Legal Issues for Start-Ups to Avoid

February 3, 2013,

If you scour the web for information on "tips for start-ups" you will find an endless number of bullet points, lists, and helpful summaries. Interestingly, in the majority cases the items most often messed up, done poorly, or forgotten about relate to legal matters. For example, as a Venture Beat post discussed recently, many different legal matters are continually botched by those with great ideas and the best of intentions.

Perhaps it should not be surprising that many start-ups make legal mistakes, because most focus is on the product or service about which they are passionate. Many of the administrative and organizational details get short shrift. Add the fact that many startups seek to cut corners and avoid paying for professional help, and it is easy to see how so many legal errors are made. But it remains critical for all those hoping to make it in the long-term to get serious about avoiding the most common legal pitfalls. For example, some of the obvious ones discussed in the VB post include...

Lean About "Due Diligence"
Even something as simple as picking a name may come with legal ramifications. For example, many a business has chosen an identity only to discover later that ***oops*** its already taken. If any steps had already been made with the names, this errors requires starting over and potentially wasting time and money. In the worst cases--when the problem is not identified until later--it may actually result in a lawsuit.

The lesson: do your due diligence and research ahead of time. There are online databases to examine this information and ensure you get off on the right foot.

Choosing the Wrong Entity Structure
Besides a name, one of the most important early decisions is figuring out the entity structure to operate as. Mountains have been written about the different options and the reasons to chose one or the other. But the decision is so important that it is worth reiterating. As previously mentioned, there are several common entity structures, including sole proprietorships, partnerships, Limited Liability Corporations and C-Corporations.

Each entity has strengths and weaknesses, but in most cases it comes down to taxation and liability protection. Sole proprietorships and partnerships come with single taxation but little liability protection. If there is a risk of any sort of liability--and in virtually all cases there is--then it might be worthwhile to give serious thought to more sophisticated arrangements.

The C-corporation, which is the most common corporate entity, is the old-fashioned structure for the largest entities. While it comes with liability protection, it also means that the income is taxed twice--once on the corporate level and once on the individual level.

The Limited Liability Corporation (LLC) is a hybrid of the Corporation and partnership, and the seemingly "best of both worlds" that it offers makes it attractive to many. LLCs are relatively new, and as such, there is less certainty with some of the more complex legal issues involved. However, the fact that they may offer single taxation as well as liability protection means all startups should at least speak with a legal professional and determine if it makes sense for them.

Mixing Funds
If your start up moves beyond the sole proprietorship or partnership phase, then it is critical to understand the basic protocols to ensure the "entity" and your person are separate. Most notably, do not co-mingle business assets with your own. "Co-mingling" may lead to claims that the business entity protection does not apply. Usually you only discover this when you are actually facing liability--the exact moment when you have much to lose.

Playing Fast and Loose with Intellectual Property
Copyrighting, trademarking, or patenting your work is not something only for those in a select few business. These legal principles apply to many different start ups, even those who might not assume so from the outset. It is impossible to get into too much detail about intellectual property rules here, but the bottom line is: talk to a professional about it. Leaving it to chance or pushing it off the deal with later is a recipe for disaster.

The above list is just the tip of the iceberg as it relates to basic start up mistakes. Don't let your ideas and enthusiasm wither because of legal malfunctions. In our area, contact a Sacramento start-up attorney today to learn more.

Key Discussion Points for Founder's Agreements

January 26, 2013,

Starting a new business is an incredibly exciting adventure. While there are countless different issues that need to be handled beforehand, there is one area that is often neglected: delineating the relationship between different founders. In the rush to advance the business itself, there may be cut corners as it relates to ensuring those involved in a venture have safe, secure legal understandings between one another. 5351289407_f6b5e459f3_m.jpg

For this reason, founders of a start-up enterprise must be vigilant about memorializing various items in a Founder's Agreement. This is an absolutely critical initial step that should obviously be created in conjunction with a legal professional.

What is included in a Founder's Agreement?

Capital Structure
Perhaps most notably, the "initial capital structure" of the company needs to be settled upon right away. Potential shares must be allocated equitably based on initial contributions. This is not necessarily as easy a calculation as it sounds. While in hypotheticals it always breaks down evenly by percentage contributed, it is often difficult to determine projected contributions. For example, while one founder may provide more capital initially, the team could be under the assumption that all will ultimately contribute equally. This might counsel toward equitable distribution of shares. But everything in equal pieces is not the only option, and alternatives might be worked out depending on expectations. All of this must be determined on top of items likes buyback rights, restrictions on share transfers and so forth.

Ensuring Long-Term Commitment
One issue that commonly comes up in these agreements relates to essentially enforcing long-term commitment by the founders via forced "vesting." In other words, if a founder holds unvested shares, they are only earned over time. If for whatever reason those shares are not earned, then are bought back. By voluntarily having founders' share subject to vesting, the founders are incentivized to remain connected for their own maximum benefit.

This is a somewhat complex aspect to Founders Agreements, but in general, it should be noted that there are different ways to handle vesting issues. The vesting can be based on a specific time or a specific business achievement or "milestone." Determining what is right for your business depends on the founders specific concerns. If commitment for the long-haul is desired, then a time based system might be appropriate (usually a period of years). However, if the business is suited for achieving very clear objectives, then it might make sense to base the scheme on achieving some notable goal. In fact, a combination of time-based vesting and performance-based vesting might best meet your needs.

Don't Go It Alone
Figuring out these issues from the outset it one of the most important things that any new startup will encounter. It is important not to cut corners but instead focus on getting the legal help you need to do it right. In the Sacramento area, please contact the our business attorney for the guidance you need.

