Articles Tagged with “sacramento business attorney”

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Start the year strong – ensure your business is legally compliant.  California corporation law requires all corporations and limited liability companies to comply with certain requirements to remain legally complaint.  Forgetting a deadline or missing a filing will prevent your company from legally operating.   To ensure your business stays compliant, take steps now by creating a log of all compliance dates and actions that need to be taken.  Your log should include:

  1. Annual Meetings and Minutes: Your By-Laws and California law requires all corporations to hold an annual Shareholders and Board of Directors Meeting.  These meetings should include a discussion on the condition of the company and a ratification of actions taken.  Shareholders are required to annually appoint the Board of Directors and the Board of Directors elect the officers for the next year.  Ensure that the minutes from these meetings are in writing and added to your corporate records.
  2. Update By-Laws or Operating Agreement. Each business should review its By-Laws or Operating Agreement.  Laws sometimes change and business operations evolve with the growth of the business.  Your By-Laws or Operating Agreement should remain compliant with current law and your business operations.
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California has a somewhat confusing answer to the question of whether LLC interests are considered securities in our state. In some situations they are, and in others, they are not. Here we explain when they are and when they are not. If an LLC interest is considered a security it can have significant regulatory implications, particularly when the interest transferred or offered for sale. There are ways around these regulations, but the process can require additional work and filings and is not a sure thing.

When LLC Interests are Considered Securities

California’s first LLC law was called the Beverly-Killea Act. When it became law the legislature amended the corporations code. This amendment provided that a security includes an interest in a limited liability company. So this is the default position. However, this is not the end of the discussion. The legislature also carved out some substantial exceptions to this general rule.

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Two important bills passed recently by the California state legislature will become law on January 1, 2015. The first of these new business laws will affect what up to now has been called the Corporate Flexibility Act of 2011. The second bill standardizes the business entity filing process. If you may be affected by either of these new laws, it is important that you discuss them with an experienced California business law attorney.

Changes to What Was the Corporate Flexibility Act

Governor Brown signed the first of these bills into law on September 27, 2014. The bill is Senate Bill 1301. The first thing the new law does is change the name of the law. It will now be called the “Social Purpose Corporations Act.” It also changes the name of the type of corporation the Act authorizes to “social purpose corporation.” This type of corporation used to be called a “flexible purpose corporation.” A social purpose corporation is a corporation that has a designated purpose in its articles of incorporation.

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Section 1954, subdivision (b) of the California Civil Code allows a landlord or property owner to enter a leased or rented dwelling to “exhibit the dwelling unit to prospective or actual purchasers.” Such entry may not be made “during other than normal business hours” unless the tenant gives consent, and the tenant must be given proper notice. While 24 hours is presumed to be reasonable notice, what are “normal business hours?” A decision by the California Court of Appeals in August of last year has answered this question.

Dromy v. Lukovsky

In Dromy v. Lukovsky, 219 Cal. App. 4th 278 (2013), landlord/property owner Dromy leased a condominium to tenant Lukovsky in 1994. In 2010, Dromy wished to sell the property and entered into a listing agreement with real estate agent Milstein. Lukovsky permitted Milstein to show the property to prospective purchasers by appointment, but she refused to allow weekend open houses. Dromy filed a declaratory action against Lukovsky in the Superior Court, alleging that Lukovsky’s refusal to allow weekend open houses was frustrating his efforts to sell the property. While the Superior Court ultimately agreed with Dromy, concluding that section 1954 “permits landlords to hold open houses on weekends with reasonable notice,” it sought to establish a schedule reasonable for both parties. The judgment provided as follows: (1) Milstein shall be permitted to hold two open houses per month; (2) open houses may be held on weekend days between 1:00 p.m. and 4:30 p.m.; (3) Dromy’s designated agent shall be present and tenant may be present during any open houses; and (4) Dromy’s designated agent shall provide ten days advance email notice to tenant of proposed open house dates, and tenant shall have 48 hours to acknowledge those dates or provide alternative dates. Lukovsky appealed this judgment and the California Court of Appeals for the Second District affirmed.

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For years, California has been plagued by abusive lawsuits aimed at business establishments for alleged violations of the Americans with Disabilities Act (ADA). On September 19, 2012, California Governor Jerry Brown signed into law, Senate Bill 1186, which is an attempt to curb the abusive lawsuits based on the ADA and related state laws, requiring that places of public accommodation be accessible for persons with disabilities. The law went into effect in January of 2013.

Prior to the Bill’s enactment, unscrupulous law firms devised a scheme where they would send disabled clients to as many business establishments as possible until an ADA violation was found. Once a violation was encountered, the disabled clients would repeatedly visit the guilty business establishment to encounter the same accessibility violation. Under California civil rights law, each violation triggers a minimum statutory penalty of $4,000 The law firms would then send to the guilty business establishment/property owner/lessor a “demand for money” letter or the firm would file a lawsuit on behalf of the disabled client, requesting damages for each violation (“stacked claims”). Instead of fighting an expensive legal battle, the business establishment would quickly settle. In one notorious case, an illegal immigrant and convicted felon, who also happens to be a paraplegic, filed over 500 lawsuits against businesses, and earned $165,000 in settlements, for ADA violations.

