Why is it so important for you to have the exclusive rights to the business name? It's important because it distinguishes you from your competitors. It's important because your business trade name may bear the family name (or perhaps your own name), meaning that your business and personal reputations in the community are indistinguishable. It's important because your business may be a clever play on words, or a phrase that customers associate with something historic, cultural, or even sport-related. When someone speaks of your business, people need to instantly recognize that what the person is talking about is your exact operation at your exact location.

The best initial step to protecting a business name is to hire a Sacramento small business attorney to incorporate your business. Your attorney can help you determine if your desired name already exists, or is too similar to another one already existing. The attorney can help you choose the best entity type for liability protection and tax purposes. Yet even with all of these precautions, new businesses will always emerge, and some of them might even threaten your livelihood by choosing a business name that's too similar to your own.

If that is the case, your Sacramento business lawyer can provide another valuable function. The best way to keep another business from operating under a name that could confuse your customers is to have your attorney draft a cease-and-desist letter. A typical cease-and-desist letter explains that your business has been incorporated under the laws of the state in which you operate. It explains that a similar business using the same (or substantially similar) name within a reasonably close geographic area constitutes an infringement on the fair operation of your business. These letters typically conclude with a date by which the offending business must change its name to be in compliance with your intellectual property rights, and the legal remedies you may pursue if they do not comply. These remedies typically include an injunction (a court order to do something or refrain from doing something) and/or a claim for money damages.

In the event that your competitor wants to bring a legal challenge as to your exclusive rights to the business name, your Sacramento business attorney can also be your legal representative in the litigation. A skilled attorney will be able to persuade the court that your competitor's use of your business name could confuse potential customers and drive away a portion of your sales. And if need be, your attorney can point you to a capable patent and trademark specialist so that you can add an extra layer of protection to your livelihood.

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Tax Consequences of Creating an S-Corp Versus an LLC

November 27, 2012,

Many Sacramento small business owners, when establishing their business for the first time, are confronted with an important decision: Should their business be organized as an S-Corporation or as a Limited Liability Company? The choice can have a tremendous impact on the manner and extent to which the business and its owner are taxed. For this reason, most novice business owners rightfully contact a Sacramento small business attorney for better understanding of how the type of business entity can affect taxation.1820231187_43f260616b.jpg

In many respects, there is little difference between the characteristics of an S-Corporation and a Limited Liability Company. Both entity types are created at the state level by filing various incorporation papers and maintaining certain regulatory filings. Both entity types legally differentiate their owner from the business itself. Both business entity types offer limited liability protection so that the owner can segregate his or her personal assets from the business's assets. This often makes the prospect of litigation far less onerous and terrifying.

The main difference between an S-Corp and a Limited Liability Company, however, is the way the Internal Revenue Service chooses to collect taxes from their owners and employees. In an LLC, the IRS does not tax the earnings of the entity itself, but rather the earnings that the member accumulates through the LLC. A sole LLC owner, therefore, would pay a self-employment tax rate on his or her own personal tax returns.

By contrast, an S-Corp is taxed in its own right by the IRS. The S-Corp itself files a business tax return. Then, instead of dispersing a member's share of income like in an LLC, the S-Corp has to pay its owner (and employees) a "reasonable salary." From this reasonable salary, the IRS computes the owner's (or employee's) personal income tax liability.

The problem with this setup is the vagueness of "reasonable salary." It roughly means a salary that is commensurate with a person of one's same ability in the same industry and geographic area. Computing this figure is easier said than done, and can have huge tax consequences. If the salary paid out to the person from the S-Corp is too low, an IRS auditor might conclude that the person is trying to evade taxes by keeping most of the assets within the business. This person may be trying to appear more impoverished than he or she really is in order to pay a lower tax rate, and it may be interpreted as tax fraud. On the flip side, if the salary paid out to the person from the S-Corp is too high, that person may be shouldering a heavier tax burden than similarly skilled people in the same industry and geographic area.

