California Business Lawyer Blog

Your company needs a buy-sell agreement because change is constant,
and your relationship with your fellow shareholders will change. Shareholders bicker, lose interest in the business, go away, die, get divorced, get run over by trucks, etc.

Sometimes a shareholder gets a better job and stops putting time into your company. He's now a freeloader, and you don't want him to enjoy the benefits of your hard work in building up the business.
Sometimes a shareholder is such a malcontent that you must be rid of him. Or a shareholder might get divorced, in which case you don't want his spouse to take over his shares and become your partner. Or a shareholder might go bankrupt, and you need to protect the business from his creditors. In all these cases, the company needs a structure for the orderly and fair removal of shareholders.

The Economic Divorce. Enter the buy-sell agreement. When changes among the shareholders put yourcompany in danger, the buy-sell agreement forces a fair resolution. I call this the economic divorce - if the company cannot survive a particular shareholder, the buy-sell agreement gets you a divorce on terms that are fair to everyone.

Death. If a shareholder dies, the company buys his shares from his estate. This is fair to the surviving family because they usually want money, not shares in an illiquid small business. This is fair to the company because you don't want the deceased shareholder's spouse or son to show up and announce himself as your new partner. Usually you pay a death buy-back in one lump-sum using the proceeds of life insurance.

Disability. Similar to death (except without the finality) if a shareholder becomes disabled, the company buys his shares. The company can pay a disability buy-back using a promissory note.

Divorce. The divorcing shareholder buys out his spouse's entire community property interest in the company's shares. This is done in the divorce proceedings.

Disputes. Sometimes two shareholders just can't get along. To deal with this situation, you use"shotgun" procedures. This means that, between the two warring shareholders, the first shareholder offers to buy out the second shareholder, and the second shareholder has the choice, either be bought out or turn around and buy out the first shareholder on identical terms (i.e. I cut, you choose). Either way, a price is fixed for the buy-out, and one of the warring shareholders leaves the business.

Bankruptcy; Bad Transfers. If a shareholder transfers shares in violation of the shareholders agreement or goes bankrupt, the company can purchase all of his shares to keep the shares away from his creditors. This serves an asset-protection function.

Buy-out Price. The buy-out price is crucial. A high buy-out price gives the exiting shareholder a windfall. A low buy-out price is unfair and leads to litigation. The trick is finding a procedure that ensures a fair price - for example, using a neutral appraisal process to fix a price.

Variation for a Real Estate Venture. As a final note, for some businesses, instead of a traditional buy-sell, it's easier just to liquidate the entire business. This can be true where a business does not have goodwill. For example, the value in most real estate ventures is the real estate. There is neither goodwill value in the venture nor sentimental value in the real estate. With this in mind, if the shareholders can't get along, it's easy to liquidate the assets, distribute the profits and let the shareholders go their separate ways. This is pure economic divorce.

Continue reading "What items Should One Consider When Drafting the Business Buy-Sell Agreement?" »

A general partnership is where all of the partners are actively involved, to one degree or another, in the control and management of the partnership. These general partnerships, which are the most common type of partnerships, are distinguished from limited partnerships, where some of the partners are silent investors with no actual management or control of the partnership. The major difference that arises from this distinction is that all partners to a general partnership are personally liable for the partnership's losses and debts, while only the general partners of a limited partnership are liable for the limited partnership (the limited partners are afforded limited liability because they do not actively run or control the business) says California Business Attorney Steven C. Peck who may be contacted toll free at 1.866.999.9085.

Conventional wisdom among California homeowners has been that if they go through foreclosure, they will lose their homes, yet be freed from the remaining debt on the mortgage. But that silver lining, distressed borrowers are learning, applies only if they did not previously refinance their loan.

The state Legislature created laws during the Great Depression intended to allow people who lost their homes to get back on their feet. They protected borrowers from being pursued for the difference between what they owed on their mortgage and the decreased value of their former home. But, at a time when refinancing was less common, those laws did not include loans that refinanced the original purchase mortgage - even if it was done only to obtain a lower interest rate.

Now, proposed legislation would extend protections to those foreclosed owners who refinanced their loans. The state Senate approved the new law in June and it was passed by a state Assembly committee on June 29, 2010., but its future is unknown.

State bankers' groups are trying to alter the bill, which was sponsored by the California Association of Realtors, before its final vote this summer. The bankers do not want changes to apply to existing loans, but rather only to future mortgages.