The Bill has five main provisions. The first and most important provision of the Bill is that it ends “demand for money” letters from attorneys. Attorneys may still send letters to business establishments alerting them of potential violations, but the letter may not include a demand for money. The letter must contain several items, including, identification and location of the alleged violation; an explanation of how the alleged violation interfered with the disabled person’s access; and, the date of the alleged violation/interference. The law firm must send a copy of the California State Bar and the California Commission on Disability Access.

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On September 21, 2013, California Governor Jerry Brown signed into law the California Revised Uniform Limited Liability Company Act (commonly known as the RULLCA), codified at Cal. Corp. Code §§ 17701.01-17713.13. The law is scheduled to take effect on January 1, 2014. The RULLCA will entirely replace the Beverly-Killea Limited Liability Company Act (referred to for purposes of this article as the “old law”), which has governed California limited liability companies (LLCs) since 1994. An LLC is a hybrid legal entity that has both the characteristics of a corporation and of a partnership. An LLC provides its owners — referred to as “members” — with corporate-like protection against personal liability, but it is treated as a noncorporate business organization for tax purposes.

The RULLCA will apply to all existing LLCs and LLCs formed under the laws of California after January 1, 2014, as well as to all foreign LLCs registered with the California Secretary of State as of January 1, 2014. The law revises certain rules governing the formation and operation of LLCs in the state of California. Below, we will highlight some of the significant changes promulgated by the new law.

While much of RULLCA is similar to existing law, it includes some important changes. First, while the “operating agreement” still serves as the foundational contract between LLC members, under RULLCA, the operating agreement does not need to be in writing. Additionally, unless specifically expressed in the operating agreement, an LLC will, by default, be managed by the members; if an LLC wishes to establish management by a manager or managers, it must be expressly stated in the operating agreement.

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The Law Office of Kristina M. Reed has a strong reputation for providing results-driven client-focused legal services to individuals, property owners, investors, entrepreneurs, small to medium sized businesses, real estate agents and brokers, and property management firms. The law firm has been located in Downtown Sacramento since 2008, and has been an active part of the growth, revitalization, and redevelopment of that area. The firm provides small businesses and entrepreneurs with quality legal services at rates affordable to new businesses.

The Law Office of Kristina M. Reed is committed to small businesses and entrepreneurs, and a champion for the growth and revitalization of the Downtown Sacramento area. In keeping with these goals, the firm, along with other local businesses and organizations, recently sponsored the 2013 Calling All Dreamers Competition, an annual competition with the goal of fostering Sacramento’s entrepreneurial spirit and cultivate the next dreamers in Downtown Sacramento. Beginning in April, applicants submitted their businesses concepts for the competition. A panel of business experts selected eleven semi-finalists based on the following criteria: creativity, sustainability, and entrepreneurial passion. The panel then selected five finalists out of the eleven semi-finalists. The panel ultimately selected Andy’s Candy Apothecary as the winner. The candy store will carry packaged candies from around the world and well as locally-made handmade candies. Andy Paul, the founder of Andy’s Candy Apothecary, received a cash prize of $10,000 as well as free rent and business support services, including 10 hours of business and real estate related transactional legal services provided by the Law Office of Kristina M. Reed.

While starting and running a new business requires passion, it also requires confidence and a strong foundation. The Law Office of Kristina Reed provided Andy’s Candy Apothecary with a strong foundation, and we can help your small business as well. Many small businesses pay little attention to the legal side of their business, which can prove detrimental. An attorney experienced in assisting small businesses can help your business make key foundational decisions about the structure and organization of the business as well as developing strategies and making deals that will make your business successful. We can also help draft employment agreements and ensure that your business is in compliance with all relevant ordinances, such as zoning ordinances. Hiring an experienced lawyer up front to help your small business get off the ground can save you from headaches down the road. It can help protect you against expensive lawsuits brought by employees, customers, and suppliers.

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Several months ago, we featured two articles about California’s ride-sharing startups. Ride-sharing companies, such as uberX, Lyft, and FlightCar, are in the business of providing vehicles-for-hire. Using apps and other online programs, the companies connect those in need of rides with non-professional drivers driving their own cars. Beginning in late 2010, the California Public Utilities Company (CPUC) issued cease and desist orders against all three ride-sharing companies for operating unlicensed charter party services, and the City of San Francisco followed up by suing FlightCar, alleging that it was undercutting rental car companies at the airport by acting like a rental car company, but ignoring the regulations that govern them. This past August, California became the first state to legalize ride-sharing companies when the CPUC issued a proposed set of rules that would grant state licenses to the ride-sharing companies and allow their vehicles to remain on California roads. The proposal creates a new category called the Transportation Network Companies and requires a ride-sharing company to apply for a license to operate in the state.

uberX Appeals Effort to Regulate It

Fast forward several months: This past Wednesday, attorneys for Uber Technologies, Inc., which runs uberX, filed an appeal — or an application for rehearing — challenging the CPUC’s power to regulate it, contending that uberX is a technology company, not a vehicle-for-hire services and that the CPUC does not have jurisdiction over technology companies that do not provide transportation services. uberX argues that it does not have to comply with the CPUC’s requirement to obtain a license because “it operates no vehicles and does not hold itself out or advertise itself as a transportation service provider.” Rather, it merely developed a software and mobile application service, which simply connects the transportation service provider with those persons seeking transportation. uberX does not own, lease, or charter any vehicles for the transportation of passengers and, therefore, should not be required to obtain a license to operate in the state of California.

