California Business Lawyer Blog

Are you having problems with your mortgage payments since you have been delayed on paying them? Or you might have doubts that you can have problems on settling your monthly dues in the coming days? Well, if you are currently on this state, then you are on the verge of welcoming foreclosure right in front of your door step. But there can be so many ways on how to prevent this from happening, and that is to opt for a short sale.

Now, what is this short sale all about? It is a given fact that foreclosure is the last thing that a struggling homeowner would want to happen to his property. When you have already been failing to settling your dues because of some unexpected happenings in your life, you can always open it to your lender and offer to do a short sale instead.

Short sale describes a property that is being sold at a price that is lower than the outstanding balance of the owner. This is like asking permission from the bank of the lender to dispose the property at a low value. The profit for this transaction will be used to settle the debt. Getting their approval to do a short sale transaction is just like giving you a reward that you exactly need as of the moment. Isn't it very fulfilling?

However, it is always not a happy ending for these poor homeowners since some lenders do not allow this arrangement. Alternatively, this option is not only good for those negligent borrowers. There are particular requisites before the lenders allow short sale to take place. There is a need for the borrowers to prove to the bank or lending company that they are indeed qualified for short sale. But take note, the process is definitely not as easy as you think.

Short sale does not only benefit the seller but the buyer and other parties involved. For most real estate investors, this is one of the most practical options for everybody.

For the two parties the seller and borrower, it can settle the remaining credit balance. And you can also stay away from getting a foreclosure. Hence, it can save you from staining your reputation because you are evicted from your house due to your own negligence.

Aside from that, lenders are also satisfied to receive the payment for the overdue balance instead of spending more for possible foreclosure procedure. This is a better option than selling the house through an auction. There is a tendency that the property will only sleep in the market for a long time.

Home buyers also love to invest on short sale properties since they come out cheaper than a regular house. They can have a chance to check out the place thoroughly before they finally decide to buy it.

Of course, you can not deny that opting for short sale will give you negative impact especially in your credit rating. This is just like a foreclosure but not that worst. But do not feel too bad since there are some considerations. If the seller decided to do a short sale but did not fail in his payments, you can have a stable credit standing.

However, if it is made due to several failed payments, this will surely leave a terrible effect to your credit record. Even if you have settled you debt, it can still show a negative impression to your reputation as a borrower. So always be responsible in your finances to prevent getting into trouble such as this.

Continue reading "Short Sales: What Are They All About???" »

In what could be some of the most significant set of changes in the history of U.S. credit cards, aspects of President Barack Obama's Credit Card Accountability, Responsibility and Disclosure Act of 2009 that most affect college-aged students are set to kick in on Monday February 22, 2010.

"With this new law, consumers will have the strong and reliable protections they deserve," Obama said on May 22, 2009, the day he signed the bill into law. "We will continue to press for reform that is built on transparency, accountability, and mutual responsibility - values fundamental to the new foundation we seek to build for our economy."

Starting Monday February 22, 2010,, credit card companies will no longer be able to market to people on college campuses with free offers, food and merchandise, or through direct mail campaigns, says California Business lawyer Steven C. Peck. Credit card companies will also have to publicly disclose any marketing agreements with colleges and universities.

"(Credit card companies) try to offer students credit cards (saying) it's good for them," Peck says. "But they end up spending too much on it."

Among the most significant changes, people under the age of 21 will no longer be able to take out credit cards under their own names unless they have co-signers, such as their parents. Another provision calls for setting monthly due dates at the same day each month. As of now, credit balance due dates are set from 14 to 21 days after a previous payment has been made.

"It's hard to keep track of the payment day," Peck indicates. "It's a great idea (so) new credit card holders never miss the date."

Currently, anyone over the age of 18 may apply for a credit card, and each credit card company determines verifying a cardholder's ability to pay back the credit.

