Articles Posted in Business Entities

Published on:

In California, a company can be suspended or forfeited by the Secretary of State (SOS) or the the Franchise Tax Board (FTB). The SOS usually suspends a corporation for improper filing. This usually occurs due to the failure to file the required Statement of Information and, when applicable, the required Statement by Common Interest Development Association. Under California law, a business is required to file a Statement of Information ever every year, or every other year. For your convenience, the business is usually sends a reminder post card about three month prior to the due date. You are also usually sent a delinquency letter if you miss the deadline, giving you and additional sixty days to get the statement filed, before your business is suspended. While the state does attempt to remind you of your filing date, it is still your responsibility as the business owner to submit your paperwork on time, and whether or not you have received the reminders has no bearing on this responsibility.

The FTB usually suspends a business either because the business failed to file one or more tax returns or the business failed to pay its balance. This balance can include the penalty incurred by not not filing your Statement of Information in a timely manner. This means a SOS suspension can also cause an FTB. Your business may be suspended by either the SOS, the FTB or both. It is your responsibility to check with both agencies when you try to revive your business.

If your business is suspended, it is important to revive it as soon as possible. You lose a lot of rights while suspended which can negatively effect your ability to both revive your business and run your business once revived. During suspension, the business loses its rights, powers, and privileges to conduct business in California. The business also loses the right to use its business name in California. This means that another business could register with the suspended or forfeited business’ name, and the name would then belong to the other business. This would require the original business owner to register a new business name before it can revive its business. The business cannot initiate lawsuits, defend itself against lawsuits, or enforce its legal contracts. But other parties can enforce their terms in these contracts. Also, if the business enters contracts while suspended or forfeited, it can never enforce those contracts unless it obtains relief of contract voidability.

Published on:

When starting a business, one thing that you need to think about is the type of business you would like to create. The most commonly known type of business is a called a corporations, but there are also other other types of businesses such as partnerships. And within each type of business, there are subsets, such general partnerships versus limited partnerships. Each title comes with a different set of responsibilities and liabilities. That is why it is important to look at each business options and figure out which options are best for your needs. Once you decide on a business type, you need to register it properly. An improper registration, can cause problems such as making you personally liable for your business transactions when that was not your intent or it can allow clients and vendors to cancel contracts. While there are some mistakes that are minor and fairly easy to fix, it will still be time consuming and often costly.

Take, for example, this California case where an improper registration almost cancelled the partial sale of a company. In this case, Howard and Jane Farnsworth bought John and Velma Dawson’s interests as limited partners in Nevada-Cal Management, Ltd. (“Nevada-Cal”). Nevada-Cal is a limited copartnership made up of bother limited and general partners. The Farnsworthes sued Nevada-Cal because after they purchased the Dawsons’ shares, they learned the limited partnership was not properly formed. Because the partnership was improperly formed, the Farnsworthes believed that the sale of the limited partnership interests were invalid, and therefore wanted their money back.

Under California law, at the time of this case, all companies were required to have a permit before they could sell security, which included partnership interests, without a permit. There were exceptions in place, but specifically for properly formed general and limited partnerships. In deciding this case, the judge not only looked to the relevant laws in place, but also to the intent of the writers of the law. The judge found that the purpose of the law was to protect the general public against scheming companies, not an individual in a private sale. In small sales, individuals have the ability to ask questions directly to the seller, or its representatives. When companies make securities available to the public, the public only has the public filings from the previous year and whatever the company divulges in the investment packet. If someone has a specific question, it is not guaranteed it will be answered. Requiring permits is one more way for the public to find out more information about a company on its own. Because of this, the judge decided in favor of the Dawsons, finding a permit unnecessary and making the sale valid.

Published on:

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”

Published on:

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.

Published on:

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.