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Last week, we discussed the Sarbanes-Oxley Act and what startups should know about it. We noted that shortly after the Sarbanes-Oxley Act was enacted, critics argued that it restricted innovation and suffocated the growth of startups and small companies because the cost of compliance was too great for them. In response to these concerns, the government, on April 5, 2012, enacted the Jumpstart Our Business Startups Act or JOBS Act. The purpose of the JOBS Act is to encourage funding of small businesses and startups by easing certain securities regulations. For example, the JOBS Act extends from two to five years, the time that certain small companies and startups have to begin complying with the requirements of the Sarbanes-Oxley Act, i.e., certifying the accuracy of financial information. It also provides an exemption from the requirement to register certain public offerings with the Securities and Exchange Commission.

According to Forbes magazine, Title II of the JOBS Act takes effect today, and it lifts the ban on general solicitation, allowing startups to publicly advertise that they are seeking investments. General solicitation means “to publicly advertise the opening of an investment round in a private company by utilizing mass communication.” As reported by Forbes, “[b]eginning today, September 23, 2013, under Title II of the JOBS Act, entrepreneurs will be permitted to publicly advertise that they are fundraising for their businesses, something that was previously illegal for the past 80 years under Rule 506 of Regulation D and Rule 144A of the Securities Act of 1933.” The only restriction under Regulation D 506C is that all investors must be accredited, generally having earned $200,000 for the past two years, or $300,000 if married, or having a net worth of $1 million not including a personal residence (see more on compliance next week).

What Does Removal of the Ban Mean for Startups

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Starting tomorrow, August 29, 2013, Engine, a non-profit connecting startups and government (according to its website, “the voice of startups in government”), is kicking off Startup Across America Day. Forty-four members of Congress will meet with technology startups in their home states and districts in order to discuss policy issues that impact their businesses. Events will take place in Atlanta, Austin, Baltimore, Boulder, Cambridge, Chicago, Cincinnati, Dallas, Grand Rapids, Jeffersonville, Kansas City, Long Island, Memphis, Phoenix, and Seattle. The goal of this event is to establish “the first step in creating a lasting dialogue between Members and their startup communities; [to] allow Members to meet with job creators in their district; [to] discuss the importance of entrepreneurship and innovation to the American economy; and [to] embark on conversations about the policy issues that matter to these dynamic businesses.” One subject that is certain to be discussed by both parties is “patent trolling,” and it is an important issue in California because many startup companies, particularly those in the technology industry, rely heavily on patents. The issue has also become a hot topic in Washington.

Patent trolls are shell companies that exist solely for the purpose of asserting that they should be reimbursed because they hold patents that are being infringed upon, mostly by an electronic process or software, hence the reason California’s technology industry is particularly concerned with the practice of patent trolling. Patent trolls essentially threaten to file lawsuits against alleged patent infringers, and their threats seem to be real: Between 2010 and 2001, the number of patent infringement lawsuits increased sharply, up by a third, compared to the previous decade. It is estimated that the practice of patent trolling has cost small and medium-sized companies an estimated $29 billion per year in litigation and/or settlement fees, and it is alleged that the practice has become more popular over the last few years because the Patent and Trademark Office (PTO) has been unable keep up with the demand for patents, issuing many that were too broad or poorly documented. For its part, the government is looking for ways to curb the practice. In June, President Obama issued five executive orders and seven legislative recommendations designed to protect innovators from frivolous litigation and to ensure the highest-quality patents in our system. In addition to the President’s actions, several members of Congress introduced legislation aimed at changing the way patents are considered, awarded, and litigated.

While the battle against patent trolls gained significant momentum over the summer, a report issued by the Government Accountability Office last week may “put a spoke in the wheel.” According to the report, the increased number of lawsuits in 2011 was most likely influenced by the anticipation of changes in the Leahy-Smith America Invents Act, which significantly changed our patent system, including limiting the number of defendants in a lawsuit, thus resulting in many plaintiffs breaking up one lawsuit against multiple defendants into several lawsuits. The report further concluded that companies that make products brought the majority of patent infringement lawsuits, while patent trolls only brought a fifth of lawsuits. However, as anti-troll groups point out, the GAO report also shows that patent trolls are very active in software cases, which accounted for 65 percent of defendants between 2007 and 2011.