Under the new guidelines, anyone younger than 21 must get written permission from a parent, guardian or spouse to increase the credit line of an existing account, or to get a new account. They will also need a co-signer to assume the liability on the card if they are unable to pay the bill, unless they can prove their financial ability to pay back the card balance on their own states California Business Lawyer Steven C. Peck.

A growing source of revenue for banks - fees - will be reduced, according to the law. The new law will limit up-front fees to 25 percent of the cardholder's credit limit during his or her first year on the new account. Card companies will also be limited in when they can increase interest rates on existing balances. If cardholders pay their bills on time and do not exceed the credit limit, they may get their interest rates reduced after six months.

"It's a new day in credit cards - both for consumers as well as banks and credit card issuers," Peck says.

Continue reading "New Credit Card Accountability Act Signed Into Law" »

As with a general partnership, a limited liability partnership requires an agreement so that each partner's role, protections and expectations are clearly defined. The limited liability partnership (LLP) has been an ever-growing form of business organization in recent years. It protects a partnership in much the same way as a limited liability corporation protects the business. It is important, however, to check with your state before forming an LLP and signing an agreement, because not all states recognize this type of organization suggests Steven C. Peck a California Business Lawyer located in Van Nuys, California.

If your state does recognize an LLP, then an agreement of this type is essential if the goal of the partnership is to form individual protections. The limited liability partnership agreement sets forth terms designed to protect a general partner's assets from liability claims against the partnership. Generally, this agreement protects against liability arising from the negligence, wrongful acts, or misconduct committed in the ordinary course of business by any other partner, employee, agent, or representative. The exception to this agreement would be if the partner created the liability himself or herself. In that instance, their personal assets would most likely be in jeopardy. As in any other partnership, the LLP agreement should define a joint liability for contracts and liability for normal business debts of the partnership. In some states, once an LLP agreement is utilized, liability insurance may be required. It is always important to check local laws before determining this is the appropriate agreement for your partnership, but to protect each partner from the liability of other partners, this type of agreement is a very wise choice.

Continue reading "Limited Liability Partnership Requires a Written Agreement Defining Each Partners' Roles and Expectations" »

There are times when a business or entrepreneur would benefit from sharing confidential and valuable information with a third party. Yet, some business owners and entrepreneurs hesitate because they are concerned about what the third party will do with the information. They do not want the confidential information shared with others or used by the third party for that party's own benefit. The law recognizes the important business interest of keeping certain information confidential and the need to consult with third parties in order to make a business more profitable or to allow a new idea to be implemented. A confidentiality or nondisclosure agreement can allow the business or entrepreneur to share information with a third party and be confident that it the information will remain classified.

When to Use a Confidentiality Agreement or Nondisclosure Agreement:
Confidentiality and nondisclosure agreements can be used in many business situations. Some common situations where these types of agreements may be useful include when:
You are soliciting investors, partners or contractors for an invention or new business idea; You are negotiating with a potential buyer of your business, invention or idea; or
A contractor or employee will have access to confidential data that could be financially detrimental to your business should it be disclosed.

What to Include in a Confidentiality or Nondisclosure Agreement:
There are two types of confidentiality or nondisclosure agreements. One type is called a unilateral agreement where the party presenting the agreement is requesting that the other party keep the information confidential but does not require itself to maintain confidentiality. The other type is called a mutual agreement where both sides agree to maintain confidentiality.
In order to enforce a confidentiality or nondisclosure agreement it is important that the agreement be in writing. When you are drafting your agreement, it is useful to consider whether the following elements should be included:

A description of the confidential information so that both parties understand the scope of the agreement;

A description of why the confidential information is being shared in this case and how it may be used. Generally, parties receiving confidential information must use it only for the limited purpose of the contract and not in any other way;

An agreement by the parties that the information will not be disclosed during the term of the contract; and
Other provisions as are necessary to the needs of the parties to the confidentiality or nondisclosure agreement.

Most confidentiality and nondisclosure agreements are in writing, dated and signed by both parties. While state law may allow for oral contracts, it is important for business contracts to be in writing in case of a future dispute. It is particularly important in narrowly drafted confidentiality agreements.