If you are having trouble deciding whether to incorporate as an LLC or an S-Corp, a Sacramento business lawyer can give a more extensive explanation of the pros and cons. Similarly, if you are having trouble determining a "reasonable salary" under the S-Corp designation, the same attorney can help nail down a figure that is acceptable to you and to the IRS.

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A Guide to Buying Commercial Property in California

November 20, 2012,

With the real estate market in its current condition, small business owners may want to consider something that was unthinkable in previous years: purchasing commercial property rather than leasing it. Interest rates on mortgage loans are at historic lows, meaning more business owners should investigate the possibility. After all, why throw money away in a lease if you are in a position to build equity in your own commercial property?Commercial Property 2.jpg

The best way to investigate the opportunity is to assemble a team of professionals. Among these professionals should be an accountant, a real estate agent, a mortgage broker, and, most importantly, a California business attorney. The accountant can evaluate your finances for the feasibility of the purchase. The real estate agent can find you the right space in the right location so you can bring in customers. The mortgage broker can help you obtain financing at a reasonable rate. But it is the business attorney who will actually make the transaction happen.

There are a number of legal considerations to investigate before taking the plunge. The first is zoning. It is important to consult an attorney on zoning issues because a real estate agent is typically more concerned with the sale than what comes after the sale. In the end, you want your business to be able to be profitable, and it can't be that way unless you are allowed to operate in the manner you wish in your space. You wouldn't purchase a property zoned for offices if your operation involves manufacturing or machinery. Likewise, you wouldn't operate an office out of a warehouse.

Similarly, your attorney can investigate whether your prospective property is encumbered by any limitations on the land. Sometimes when property is transferred from one person to another, the transferor sets conditions and limitations on the use of the land. In many cases, these are enforceable even in the event of the person's death. You wouldn't want to purchase property only to find out that your operations are prohibited by one of these conditions. At the same time, you wouldn't want to discover that the property surrounding yours is somehow limited or likely to undergo significant change.

Also, you will want to have a formal legal description of the property before you purchase. The street address does not suffice to explain to you exactly what land, building, and fixtures you are purchasing. For instance, will you own the adjacent parking lot? What about the advertising signage near the street? What about those shrubs and that grassy area? Where exactly is the property line? Attorneys are skilled at taking these spatial realities and putting them into words.

Finally, your attorney can be your voice in the actual negotiation of the purchase terms. The price of real estate is always negotiable, especially in this buyer's market. Similarly, your credit score does not have to be the only consideration in determining your mortgage interest rate. Hire a skilled California business lawyer to spearhead your commercial property purchase efforts and to make sure your investment has a reasonable chance to be profitable for you.

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Drafting a Personnel Policy for Your Sacramento Business

November 14, 2012,

Most large corporations, non-profits, and public sector organizations employ an army of human resources professionals to handle all types of personnel matters. These matters can range from training to payroll to employee relations. The common denominator among these large organizations is that the managing officers delegate these responsibilities to a human resources department so that they can focus on the broader goals of the organization. The owners of small businesses in Sacramento do not have this luxury. The business owner (or perhaps one trusted employee) is the human resources department for a small business.personnel-handbook.jpg

Be that as it may, there is no reason that a small business cannot have many of the same human resources features that a larger organization has. One of the most important of these features is a solid and robust personnel policy. And make no mistake: the best personnel policies are written by Sacramento business attorneys.

Think of a personnel policy as your employees' handbook. It serves as a guide for what is expected of all employees. It outlines the rights and responsibilities of both the employee and the business itself. It provides clarity on what to do if certain circumstances should arise. Finally, it supplements the labor and employment laws of the jurisdiction in which the business operates.