We do not wish for the California Legislature to go in and amend contracts," said Rodney Brown, chief executive of the California Bankers Association. "The banking industry is very supportive of extending these kind of protections, but the idea of breaking a contract between the borrower and the lender is not really consistent with contract law in the U.S. or the way to do business."

The gap between what is owed on a mortgage and the value of a home is known as a deficiency states California Business Attorney Steven C. Peck.

As it stands, homeowners who only have an original purchase loan can walk away from their debt obligation and not worry about bill collectors. Their credit might suffer, but their future earnings will not be threatened by debts from their current crisis.

That has led some owners to pursue so-called strategic defaults, where they have the means to continue paying their mortgage, but choose not to.

In contrast, an owner who refinanced the original loan - whether a strategic defaulter or someone who lost his job and could not pay the monthly mortgage - could be chased down for debts almost indefinitely.

For homeowners in default, the concern is not academic. Real estate lawyers say they increasingly are getting calls from distressed owners who are trying to work with lenders. Many owners are discovering that even if they pursue a short sale - where the bank allows the home to be sold for less than what is owed on the mortgage and ostensibly forgives any remaining debt - they still could be on the hook for the unpaid balance at a later date indicates Los Angeles Business Lawyer Steven C. Peck.

"If the state legislation goes the way the bankers want it to, it could hamper former owners' ability to ever buy a house again and would violate fundamental principles of fairness, according to Alex Creel, senior vice president and chief lobbyist for the California Association of Realtors.

"Our thinking is why should refinancing the loan, and nothing more, result in a loss of protections that you had when you made the loan at the outset," Creel said. "But in California, you lose that protection, and it's not as if the lender tells you about it. But you lose it nonetheless."

Creel points out that the proposed legislation does not protect those who refinanced their loans to get cash, in the form of home equity lines of credit and other second loans. And it shields former homeowners only up to the amount of their original mortgage.

If an owner obtained a mortgage of $400,000, but then boosted the loan to $500,000 by refinancing for cash, the law would allow him to be billed for the $100,000 difference, he said.

Peck notes that pursuing loan deficiency payments requires going to court and is cumbersome, and therefore not favored by banks. But that does not stop lenders from using the threat of court action as leverage in negotiations over the fate of a property verging on foreclosure.

"We've heard of lenders saying, we're not going to agree to a short sale unless you sign a contract to pay all or some of the deficiency," "And it's not a hollow threat because currently, they are entitled to do it."

Peck indicates lenders have four to six years to obtain a judgment against a borrower, but the judgment is good for 10 years and can be extended another 10 years.

The law needs to be changed because there is no express reason for the distinction between those who refinance and those who don't, but the difference has enormous financial implications.

"We feel like it's a fairly arbitrary distinction that is applied to refinanced loans and purchase loans, and we believe that many people did not fully appreciate the potential danger,"

Written by Robert Selna at rselna@sfchronicle.com.

Arbitration, a form of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the courts, wherein the parties to a dispute refer it to one or more persons (the "arbitrators", "arbiters" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides indicated California Business Lawyer Steven C. Peck.

Other forms of ADR include mediation (a form of settlement negotiation facilitated by a neutral third party) and non-binding resolution by experts. Arbitration is most commonly used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is far more controversial in consumer and employment matters, where arbitration is not voluntary but is instead imposed on consumers or employees through fine-print contracts, denying individuals their right to access the courts. says California Business Law Attorney Steven C. Peck.

Arbitration can be either voluntary or mandatory and can be either binding or non-binding. Non-binding arbitration is, on the surface, similar to mediation. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.

Continue reading "Arbitration is a Legal Technique to Resolve Disputes Outside The Court System" »

All businesses must provide Workers' Compensation coverage for the benefit of their employees who may be injured while on the job. This is a requirement of the law in every state. For most businesses, this requirement is satisfied by purchasing Workers' Compensation insurance, which is available from private insurance companies in most states. In a few states this coverage must be purchased from an agency of the state government.