Continue reading "The Business of Confidentiality & Non-Disclosure Agreements" »

The collapse of the U.S. housing and mortgage-backed securities markets has raised the stakes in real estate workouts and loan negotiations as never before

Given the increasing prevalence and complexity of workouts amid the real estate collapse, the onus is now on investors, real estate loan negotiators and risk managers to adopt the savviest-possible strategies, says California Business Attorney Steven C. Peck.

"Extreme caution and the utmost planning and cash-flow analysis must precede revival of the real estate market," an avalanche of forced sales of distressed shopping centers, office buildings and other commercial properties is likely to occur in coming quarters, putting further pressure on existing assets. "

Issues related to letters of credit, both commercial and standby,a look at the dynamics related to preferences, in situations where a workout or modification occurred within the bankruptcy preference period and key issues associated with the treatment of secured claims, sale of assets, proof of claims and plan objections, and noteworthy foreclosure litigation are all items that need to be carefully reviewed indicates California Business Lawyer Peck.

"This recession has instilled overpowering fear in the 'long-term' investors -- the life blood of real estate projects," indicates Los Angeles Business Attorney Steven C. Peck.. "Moreover, no one believes that the full measure of losses from the real estate investment frenzy of 2006 to 2008 has arrived yet. Indeed, those investors who challenged the downturn in 2008 ended up being losers, and the investment community is now, for the most part, shying away due to lack of stability in most cash flows and a worldwide lack of stable short- or long-term credit." states Peck.

Continue reading "Collapse of U.S. Housing and Mortgage Lending has Raised Business Workout Stakes" »

On the eve of the second of three major trials, one of the largest business lawsuits in Michigan history has settled for $500 million.

Livonia-based Valassis Communications, Inc. reached an agreement to settle its outstanding lawsuits against News America Marketing (NAM), a division of Rupert Murdoch's News Corp.

U.S. District Court, Eastern District of Michigan Judge Arthur Tarnow OK'd the agreement, which would have prevented a Feb. 2 trial in asserting violations of the Sherman Act. If Valassis had prevailed in this suit -- as it did in a $300 million July 23, 2009, trial asserting unfair competition and tortious interference -- the damages would have been trebled.

Besides paying Valassis $500 million, NAM also will enter into a 10-year shared mail distribution agreement with Valassis Direct Mail, a Valassis subsidiary. In addition, the judge will issue a permanent injunction related to certain business practices at issue in the lawsuits, and Valassis also will drop a pending state court case in California.

"It has become evident to our legal advisors from pre-trial proceedings over the past couple of weeks that significant risks were developing in presenting this case to a jury," said News Corp. Deputy Chairman, President and Chief Operating Officer Chase Carey in a statement. "That ... led us to believe it was in the best interests of the Company and its stockholders to agree to a settlement."

Valassis asserted that, over a six-year period, NAM tried to monopolize the free-standing coupon insert (FSI) market. Valassis contended that, by 2006, NAM had more than 60 percent of the FSI market, and did so by illegally bundling deals on its FSIs with its other consumer marketing division, in-store and point-of-purchase media.

Continue reading "$500 Million Business Lawsuit Resolved" »

By category, the top five legal service requests according to Pre-paid Legal Services include:

Real Estate, Landlord/Tenant Issues and Foreclosure - Approximately 358,000 requests for legal services that include residential and commercial real estate transactions, landlord and tenant issues and legal counsel related to foreclosure and short sales

Consumer Finance - Approximately 195,000 requests for legal services related to retail transactions for warranties, guarantees and other contracts

Family Law - Approximately 193,000 requests for legal services related to divorce, child support, child custody and child visitation

Collections - Approximately 162,000 requests for legal assistance to support members against other parties and to defend members from third-party debt collectors

Estate Planning - Approximately 160,000 requests for legal services for preparation of wills and other counsel related to final estates.