Imagine the following situation. You hire a new employee, and you explain to that employee that "business hours are from 8:30 a.m. to 5:00 p.m with a half hour lunch break." This has been your policy for the life of your business. Its source is not any particular law or regulation, but simply your interpretation of a normal work day. Now suppose your new employee is making a habit of being late in the mornings. She shows up closer to 9:00 than 8:30 about once or twice a week. Do you have a mechanism in place for handling this situation, besides a verbal expression of your displeasure?

This is a perfect example of where a comprehensive written personnel policy would bring immediate guidance and clarity to the situation. Suppose you have asked your attorney to draft your personnel policy in such a way that employees get two warnings about lateness, and then a forfeiture of pay upon their "third strike." You can present the applicable policy section to your employee, putting her on notice of her entitlement to two warnings and her danger of forfeiting pay upon the third lateness. That way, neither party can claim that they were unaware of the company lateness policy.

Now apply some different facts to the same example. Suppose your employee wants to call out sick. Suppose she is spending too much time surfing the internet or accessing personal email. Suppose any number of typical small business situations occur. Do you have policies on the books for these situations?

Having a personnel policy drafted by a Sacramento small business lawyer can help reduce the likelihood of workplace disputes, employment lawsuits, and even general impediments to productivity. It is a simple, one-time investment in your sanity and your bottom line, and it gets everyone on the same page. Can you afford not to have one?

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Choosing a Resident Agent for Your Business

November 7, 2012,

California business owners who decide to incorporate their business routinely overlook a very important decision amidst all of the registration paperwork. When organizing as a business entity in California, as in most states, the business entity is required to designate a Resident Agent for Service of Process. Business owners commonly list themselves or a trusted employee as their Resident Agent. But is this a wise decision? Most California business attorneys would say no.process_servers_south_wales.jpg

If we are to explore why this Resident Agent designation is so crucial, it is important to begin with some terminology. A Resident Agent is a person (or sometimes a corporate entity) who is entrusted with the receipt of "process" arising from litigation in which the business entity is involved. "Process" is merely the term for the documents that initiate the litigation, such as a complaint for a law suit. "Service of process," therefore, refers to the manner in which the litigation documents are delivered to the attention of the business entity. If one is designated as a Resident Agent for a business entity, he or she is, in essence, the one who can certify to the court that the business entity is aware of the suit brought against it.

While technically there is nothing wrong with a business owner or an employee being designated as a Resident Agent, there are some considerations that may make the prudent business owner inclined to appoint a California business lawyer as the Resident Agent for the business. First and foremost, business owners and their employees, as a general rule, are not as well-versed in the legal process. They may be unaware of the existence of strict deadlines or of an obligation to respond to or to deny allegations in a complaint. Failure to recognize these deadlines and obligations could jeopardize the business's ability to prevail in the law suit.

Secondly, law suits against a business entity may contain sensitive or even sensational allegations whose disclosure could negatively impact the reputation of the business or its owners or employees. California business attorneys are accustomed to protecting the confidentiality of such materials, and understand that dissemination of the allegations can be harmful.

Finally, appointing an attorney as a Resident Agent establishes an existing relationship with the attorney, and can streamline the process in the event that the attorney might be consulted to litigate the case. If not, the attorney is far more likely to know of a reputable colleague who would be better suited to handle the case. This existing dialogue between the business and the attorney could very well save time and lessen the likelihood that the business would fail to meet one if its aforementioned legal deadlines or obligations.

California business lawyers routinely offer Resident Agent services for a modest annual price, and most businesses would say it's well worth it. When incorporating your business, consider designating a lawyer as your Resident Agent. A licensed professional should handle your most sensitive legal documents, especially when your bottom line is at stake.

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Are My Workers Employees or Independent Contractors?

October 31, 2012,

The question is simple enough. You have people whom you "employ" to perform work for your business. Are they technically your employees, or do they fall into a similar category as independent contractors? It may seem like a matter of semantics, but any Sacramento business attorney would caution you that the technical classification of those who perform work for you can have a tremendous impact on your business's legal exposure.6a01053697c8b6970b014e5f679488970c-800wi.jpg

Unfortunately, there is no settled definition of what makes an independent contractor different from a typical employee. Their classification depends on a number of different factors, some of which can vary by jurisdiction. Moreover, there is no single factor that trumps all others in making the determination.