Often there will be contractual requirements for businesses to have certain types of insurance. For example, the terms of a lease Often there will be contractual requirements for businesses to have certain types of insurance. For example, the terms of a lease for an office or store or factory usually will require the tenant to have certain types of insurance to cover its operations conducted on the leased premises. If a business borrows money, the loan documents often will require that a specified amount of insurance must be maintained to cover the business's property and liability exposures. Leases for office equipment may require insurance to cover potential damage to the equipment. All contracts and leases entered into by a business should be carefully reviewed for insurance requirements. Failure to maintain the required insurance could be a basis for termination of the contract or lease.

Because of frequent contact with the public and because of the specialized work done by many businesses, there is usually a much greater exposure to legal liability arising from the conduct of a business compared with the potential for legal liability from personal activities. It is therefore advisable for most businesses to purchase liability insurance to cover all business related activities, and this insurance should be specifically tailored to the type of business being conducted. This is especially important for professionals, such as health care workers, architects and engineers, who face a greater level of potential legal liability (often called "malpractice") because of the highly specialized and technical nature of their work. In some states, professional liability or "malpractice" insurance may be required as a condition of getting the necessary license to practice the profession in that state.

Continue reading "The Requirement of Business Insurance" »

One of the worst things that may happen to a fledgling company is making the mistake of not keeping properly documented records about all relationships involved in the business from day one. This observation also applies to the early start-up stages as well.

"While it's natural to be rather informal at the beginning, who knows what value the company will really have later. The value of the company later is the crucial key here and means that hiring a lawyer at the beginning of the start-up process for a company is a wise investment move for all concerned," states Los Angeles Business Attorney Steven C. Peck.

Often investors feel it's not necessary to hire legal advice that early in the process. Unfortunately, it's this very time when the business is making crucial decisions that will affect their future that they "need" legal advice. They also need to be keeping good records of everything that happens during their start-up. No one knows when these records will come in handy.

Even though it's statistically likely that most company founders will do just fine during their start-up by not documenting everything they do, the chances are high that those who don't take this precaution will have serious problems later. "The facts are that without any documentation on the company start-up, the founders assume legal risk," Peck says.

For these reasons, it's a good idea to discuss the founding of the company with a competent Los Angeles business lawyer, setup the correct entity, review and edit agreements, properly explain to the clients' the possible worst case scenarios and plan for them accordingly, and make sure that the new entity has been properly advised of the legal ramifications pertinent to their particular start up company. Many of these same issues will appear upon the purchase or sale of a company, too. Document any and all transactions in writing, and when in doubt call your attorney immediately.

There are many other pitfalls that a good business lawyer will be able to outline to founders of a new business and steer them in the right direction to success. Hiring a lawyer early is one smart business investment.

Continue reading "The Hiring of a Lawyer During the Start Up Process of a New Company Is A Wise Investment" »

When it comes to employment laws, California is among the most employee friendly jurisdictions anywhere. A recent landmark ruling by the state's Supreme Court involving non-compete agreements has served to reinforce that reputation.

In a widely watched decision involving the now defunct accountancy practice of Arthur Andersen, the Supreme Court invalidated any agreement that seeks to restrict the right of an employee to go to work for a competitor or solicit a former employer's customers using non trade secret information.

The case, called Edwards v. Arthur Andersen, LLC , is welcome news for employees and the competitor businesses that hire them away.

From the employee's perspective, the Court confirmed that agreements which prevent employees from going to work for a competitor violate California law.

From the new employer's perspective, the case allows the company to ignore any such contractual restrictions that the new employee may have signed.

Although the Court invalidated agreements which restrict employee movement, it left intact another provision of California law that permits non-compete agreements in certain non-employment settings such as between the buyer and seller of a business, among partners dissolving their partnership or when obtained in connection with the acquisition of a company's stock.

Notably, the decision also did not disturb longstanding laws that permit a business owner to protect its valuable trade secrets.

Agreements which seek to protect a company's trade secrets are not affected by the Court's ruling at all. Thus, employees who misappropriate the company's trade secrets when they go to work for a competitor still may be sued for damages and injunctive relief.

Background: Section 16000 of the State's Business and Professions Code provides that "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void."

Some courts had held that this means any post employment restriction whatsoever would be illegal. Others ruled that such agreements would pass muster under state law so long as they were narrowly tailored (i.e., limited as to duration, scope or geography). The Supreme Court accepted the Edwards case to resolve which view was correct.