Continue reading "Top Five Legal Service Requests for 2009" »

In Donohue v. Quick Collect, Inc., Case No. 09-35183 (9th Cir. Jan. 13, 2010), the Ninth Circuit interpreted two sections of the Fair Debt Collection Practices Act ("FDCPA") and held that a collections agency did not violate the FDCPA because the original payment terms between the appellant and her dental practice did not constitute a forbearance agreement under Washington State law. Additionally, the court held that the collections agency did not violate the FDCPA when it mislabeled the interest owed on the debt. The court found that the overall amount owed by the appellant was correct and, therefore, the mislabeled interest was not "materially false." indicates California Collection Attorney Steven C. Peck.
The appellant filed a class action lawsuit that asserted that the collections agency, which was trying to collect a debt owed by the appellant to a dental practice, violated the FDCPA by charging a usurious rate of interest and by violating the FDCPA's prohibition against the use of false, deceptive, or misleading statements in connection with collecting a debt by "misrepresenting the amount of interest" that the appellant owed. The Eastern District of Washington ruled in favor of the collections agency on cross summary judgment motions, finding that the collections agency had not violated the FDCPA states California Business Law Attorney Steven C. Peck.

The two FDCPA provisions that were at issue in this case are 15 U.S.C. §§ 1692e and 1692f. Section 1692e(2) prohibits "[t]he false representation of...the character, amount or legal status of any debt." Section 1692f prohibits a debt collector from using "unfair or unconscionable means to collect or attempt to collect any debt." "The collection of any amount...unless such amount is expressly authorized by the agreement creating the debt or permitted by law" is a violation of § 1692f(1). Both sections are analyzed objectively. The relevant question in examining both sections of the FDCPA is whether "the least sophisticated debtor would likely be misled by a communication." Guerreor v. RJM Acquisitions LLC, 449 F.3d 926, 934 (9th Cir. 2007) (internal quotation marks omitted).

The Ninth Circuit affirmed the lower court's decision that the collections agency had not violated §§ 1692e and 1692f by charging more than 12% annual interest in contravention of Washington usury law. Washington law prohibits charging more than 12% annual interest "for the loan or forbearance of any money, goods, or things in action." Wash. Rev. Code § 19.52.020. The Ninth Circuit found that the 90-day "grace period" in the original payment agreement between the appellant and her dental office was not a forbearance agreement.

The court relied on the Washington State Supreme Court's definition of forbearance under Washington law, which defined it as "a contractual obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower to pay a loan or debt then due and payable." Whitaker v. Spiegel Inc., 623 P.2d 1147, 1152 (Wash. 1981). Based on that definition, the Ninth Circuit determined that the dental office's payment arrangement was not a forbearance because the dental office had no contractual obligation to "refrain, during a given period of time, from requiring [appellant] to pay a loan or debt then due and payable." Id. (emphasis added). Instead, the payment was "due to be paid in full within ninety (90) days of service." The dental office did not agree to forbear and, therefore, the court concluded that the collections agency did not charge usurious interest in either the complaint or demand letter says California Business Lawyer Steven C. Peck.

The Ninth Circuit also concluded that the collections agency's complaint against the appellant did not violate the FDCPA because it did not contain a false, deceptive, or misleading representation. The complaint stated that the Appellant owed an interest payment of $32.89 calculated by applying 12% annual interest to the principal owed. It turned out that the $32.89 was actually made up of two components: $24.07 in pre-assignment finance charges assessed by the dental office and calculated at the rate of 1.5% per month, and $8.82 in post-assignment interest calculated at an annual rate of 12%. The Court also noted that the complaint contained the correct principal owed and the total non-principal amount owed was also correct affirms Los Angeles Business Attorney Steven C. Peck.

Continue reading "Ninth Circuit Interprets Fair Debt Collection Act" »

Severly commonly used methods of valuing closely held companies and professional practices have developed over the years. These methods are widely used by appraisers and others who are responsible for estimating fair market value indicates California Business Attorney Steven C. Peck. Although some of these methods may not be suitable for buy-sell agreements, business law attorneys should have at least some familiarity with the procedures.

