Articles Posted in Business Law

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The recent court case of Scafidi v. Hille No. 2014-CA-01261-SCT offers countless reminders for small business owners both experienced and novice about the importance of planning and documenting no matter what the relationship is between the parties involved. While there may be certain factors that may make it seem unnecessary to plan or develop managerial and operational strategies, this case highlights just how messy things can become no matter what the relationship is between the individuals. The overall message is to always plan ahead, document finances and other important information, and remember that when it comes to business, relationships should be set aside.

A Breakdown of the Case

Scafidi v. Hille centers on issues between a brother and sister who inherited a total of three family businesses. Due to the lack of proper planning, the funds were comingled, at one point one or both individuals were kept out of big decision-making processes, funds were not split properly and in the end this led to a huge upset between siblings and a lengthy court battle. The lack of formality in the operation of the business made the case complex and a battle that could have been completely avoided. In the end, each party was awarded a single business each and the third business was sold and funds were split. However, with some planning, not only could they both have been spared legal expenses and the stress associated with such a process, but they could have had three thriving businesses that each one could have benefited from. This case highlights the exact reasons why any business should hire a knowledgeable business attorney to assist with the process.

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New and established businesses are becoming more and more energy conscious as they create business plans and make decisions for the future. However, the costs associated with transforming a building into an energy-efficient hub can be great. With businesses trying to protect their bottom line, how can anyone expect them to be able to fully invest in costly energy-efficient building materials and improvements? Luckily, there are tax incentives to help ease the transition.

Recently, the president signed an extender bill called Protecting Americans from Tax Hikes Act of 2015. The bill itself is in response to some incentives and tax breaks associated with a pre-existing bill that expired at the end of 2014. The new extension creates some permanent incentives while extending other incentives through this year.

Energy-Related Tax Credits

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Being a brand new startup is exciting, but is not exempt from challenges. One of the very first things you have to decide right away is what type of business you will be. This decision alone will greatly impact any other business decision you make. It is absolutely critical that you work with a seasoned business attorney to help you navigate the complicated process of being a brand new business. The three key areas that California businesses should consider are: partnerships, corporations, and limited liability companies (LLCs). The following offers a brief explanation of each entity.

Partnership

A partnership business is exactly what it sounds like. It is a business where there are at least two owners. Each owner has equal decision-making power and is involved in all aspects of the business functions. It is absolutely critical to discussion various aspects of the business including:

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Environmental consciousness is theory that has grown vastly over the years. From the rise in organic product use, to lobbying for full disclosure of products that contain GMOs, to the move of some states to mandate energy disclosures, environmental issues have come to forefront of many legislative sessions. It has been reported that the State of California emits greenhouse gas at an alarming rate every year. Due to the rapid growth in population in recent years, California is the second largest greenhouse gas emitting state in the US. Over 30% of that greenhouse gas release can be attributed to the production of electricity taking place in the state. In response to the harmful nature and after endless lobbying, Assembly Bill 802 was drafted. Assembly Bill 802 focuses on disclosure.

In an effort to closely monitor the problem and resolve the issue, mainly in commercial buildings, Assembly Bill 1103 was enacted in 2009. This bill requires those who own commercial properties to allow public utility companies to regularly collect energy consumption data. Additionally, the public utility companies disclose the data collected to potential purchasers, financial institutions providing loans, and even individuals looking to rent space in particular building. Although the bill was adopted in 2009, it did not go into effect until 2014 due to pushback. Response to the implementation of the new law was not positive, especially because there were no clear and concise guidelines or protocols regarding violations of the law.

Those who had been ordered to comply by disclosing information decided that the fine was worth disclosure. Disclosure of energy use could result in several adverse issues for the owner of the building. Due to the noncompliance of a majority of owners, Governor Brown introduced Assembly 802, a new piece of legislation that replaced AB 1103 and modified the process in which data was collected. Effective January 1, 2016, AB 802 provides that public utility companies will be tasked with maintaining energy consumption data for the last year for all buildings serviced by their company. The goal and purpose behind introduction of this new piece of legislation all lies with disclosure. Those who own buildings that produce energy at a high rate or fail to meet energy efficiency standards are given incentive to make the necessary repairs. By not doing so, they stand to lose potential buyers and tenants. With this new law their insufficiencies are public record and out there for anyone to assess.