Commercial Real Estate -- Letters of Intent

January 20, 2013,

Dealing with the many different aspects of a commercial real estate contract can be an incredibly stressful and time consuming process. In many cases it requires several rounds of negations. If sticking points cannot be sorted out, then that time and energy might even be wasted. That is why Letters of Intent (LOI) are often desired by both buyers and sellers. These letters essentially formalize negotiations and streamline discussion so that it is more likely that a favorable understanding will be reached in as efficient a manner as possible.

What Exactly is a Letter of Intent?
contract.jpgIt is critical to have legal help when working on these letters. A legal professional will explain how he LOI should include the following:

***Set the Table: The letters should indicate what terms or issues are agreed upon (settled) and what still needs to be worked out.

***Promise of Good Faith: Next, the the LOI should explain that both parties agree to operate in good faith--and confirm that they are bound to do so. This gives the agreement at least some force. It does not mean that either party is automatically "locked in." Instead, it is just a confirmation that the terms of the transaction left to be negotiated will be analyzed reasonably, without ulterior intentions to scuttle the deal. Determining when good faith is or is not present is a difficult process, but an attorney can explain how it might apply on a case by case basis. This is one of the more important parts of the LOI. In fact, there is generally an implied covenant to negotiate in good-faith, but the clause is usually included as confirmation.

***When to End: Finally the LOI should indicate a specific time when the negotiations may be canceled.

Other Considerations

Letters of Intent are somewhat difficult for many to get their head around, because they seem to be an agreement to keep negotiating. But even though they may not settle anything for good, they are critical pieces to the puzzle of commercial real estate negotiations.

Many of the specifics that will go into these letters above and beyond the outline issued discussed above, hinge of many different case-specific details. For example, you must consider whether the space is a "hot commodity" or if many other offers are likely to be on the table. Similarly, do you have a history of working with the party? How much faith can you place in their commitments? Do you have other arrangements with the party such that this negotiation is just one aspect of your relationship?

As will all legal issues, in our area it is essential to have the aid of an experienced Sacramento commercial real estate legal professional to advocate for your interests. Please feel free to contact our office to see how we can help.

Equal Opportunity Employment Guide for California Businesses

January 4, 2013,

Countless studies show that a more diversified workplace can lead to increased productivity, creativity, and employee satisfaction. Prudent California small business owners know that productive, creative, and satisfied employees are essential to a profitable business venture. However, many small business owners are unaware that efforts to create a diversified workplace are not just desirable; they are the law of the land. The best way to understand equal opportunity employment laws is to consult a Sacramento business attorney for an overview of what you, as the employer, can and cannot do.help.jpg

There are a host of federal laws in place that aim to reduce discrimination in the workplace. The preeminent law that applies to every employer in every industry is Title VII of the Civil Rights Act of 1964. Under this law, an employer may not discriminate on the basis of race, color, religion, sex, or national origin. Another is the Equal Pay Act of 1963, which prohibits sex-based wage discrimination for men and women who perform substantially similar work. Age discrimination is prohibited under the Age Discrimination in Employment Act, which aims to protect workers who are 40 years of age or older. Finally, the Americans with Disabilities Act of 1990 states that no qualified individual with a disability shall face discrimination in employment.

Compliance with these discrimination laws is governed by the United States Equal Employment Opportunity Commission. According to the EEOC, it is illegal to discriminate in any of the following aspects of employment:

• hiring and firing;
• compensation, assignment, or classification of employees;
• transfer, promotion, layoff, or recall;
• job advertisements;
• recruitment;
• testing;
• use of company facilities;
• training and apprenticeship programs;
• fringe benefits;
• pay, retirement plans, and disability leave; or
• other terms and conditions of employment.

The EEOC also ensures protections against:

• harassment on the basis of race, color, religion, sex, national origin, disability, genetic information, or age;
• retaliation against an individual for filing a charge of discrimination, participating in an investigation, or opposing discriminatory practices;
• employment decisions based on stereotypes or assumptions about the abilities, traits, or performance of individuals of a certain sex, race, age, religion, or ethnic group, or individuals with disabilities, or based on myths or assumptions about an individual's genetic information; and
• denying employment opportunities to a person because of marriage to, or association with, an individual of a particular race, religion, national origin, or an individual with a disability. Title VII also prohibits discrimination because of participation in schools or places of worship associated with a particular racial, ethnic, or religious group.

It is important to note that this is by no means an exhaustive list of the equal opportunity laws that may apply to your business. In fact, California frequently enacts its own local variations and additions to these federal laws. In order to navigate the equal opportunity employment waters, it is best to have a guide. Your California business lawyer can be that guide.

See related blog posts
Drafting a Personnel Policy for Your Sacramento Business
Are My Workers Employees or Independent Contractors?

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.

See related blog posts
Business Licensing in Sacramento
Selling Your Business in Sacramento

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.

See related blog posts
California's New LLC Law
Forming a Sacramento LLC

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.

See related blog posts
Drafting a Personnel Policy for Your Sacramento Business
Small Business Premises Liability

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.

See related blog posts
Naming Your California Business
Buying a Business in Sacramento

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.

See related blog posts
California's New LLC Law
Sacramento Single-Member LLCs

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.

See related blog posts
Rent or Own?
Transferring Property in Sacramento

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?

See related blog posts
Are My Workers Employees or Independent Contractors?
Managing Immigrant Workers in Sacramento

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.

See related blog posts
California's New LLC Law
Should I Incorporate My Business?

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.

See related blog posts
What to Include in a Sacramento Employment Contract
Managing Immigrant Workers in Sacramento

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.

See related blog posts
How to Avoid Business Contract Disputes with Customers
Buying a Business in Sacramento

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?

See related blog posts
Extending a Commercial Lease in Sacramento
What Should Your Commercial Lease Include?