Before using any partiuclar valuation method, an appraiser is required to make a study of the economics of the particular industry of which the company is a part, the company's competitive market position, the economic environment of the market served, the experience and capability of management and the assembled work force, the company's financial position and earnings record, and other pertinent factors says California Business Lawyer Steven C. Peck.

Continue reading "Methods of Valuation of Closely Held Companies and Professional Practices" »

It's time to pay the piper.

The first credit card bills from Christmas are beginning to roll in. For some people, it will be a shock.

But instead of panicking, use this year's first credit card bills to diagnose your debt and choose your best option for paying it off says California Business Attorney Steven C. peck.

You'll get some help from the second set of provisions that take effect Feb. 22 as part of the landmark Credit Card Accountability Responsibility and Disclosure Act of 2009 indicates California Business lawyer Steven C. Peck.

The federal law includes restrictions on over-the-limit fees, the marketing of credit cards to adults younger than 21 and dramatic changes in how issuers can impose interest rate increases states Los Angelels Business Attorney Peck..

A key provision that takes effect next month will change credit card statements significantly by requiring issuers to provide new, clearer and timelier disclosures of account terms and costs before and after an account is opened.

Pay attention to one key feature: Statements now will include details warning consumers about the high costs of making only the minimum payment.

"It's a good thing to show people that paying just the minimum payment due has consequences," said Nick Bourke, project manager of the Pew Safe Credit Cards Project, which aims to identify industry trends and help policymakers protect consumers. "People can really have a clearer understanding of what it costs to use credit card debt that they will pay over time."

All of a sudden that $1,000 TV will look like it costs $2,000 - and it will, if you make only minimum payments as the interest piles up.

Here's an example from Consumer Credit Counseling Service:

If you had a $1,000 credit card balance at a 17 percent annual percentage rate and you made just the $15 minimum monthly payment, it would take a little more than 17 years to pay off the card. And the total payback, including principal and interest, would be $3,082.

But if you paid just $5 more, or $20 a month, it would take seven years and four months to pay off the card at a total cost of $1,750.

That's a savings of $1,332 and 10 years.

To further help cardholders chart their way out of debt, the credit card law requires statements to show the monthly payment required to pay off the existing balance in 36 months. It will also show the total cost of payments and interest.

Here's a rule of thumb If you can make your minimum payment, plus 20 percent of that minimum each month, you can probably pay off your debt in three to five years without outside help.

The key is that you must make a dent in the principal, not just pay enough to make the interest payment.

"If you can't pay back your credit cards in three years or less, you probably need to get outside help," said Detweiler, co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights. "It's going to be hard to stick with a payment plan longer than three years. Life happens, the car breaks down, the kids need braces, the house needs repairs."

If you're having trouble paying your credit card bills or anticipate having difficulty, get help now.

"A lot of times we wait too long to get help with our debt," said Detweiler, credit adviser for Credit.com. "The longer you wait, the fewer options you have."

Continue reading "The Credit Card Accountability Responsibility and Disclosure Act " »

About 25 percent of homeowners who received trial loan modifications through President Barack Obama's main foreclosure prevention plan are failing to keep up with their new reduced payments says California Business Lawyer Steven C. Peck.

At least 196,000 borrowers have missed some or all of their required payments, according to comments Treasury officials made on a conference call today and calculations from government data. An additional 115,000 homeowners who started trial repayment plans last year have either dropped out or been kicked out of Obama's Home Affordable Modification Program, indicates California Business Attorney Steven C. Peck.

"None of these programs have really been a success," said Vivek Sriram, a mortgage strategist for RBC Capital Markets in New York. "With the high unemployment rate, it's tough to solve the problem because these people will redefault even if their loan terms are fixed."