Raymond Edwards went to work for Arthur Andersen as a tax manager in its Los Angeles office. Arthur Andersen required him to sign their standard non-compete agreement which stated:

"If you leave the Firm, for 18 months after release or resignation, you agree not to perform professional services of the type you provided for any client on which you worked during the 18 month period prior to release or resignation "

After Mr. Edwards left Arthur Andersen, he sued to invalidate the non-compete agreement. Arthur Andersen argued that the agreement was fine because it was narrowly tailored and only prevented Edwards from servicing certain clients. He could still be an accountant, they argued. Edwards argued that even a narrowly tailored agreement such as this ran afoul of the Business and Professions code.

The Supreme Court took this opportunity to emphatically state that all non-compete agreements in the employment setting are invalid, no matter how narrowly tailored says California Attorney Steven C. Peck who may be contacted toll free at 1.866.999.9085.

The only exceptions to the court's ruling are set forth in the companion statute governing the purchase of a business, dissolution of a partnership or the acquisition of significant percentage of a company's stock.

An express warranty is a guarantee from the seller of a product that specifies the extent to which the quality or performance of the product is assured and states the conditions under which the product can be returned, replaced, or repaired states Los Angeles, California Business Attorney Steven C. Peck.

It is often given in the form of a specific, written "Warranty" document. However, a warranty may also arise by operation of law based upon the seller's description of the goods, and perhaps their source and quality, and any material deviation from that specification would violate the guarantee. For example, an advertisement describing a product is often full of express warranties; the product must substantially conform to what is advertised. Many advertisers insert disclaimers for this purpose (e.g., "actual color/mileage/results may vary", or "not shown actual size"). Commonly, written warranties will assure the buyer that an article is of good quality and against defects in "materials and workmanship." A warranty may also apply to services that are sold. For example, an automobile repair shop may guarantee its repair for a period of 90 days.

An express warranty can be made orally, in writing and without the intent of the seller to actually create the warranty. In the United States, a seller is allowed to assert statements of opinion of value, known as puffery, that the buyer cannot justly rely on as part of the basis for the bargain. For instance, "This hunting knife is the best knife in the world" is mere puffery, whereas a statement such as "This hunting knife will never need to be sharpened" can be construed to be an express warranty as long as the knife is only used for its intended purpose. In certain other countries (e.g. the UK, Canada, and Taiwan), consumer protection laws exist to prevent advertisers making untrue or unprovable statements.

The misuse of a famous trademark may also create an express warranty, the violation of which is called "passing off"; the source and quality of the goods is misrepresented.

Continue reading "The Express Warranty Should Specify The Extent to Which Quality and Performance is Assured" »

In commercial and consumer transactions, a warranty is a collateral assurance or guarantee that certain facets of an article or service sold is as factually stated or legally implied by the seller, and that often provides for a specific remedy such as repair or replacement in the event the article or service fails to meet the warranty. A breach of warranty occurs when the promise is broken, i.e., a product is defective or not as should be expected by a reasonable buyer.

In business and legal transactions, a warranty is an assurance by one party to the other party that certain facts or conditions are true or will happen; the other party is permitted to rely on that assurance and seek some type of remedy if it is not true or followed.

In real estate transactions, a warranty deed is a promise that the buyer's title to a parcel of land will be defended.

A warranty may be express or implied.

Continue reading "Warranty: Assurances of Satisfaction and Specific Remedy for Repair" »

Contracts come up often during the course of business. Common types of business contracts include employment, land/lease/rental contracts, contracts with suppliers and contracts with customers.

Employment contracts. Contracts with staff for either professional or nonprofessional services appear frequently. Employment contracts range from salary stipulations through right-to-work arrangements. They state how the employee will be compensated and what actions they must perform. Any oral agreements concerning compensation for overtime or benefits should be included in these contracts. Any performance-based incentives or bonuses should be included as well. Employers should include termination clauses befitting the position. For example, morality clauses are less common, but in some instances should be included if the employee is a direct representative of the company.

Land/Lease/rental contracts. These contracts are between business owners and landowners over usage of a building or parcel of land for business purposes. Rental contracts identify the rights and requirements of tenants and landlords. They address such instances like when a landlord sells or loses the title to a building (due to bankruptcy, etc). Commercial leases should provide an adequate time allotment to avoid constant renegotiation that can impede on owner's ability to conduct business.

Supplier contracts. Contracts with good suppliers add a sense of stability to a business. These allow a business owner to know what they are getting and whom they are getting it from and at what price. The contract benefits suppliers by binding the business to always purchase from them instead of their competitors.