Generally speaking, independent contractors engage in a business that is distinct from your own, even if you both perform substantially similar work functions. An independent contractor likely operates under a different name than your own, likely has multiple clients, and advertises his or her business services independently from your own. He or she typically works his or her own hours, is not subject to your direct supervision, and utilizes his or her own tools or workspace. An independent contractor would likely provide you with an invoice for the value of the services performed. Some common examples of independent contractors include: attorneys, doctors, engineers, architects, construction contractors, and accountants. However, the classification is not limited to these listed service providers.

By contrast, a formal employee of your business is internally supervised, uses tools and workspaces owned and provided by the business itself, and is paid as part of the payroll for the business. The employee does not perform work for another company unless it is the nature of the business to take on other businesses as clients. In these situations, the work is considered to be performed for the parent business rather than for the client business. A formal employee works the hours prescribed by the business, and is not paid on a per-project basis.

Why is this distinction important? Because state and federal laws impose tighter restrictions on the interactions between a business and an employee as opposed to a business and an independent contractor. For example, businesses are required to provide formal employees with regular meal and rest breaks, as well as workers compensation benefits. Additionally, businesses must pay certain payroll taxes on every formal employee they hire. The same regulations do not apply to independent contractors performing work for the business. Understanding the difference not only could potentially save the business some money, but could mitigate the business's exposure to costly fees, penalties, taxes, and potential litigation.

For these reasons, a thorough examination of your business's employment structure may be a worthwhile endeavor. Sacramento business lawyers are adept at evaluating whether a court would be likely to classify a particular worker as an employee or an independent contractor, and can help explain the legal consequences of such a classification. Don't leave your business's legal and financial future to chance. Don't venture your best guess. Do contact an attorney for guidance.

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Help with Writing Terms of Service

October 24, 2012,

Everyone who has ever used the internet to download a program or gain access to a service has had to read and agree to Terms of Service (TOS). In certain circumstances, they might be called an End User License Agreement (EULA). Both types of agreements accomplish roughly the same things: they outline the terms and conditions upon which a customer is permitted to utilize a good or service. Though often overlooked, they are integral cogs in the operation of a business and the delivery of products and services.terms-and-conditions.jpg

These types of agreements are binding contracts, just like any other. Specifically, they are called "adhesion contracts". The difference between a regular contract and an adhesion contract is that in a regular contract, the customer is free to negotiate terms with the business entity. In an adhesion contract, the customer must agree to the terms outlined by the business entity, or else the customer will not have the privilege of utilizing the good or service at all. Another way to look at it is that typical contracts differ based on the interests of the parties negotiating their terms. An adhesion contract looks the same no matter whom the customer is.

Terms of Service are important tools for the successful business entity in that they make the customer operate by a defined set of rules that the business can dictate. Terms of Service also typically contain protections that the business entity doesn't even know it needs: the so-called "fine print." Fortunately, an experienced California business lawyer is an expert in drafting the fine print.

A business attorney may recommend a multitude of fine print provisions for your Terms of Service. For example, it may be advantageous for your company to dictate the choice of venue for the resolution of business disputes. This is an important provision because it forces a litigious customer to bring a lawsuit on your home turf, subject to the local laws under which you operate and subject to a more sympathetic local jury pool. Similarly, your attorney may recommend some provisions regarding any disclaimers or warranties your company may want to make in regard to your products or services. Overzealous warranties may expose your company to litigation in the future, while certain disclaimers may violate the laws of your jurisdiction. Other typical provisions include privacy policies, intellectual property rights, licensing, and accepted and prohibited uses of the product or service.