The U.S. has shed 7.2 million jobs since the recession began in December 2007, with almost half those losses occurring after Obama took office in January 2009. The mortgage program, which Obama said would target as many as 4 million Americans struggling to hold onto their homes, has successfully modified 66,465 loans as of Dec. 31, according to data released today by the Treasury indicates Los Angeles Business Attorney Steven C. Peck.

At Wells Fargo & Co., about 14 percent of the customers who make one payment in the trial modification phase don't end up making all three to qualify for a permanent reduction, said Mike Heid, co- president of Wells Fargo Home Mortgage in San Francisco.

"About half of the customers who end up making all three payments end up in a permanent modification," Heid said. "Another 25 percent are just not eligible."

Changing the Program

Michael Barr, the assistant Treasury secretary for financial institutions, said the government is considering changes to improve the program's performance, such as permanently cutting outstanding loan balances where borrowers owe more than the property is worth.

"We are in the process of reviewing that now as we have been continually through the program," Barr said on the conference call. "You have to be very careful not to design a program that would change people's behavior across the country in a destabilizing way."

Obama has set aside $75 billion to subsidize lenders that successfully modify troubled loans by reducing interest rates, extending loan repayments, deferring principle payments for as long as five years and adjusting other mortgage terms.

GMAC Mortgage Inc. remained the leader in successful loan modifications, completing 9,872 permanent payment plans as of Dec. 31, the Treasury said in its report today. Wells Fargo finished 8,424 modifications, while JPMorgan Chase & Co. made 7,139 permanent, the report shows. Bank of America Corp., the largest U.S. mortgage company, completed 3,183 modifications.

'Improved Pace'

Borrowers with permanent repayment plans have had their monthly mortgage payments drop by an average of 39 percent at Wells Fargo, Heid said. The company has modified 350,000 loans outside of the Home Affordable Modification Program, or HAMP.

So far, 787,231 trial modifications had been started in the Obama program through December, up from about 697,000 in November, according to the department. Permanently reduced payment plans more than doubled from 31,382 in November. The Treasury began disclosing last month how many trial revisions had been made permanent to publicly push lenders to work harder.

The report reflected an "improved pace" for both trial and completed modification plans, said Phyllis Caldwell, who runs the Treasury's Homeownership Preservation Office.

The three-year housing slump has wiped out at least 28 percent of home values nationwide, government and industry data show. Almost 23 percent of homeowners in the third quarter owed more than their properties are worth, according to First American Core Logic, a real-estate data company in Santa Ana, California.

Fannie, Freddie

Turning around the U.S. housing market is one of Obama's top priorities, Lawrence Summers, the president's top economic adviser, told reporters yesterday. The administration has put off restructuring federally controlled mortgage-finance companies Fannie Mae and Freddie Mac while they are administering the mortgage- modification program.

"There's no question that the future structure of the housing market is going to have to be very different than the structure that led Fannie and Freddie to the point of conservatorship, but this is an issue that's going to play out over time," said Summers, director of the National Economic Council.

He said the Obama administration is "thinking hard" about the future of Fannie Mae and Freddie Mac, "but for now the primary focus has to be on making sure the system of housing finance" is effective.

Continue reading "Loan Modification Recipients Fail to Keep Up With Their Reduced Payments" »

Going-Concern Value:

Going-concern value is the additional element of value that attaches to tangible and intangible business property because it is part of an operating business, or a "going concern." The going concern is considered to have a product or service, the necessary assets in place, a work force, finances, operating procedures, and all other tangible and intangible assets needed to make the business viable says California Business Attorney Steven C. Peck.

Liquidation Value:

Liquidation value is the amount the owner would receive if the business were to be terminated and the assets sold off piecemeal. A business enterprise may sometimes have more value in liquidation than as a going concern, e.g., when its earning power is only marginal in comparison to the liquidated value of the assets. Appraisers make a distinction between market values in forced liquidation (implies a very limited time and usually a sale by auction or to a lot buyer) and market values in orderly liquidation (often 30 to 60 days) indicates Los Angeles Business Attorney Steven C. Peck.