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Effective January 2016, California lenders will be able to work more easily with limited liability companies (LLCs). These new changes, referred to as Assembly Bill 506, come in response to the existing Revised Uniform Limited Partnership Act. The amendments simplify the lending process as well as the specifics of mergers in order to make each step run much more smoothly while simultaneously protecting the lenders.

While the amendments appear to greatly benefit lenders, likewise LLCs will benefit as well. For brand new businesses, this could certainly change the game for loan approval and for existing businesses it can impact how certain business is conducted. It is important that new and veteran LLCs alike take a look at the new amendments in order to better understand how certain aspects of their business will be influenced.

What are the Changes?

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The Ninth Circuit Court of Appeals held that the interpretation offered by the Consumer Financial Protection Bureau (CFPB) of 12 U.S.C. § 2607(c)(2) of the Real Estate Settlement Procedures Act (RESPA) was not entitled to “Chevron deference.” The case at issue is Edwards v. The First Am. Corp., No. 13-55542. Before analyzing the decision, let us explore an important contextual issue:

What the Heck is Chevron Deference?

This is a key principle in administrative law established by the U.S. Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The case raised the issue of how courts should treat federal agency interpretations of statutes that mandated an agency take some action. The Supreme Court held that courts should defer to agency interpretations of such statutes unless those interpretations are unreasonable.

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California enacted its own version of the Uniform Voidable Transactions Act (UVTA) deviating slightly from the uniform version. Some archaic terminology that applied the label of “fraud” to certain perfectly innocent transactions will now fall under the less pejorative “voidable” category. The new state law also altered the burden of proof in making and defending a claim for relief under the act, as well as the choice of law governing a determination under the UVTA. The new law goes into effect on January 1, 2016.

Federal Counterpart

There is a Uniform Voidable Transactions Act (UVTA), formerly named the Uniform Fraudulent Transfer Act (UFTA), which is a federal law that strengthens creditor protections by providing remedies for certain transactions by a debtor that are unfair to the debtor’s creditors. With the passage of the state version, California lawyers will need to analyse fraudulent transfers under both statutory schemes, but will likely rely mainly on the state-based law.

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In today’s world the title “Chairman of the Board” is rather outdated. Thousands of companies are started or managed by women, men, and transgender individuals. Such outdated titles are addressed in a new law (i.e. SB 351) introduced by the Committee on Banking and Financial Institutions (Senators Block (Chair), Galgiani, Hall, Hueso, Lara, Morrell, and Vidak) and co-sponsored by the Nonprofit Organizations Committee and the Corporations Committee.

The new law amends various portions of the Corporations Code and aims to provide authorization to act during emergencies for consumer cooperative corporations and to broaden the range of titles for both for-profit and not-for-profit corporate officers.

This new law was signed by Governor Brown on July 15, 2015 and will go into effect on January 1, 2016.

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When consulting with startup business owners and entrepreneurs, common issues arise regarding key elements of the business and its structure. These issues can expose the business, and the owners, to unnecessary litigation and other legal expenses. Below are three common mistakes that startup businesses make and how you can avoid them.

Failing to Use and Maintain Proper Employment Documentation

We’ve all heard the stories about businesses getting started in a parent’s garage and suddenly becoming a multi-million dollar success. However, as the business grows, there has to be a protocol in place for hiring new employees and what employment status they have with the business. Unfortunately, many startups encounter problems when they fail to maintain proper employment documentation exposing the founders to lawsuits if an employee feels they get short-changed in terms of pay, benefits, title, equity, etc.

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When forming a business as a corporation, you will have to select corporate directors and officers. You may even be one of these directors or officers. Officers and directors can face personal exposure when the corporation inevitably becomes involved in some sort of dispute. That is why it is extremely important that officers and directors require separate indemnification agreements between themselves and the corporation.

What Exactly is Indemnification?

Indemnification in this situation involves the corporation indemnifying the directors and officers. To indemnify is to guarantee financial reimbursement to an individual in case of a specified loss. Under California law, a corporation has the ability to indemnify its agents, directors, and officers. However, any indemnification of officers or directors for the defense of any proceeding must be done in a way that is consistent with that law in order to be valid. The law allows indemnification against expenses, judgments, fines, settlements and other amounts reasonably incurred in connection with the proceeding if the director or officer acted in good faith and reasonably thought he or she was acting in the best interests of the corporation and, in criminal matters, had no reason to believe the conduct was unlawful.