Even if your business merely uses a web site to help promote itself, it is a very good idea to draft Terms of Use solely for the website. These Terms of Use help web site visitors understand what kind of use and behavior is acceptable and unacceptable while accessing your web site, and give you authority to bring civil or criminal charges against web site visitors who are needlessly destructive, lewd, obscene, or otherwise disruptive of your customers' use - and your maintenance - of your web site.

A California business attorney can craft Terms of Service, Terms of Use, or End User License Agreements uniquely tailored to the legal protection of your business.

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Leasing Commercial Equipment in Sacramento

October 17, 2012,

Just because your business could be categorized as a "small business" doesn't mean that it can't handle big tasks. Small businesses routinely use heavy equipment and machinery to increase output, to aid in construction, or to otherwise make their operations more efficient. In the modern world, software can even sometimes be the heavy lifter in an operation. There is only one problem with these types of tools. They can be expensive; perhaps more expensive than a small business can afford.2005_mustang_mtl_m20_track_loader_480x360.jpg

Nonetheless, small businesses all over California march on with the aid of these specialized pieces of equipment. How do they do it? They lease them.

Equipment leasing is an industry unto itself. Leasing companies will use their considerable capital to invest in pieces of heavy equipment to be used in construction. Manufacturers of special machinery or software will also set aside some of their units to be used in future leases. Those with more modest capital, the small business owners, will contact these sources and inquire about an equipment lease.

A large percentage of these lease transactions are designed for the short term. For instance, a small construction company may need to lease a jackhammer and mobile air compressor for a day to demolish a concrete porch. The company may use a jackhammer and air compressor too infrequently for it to make sense to purchase their own. These types of leases are typically done with form contracts prepared by the lessor, the equipment leasing company. Lessees in this type of short term transaction ordinarily would not have the leverage or the need to negotiate special terms in the contract.

However, equipment leases are not limited to these short-term transactions. Companies routinely lease equipment, machinery, or software for a period of months or years. In some cases, the lease may be designed to endure for the working life of the piece of equipment. This is especially true in the case of software, where it would not make sense to purchase the software outright when it could be obsolete in a matter of years. For these cases, small business are highly encouraged to consult a California small business lawyer for their expertise in negotiating and drafting long term lease contracts.

Small business lawyers know that the contract should contain things that the ordinary person would not think to include. For instance, which party is to pay taxes and fees on the item? Who is responsible for obtaining any applicable licenses? Whose insurance will cover damage to the item or personal injuries related to the operation of the item? What is the duration of the lease term, and who has the right to terminate, and why? Are there any restrictions on the lessee's use of the item? Who pays for delivery or installation? Who maintains the equipment, and are there any warranties associated with it?

These are questions best left to someone who is skilled in contract negotiation and drafting. After all, the equipment lessor is likely to contact an attorney to negotiate for them. Shouldn't you?

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California's New LLC Law

October 10, 2012,

On September 21, 2012, Senate Bill 323 was signed into law by Governor Jerry Brown. Sponsored by Senator Juan Vargas, the bill will be designated as the California Revised Uniform Limited Liability Company Act (RULLCA). On January 1, 2014, it is slated to replace the Beverly-Killea Limited Liability Company Act, which was signed into law in 1994. California joins a growing minority of states that have rewritten their limited liability company laws in recent years, and now California business lawyers are left to decipher how the new laws will affect small business owners and entrepreneurs who wish to incorporate their small businesses as limited liability companies.Law-books.jpg

Some people that have studied the new law worry that it may open the door to a number of constitutional challenges. Portions of the law are written so as to be made retroactive to limited liability companies that were organized under the existing laws. The United States Constitution states at Article 1, Section 10, Clause 1:

"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."

This "Contract Clause" is at odds with RULLCA because RULLCA appears to be establishing an ex post facto law - one that changes the legal consequences of an action once the action has already been taken. In other words, the argument is that the owners of a limited liability company could not have predicted this change in the law, and may not have chosen to organize in quite the same manner if they knew that a new set of laws would govern the way their business was treated. There is also a compelling argument that the new RULLCA could constitute a "law impairing the obligation of contracts." California businesses routinely enter into contracts with customers and other business entities with the understanding that their contract will be honored under a certain set of laws. If the law were to suddenly change, it may have a dramatic effect on how existing contracts might be enforced.