Business Enterprise:

A business enterprise is a commercial, industrial, or service organization pursuing an economic activity. The business entity can be a sole propietorship, a partnership, limited liability company, or a corporation. The term includes all the firm's tangible and intangible assets and its liabilities says California Business Lawyer Peck. A common misconception is that a corporation's business is distinct from its current and fixed assets and is synonymous with intangilbe assets such as goodwill. Porperly construed, the term " business enterprise" encompasses current, fixed, and intangible assets; liabilities; and shareholders' equity Los Angeles Business Attorney Steven C. Peck states.

Continue reading "California Business Lawyer: Additional Valuation Terminology" »

A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties, most commonly a fiduciary and a principal. One party, for example a corporate trust company or the trust department of a bank, holds a fiduciary relation or acts in a fiduciary capacity to another, such as one whose funds are entrusted to it for investment. In a fiduciary relation one person, in a position of vulnerability, justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests.

" A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence." says California Business lawyer Steven C. Peck.

A fiduciary duty[is the highest standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the "principal"): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents.

In English common law the fiduciary relation is arguably the most important concept within the portion of the legal system known as equity. In the United Kingdom, the Judicature Acts merged the courts of equity (historically based in England's Court of Chancery) with the courts of common law, and as a result the concept of fiduciary duty also became usable in common law courts.

When a fiduciary duty is imposed, equity requires a stricter standard of behavior than the comparable tortious duty of care at common law. It is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where his fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from his fiduciary position without express knowledge and consent. A fiduciary cannot have a conflict of interest. It has been said that fiduciaries must conduct themselves "at a level higher and that "the distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty" says California Business attorney Steven C. Peck.

Fiduciary relationships
The most common circumstance where a fiduciary duty will arise is between a trustee, whether real or juristic, and a beneficiary. The trustee to whom property is legally committed is the legal--i.e., common law--owner of all such property. The beneficiary, at law, has no legal title to the trust; however, the trustee is bound by equity to suppress his own interests and administer the property only for the benefit of the beneficiary. In this way, the beneficiary obtains the use of property without being its technical owner.

Others, such as corporate directors, may be held to a fiduciary duty similar in some respects to that of a trustee. This happens when, for example, the directors of a bank are trustees for the depositors, the directors of a corporation are trustees for the stockholders or a guardian is trustee of his ward's property. A person in a sensitive position sometimes protects himself from possible conflict of interest charges by setting up a blind trust, placing his financial affairs in the hands of a fiduciary and giving up all right to know about or intervene in their handling.

Relationships which routinely attract by law a fiduciary duty between certain classes of persons include these:

Trustee/beneficiary:
Conservators and legal guardians / wards
Agents, brokers and factors / principals:
Buyer agent (real estate broker) / buyer client
Confidential advisor including financial adviser and investment advisor / advisee or client
Lawyer/client:
Executors and administrators / legatees and heirs

Continue reading "The Confidence and Trust That Encompasses the Fiduciary Relationship" »

Choose Your Business Entity
As you start a new business or expand an existing enterprise, you will benefit from considering your options for the legal structure of your business. It will usually be beneficial to seek advice from legal and financial professionals, in determining the form which will best serve your business and tax planning needs says California business lawyer Steven C. Peck.

The Sole Proprietorship
A sole proprietorship is the simplest form of business to start. Ordinarily, all you need to do is start operating as a business under your own name (or a fictitious name - a d/b/a) and Social Security number, obtain any required licenses or permits, and you're in business.

But there are some distinct disadvantages to operating as a sole proprietorship, which you should consider when determining if this business form is right for you. A sole proprietorship is subject to pass-through taxation, with profits declared on the owner's personal tax return. There is also no shield against liability, and a sole proprietor's personal assets can be reached to satisfy business debts or liabilities. By definition, a sole proprietorship has only one owner. If you have a business partner, you may be a partnership or choose a different business form, but you cannot operate as a sole proprietorship explains california business attorney Steven C. Peck.

The Partnership
The partnership is a business entity ordinarily comprised of two or more individuals, although under some circumstances a partnership will be formed between other business entities, or between individuals and a business entity. The partnership is relatively inexpensive and simple to create and maintain, but poses tax and liability issues which are similar to those of a sole proprietorship.

General Partnership - Most partnerships take the form of "general partnerships", where all partners have some management authority.

Limited Partnership - In a limited partnership, there are one or more "general partners" who direct the business of the partnership, and one or more "limited partners" who have no management role. The general partner may be another business entity, such as a corporation or LLC. This structure is often used for real estate transactions, where investors sign on as limited partners, and the general partner manages the property. Limited partners have little or no role in the management of the business, and in return for surrendering that authority their responsibility for business debts and liabilities is limited to the amount of their investment.

Limited Liability Partnership - The partners to a limited liability partnership are shielded against the debts and obligations of the partnership, and against liability for actions of their partners or employees in which they take no part and have no supervisory role. However, their personal assets may remain subject to other debts they have personally guaranteed, and for obligations or liabilities arising from their own conduct.

The Limited Liability Company
A limited liability company, or LLC, is a business entity that enjoys many of the advantages of being a corporation, including limited liability, while avoiding many of the more singificant burdens imposed on corporations, and while retaining many of the characteristics of unincorporated entities such as partnerships and sole proprietorships. By default, an LLC has pass-through taxation, with members declaring their share of profits as income on their personal tax returns. An LLC may opt to be taxed in the same manner as a C Corporation, in the event that it would benefit from being able to retain income and pay taxes on that income at the corporate tax rate.

The Corporation
A corporation is a business entity created under state law, which stands as an independent legal "person" apart from its shareholders and directors. Accordingly, a corporation may enter into contracts, obtain loans, and pay taxes on its own behalf, and it continues to exist even after its founders or shareholders die or transfer their shares to others. A corporation's owners or shareholders receive the benefit of limited liability for the obligations of the corporation, and are thus ordinarily shielded from the corporation's creditors even in the event that the corporation cannot pay its obligations. Unless limited by state law or its own articles of incorporation, a corporation continues indefinitely. Ownership can be transferred through sale of stock, and the sale or transfer of a controlling interest in the corporation does not necessarily affect its management structure or operations indicated Los Angeles business lawyer Steven C. Peck.

C Corporation - A C Corporation is a standard business corporation, which pays taxes on its profits at the corporate tax rate under Subchapter C of the tax code.

S Corporation - An S Corporation is a corporation which has elected for its profits to be taxed in the manner of an unincorporated entity. Not all corporations can opt to become S Corporations.

Professional Corporation (PC) - A special type of corporation incorporated to perform professional services, such as the practice of law or medicine. (Historically, professionals were not permitted to incorporate. Now, many professional practices incorporate as PC's or LLC's.)

Nonprofit Corporation - A nonprofit corporation obtains special treatment under state law, but is subject to restrictions as to its ownership and to what may be done with its profits at the end of the year. While a corporation must be a nonprofit in order to qualify for a federal tax exemption as a "501(C)(3)" charitable organization, the mere fact that a corporation is registered as a nonprofit does not mean that the corporation is a "charity" contributions to the corporation are automatically tax deductible.

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In certain situations, it may be advantageous for a business to operate in California as a foreign LLC rather than as a domestic LLC. Because the laws of a foreign LLC's state mor organization will govern its organization and internal affairs and the liaibility of members and managers, a foreign LLC may offer benefits not available to members of a California LLC says California business attorney Steven C. Peck.

Examples of advantages are operation with one member, or an alternative standard for piercing the veil of protection from liability afforded members, California business lawyer Steven Peck states.
However, the foreign LLC must still regiater in California and is subject to the gross income fee. Additionally, forming an LLC in another state to conduct business in California may create new problems, such as the loss of the federal intrastate securities exemption.

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