Another troubling feature of the new RULLCA is some uncertainty regarding the law of LLC operating agreements. If the RULLCA is slated to become the law of the land on January 1, 2014, and if a particular LLC was incorporated prior to that date, which set of laws govern any amendments that are made to the operating agreement? Even worse, might the original parts of the operating agreement be governed by Beverely-Killea while the amendments are governed by RULLCA? Might a business owner refrain from making a beneficial amendment to their operating agreement based on the fear and uncertainty of the new law?

These questions, and others, will be hashed out in the next couple of years. Rest assured that you can rely on your California small business attorney to keep abreast of any developments and new interpretations in the new RULLCA so that you can run your business entity in the way you intended.

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Google Creates New Tools for Startups

October 2, 2012,

Google, Inc. is always on the cutting edge of enhancing and simplifying the internet experiences of the average computer user. Sometimes, however, Google comes up with unique ways to help a certain segment of the population. One such segment, comprised of brand new small business owners, is set to benefit tremendously from a new Google tool: "Google for Entrepreneurs."Search_Engine_Optimization.jpg

Google realizes that starting and growing a new business venture is not as simple as hiring a small business attorney to prepare the entity formation paperwork. In addition to all the legal issues associated with startup, new business owners will eventually have to tackle marketing, product delivery, and intellectual property rights to transform what may be a solid concept into a viable and profitable business.

Google for Entrepreneurs features a toolbox full of resources. On the marketing front, Google provides a service through which small business owners can launch their very own professional website to market and promote their goods and services. Google+ for Business helps ensure that your particular goods or services are reaching the types of Google users who are most likely to be interested in them. Google AdWords provides a way for your business to promote itself in the side margins of a Google search when the potential customer searches for certain keywords that are similar to or related to the product or service you are trying to sell.

On the product delivery front, Google Apps has a vast array of productivity applications to help streamline your business operations. With a simple download, you and your employees can be armed with the right apps on all hardwired and mobile devices used in day-to-day business. Google also helps entrepreneurs connect with other similarly-situated entrepreneurs through a local Google Business Group and provides entrepreneurship conferences nationwide to help startups share ideas and experiences.

In much the same way, your local Sacramento small business attorney can provide a "toolbox" of legal services to ensure that your business is properly formed, maintained, and in compliance with all applicable laws and local regulations. At the start, a small business lawyer can help prepare all of the entity formation paperwork for filing with the appropriate state agencies. Even before that, your lawyer can arm you with the right information as to which entity type is best for your business model, including any state and federal tax consequences that may arise from using each type.

After startup, the same attorney can help make sure your business is in compliance with all recordkeeping requirements prescribed by the state and federal government. If your business is one that regularly utilizes sales or service contracts, your attorney can make sure the contracts are worded in such a way as to protect the rights of the business and its proprietors. If your business contracts are the subject of a subsequent dispute, the same attorney can help litigate the matter. Finally, your attorney can be a valuable asset in the realms of business licenses, commercial leases, and employment matters. In short, Google isn't the only "toolbox" at your disposal.

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Sacramento Small Business Debt Collection
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Sacramento Small Business Debt Collection

September 25, 2012,

There are many small businesses in the Sacramento area that offer consumer financing for larger purchases or installment contracts so that the consumer does not have to pay in one large lump sum. One major benefit of financing is that the small businesses can collect interest on the payments in exchange for the convenience of smaller payments on the part of the consumer. Similarly, small businesses benefit from installment contracts in that the business does not have to deliver a finished product or service before receiving partial payment. debt-collection.jpg

In some cases though, consumers break their promises to pay the remaining balances. When this happens, businesses and their agents are free to engage in actions to collect the debt. However, there is one major caveat: the debt collection practices must comply with a federal law called the Fair Debt Collection Practices Act (FDCPA). This is where an experienced Sacramento small business attorney can be a valuable asset to the small business, acting as a consultant on FDCPA compliance.

In general, the Act is designed to protect debtors from fraud and harassment in the collections process. For example, before the Act, it was commonplace for debt collectors to insinuate that the debtor was committing a crime and that the debtor could go to jail if the debt was not paid by a certain date. Debt collectors would call the debtor's residence up to dozens of times a day, or find the debtor's place of business and call there as well. In extreme cases, intimidation and threats of violence were used to induce prompt payment of debts. It is not surprising that these types of debt collection practices do not fly in the modern business world.

Under the Act, debt collections are reduced to a set of heavily-enforced rules. Collectors may not call a debtor before 8 a.m. or after 9 p.m. They also may not contact the debtor's place of business if the place of business objects to those types of calls (most do!). Anyone collecting a business debt may not hold themselves out to be an attorney or insinuate that some sort of legal process has begun unless the legal process has in fact begun. Debtors are entitled to write a letter to a debt collector demanding that the collector cease and desist all calls, letters, faxes, and other communication about the debt. Once this right has been invoked, the debt collector must not send any additional communication unless it is a receipt of the debtor's demand or a letter informing the debtor of the commencement of a legal proceeding.

Sacramento business lawyers recognize the right of a small business to collect any debts owed to it. However, a business can get in a lot of trouble with the federal government if its debt collection processes do not comply with the Fair Debt Collection Practices Act. Therefore, it is in every small business owner's best interest to consult an attorney for advice as to the proper way to engage in debt collection practices.

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How to Avoid Business Contract Disputes with Customers

September 18, 2012,

A large portion of Sacramento small businesses are able to sell goods and offer services without the need of a contractual agreement with their customers. After all, a contract is a set of mutual promises between the customer and the business - usually that the customer will promise to pay a defined amount in exchange for the business's promise that it will deliver a product or provide a service. In most small business models, a contract is impractical for the type of transaction to be conducted. For instance, you would not ask your customer to sign a contract in order to purchase lunch, nor would they sign a contract before a haircut.Contract2.jpg

In other business models, however, properly structured business contracts are essential. For example, a home remodeling company would want to have a work contract explaining exactly what work would be performed, what materials are to be used, and what the company can expect in compensation for its services. Similarly, a small business that manufactures large-quantity orders or small quantity orders of a specialty product would want to have a document that outlines exactly what is expected of all parties involved in the transaction. This is where a Sacramento business attorney can be a valuable asset. Only an attorney can evaluate your business model and tailor a sales or services contract that protects the interests of all parties involved.

When drafting your sales or service contract, your Sacramento business lawyer will ask a host of questions of you. Your lawyer will want to know every conceivable detail about the typical transaction for which the form contract will be used. The most common details included in these types of contracts are the task to be performed or the product to be delivered, the specific timeframe for completion or delivery, an itemization of all costs to be involved in the completion of the service or production of the good, and any guarantees or warranties that will govern the transaction. Where appropriate, the contract should leave blank lines for any portion of the agreement that is negotiable, or where there is room for customization.

Although specificity is the number one priority in a goods or services contract, a good Sacramento business contract attorney will make sure the document is both readable and economical with words. Unreasonably complicated contracts tend to confuse both parties as to their rights and responsibilities, while unreasonably wordy contracts tend to burden the business process. After all, if your customer has to hire his or her own attorney to interpret your business contract, you aren't likely to win many customers.

Sometimes, all the care and preparation in the world cannot prevent a business contract dispute. If this is the case, the same Sacramento attorney may be your best bet for winning the litigation battle. After all, your attorney should already be familiar with your business's model and goals, and the specifics of the contract at issue. In short, your attorney's number should be close at hand during all contract stages.

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