Customer contracts. Contracts with customers provide both parties written assurance of what oral agreements the other has made (if any). Although oral contracts can be binding, having a signed copy allows either party to revisit the agreement in the case where the other did not perform as agreed upon (either the services rendered were not as advertised or the compensation for services was not adequately made). An example of a contract between a business and customer is a tire store warranty stating that a replacement tire will be issued without cost if the purchased tire explodes within 30 days of installation.

Lawyer can draw up an effective, template-style contract for each situation. This allows business owners to employ contracts in a timely manner instead of having a new one drawn up for each instance. For example, having a standardized agreement for customers only requiring a name, date, description of services rendered and a signature saves lots of time and ensures there are no questions over the contracts validity should a dispute arise. This works well for general employment contracts as well.

Democratic Congressional leaders struck a tentative agreement on Thursday that breathes new life into President Obama's proposed overhaul of federal student loan programs.

The deal would bundle the bill into an expedited budget package along with the Democratic health care legislation, which would allow for both measures to be passed by the Senate on a simple majority vote. Without the deal, the student loan bill would have been unlikely to pass because it lacked the 60 votes needed to overcome a filibuster.

The bill would end government payments to private, commercial student lenders, leaving the government to lend directly to students. It would also redirect billions of dollars to expand the Pell grant program for low-income students, and to pay for other education initiatives.

The maximum Pell grant is set to rise to $5,550 for the 2010-11 school year and, under the deal struck Thursday, would increase automatically each year in line with inflation. As many as eight million of the nation's lowest-income students receive Pell grants to help pay for college each year. Under current law, Congress must determine any increases.

"Families and students who rely on federal student aid need to know that Congress sides with them and not with the big banks," Senator Tom Harkin, Democrat of Iowa and chairman of the Education Committee, said at a news conference on Thursday. "The federal government has been subsidizing these banks and wasting taxpayer money for far too long. It's time to end it."

Private banks had lobbied fiercely against the bill, which would cut off a longtime stream of revenue. Even on Thursday, lobbyists for the private lenders made a last-ditch effort to stop Democrats from adding it to the budget package.

House Democrats predicted that packaging the two proposals in an expedited budget reconciliation bill would help them secure the needed votes on health care because the financial aid bill is popular. In September, the House adopted that bill, the Student Aid and Fiscal Responsibility Act, by a vote of 253 to 171.

Senate Democrats said that they could lose some votes as a result of the packaging, but that they did not believe it would swing the outcome. Senate Democrats nominally control 59 votes, and need only 50 to approve the reconciliation measure, because Vice President Joseph R. Biden Jr. would break a tie.

Some Democrats in the Senate, where the private student loan industry has strong allies, had resisted tying the two bills together. But federal education officials warned on Thursday that if Congress failed to act, millions of students might see their Pell grants cut by 60 percent.

Democrats said that in a caucus meeting Thursday, Mr. Harkin made a compelling case for moving more quickly on the education measure and that other senators had voiced agreement, outweighing doubts raised in particular by Senator Kent Conrad of North Dakota, the chairman of the Budget Committee.

Aides to Mr. Conrad said he was open to packaging the two bills, provided that House Democrats agreed to meet budget reconciliation rules by adjusting the education measure to account for a revised cost analysis by the Congressional Budget Office.

The House-passed bill had anticipated savings of $87 billion by eliminating payments to private lenders, and would have redirected that money to Pell grants and other education programs.

But in recent months, more colleges have joined the government's direct lending program, in anticipation of the change, generating the savings up front and reducing the amount of revenue that would be available for new spending to about $67 billion.

"The Treasury is winning every day that somebody takes out a direct loan," said Representative George Miller, Democrat of California and chairman of the Education and Labor Committee. "The concept is already driving savings to the government."

At the same time, a rise in the number of people attending college and seeking aid in the weak economy has raised the projected cost of new Pell grants to $54 billion from $40 billion.

Officials said they could reduce the spending in the education bill by tying annual increases in Pell grants to the consumer price index, a measure of inflation, rather than to the consumer price index plus 1 percent, as set forth in the House bill.

Mr. Harkin and Mr. Miller said on Thursday that if the financial aid measure was not tied to health care, it might collapse.

Six Democrat senators had written a letter to the majority leader, Harry Reid of Nevada, expressing doubts about the education proposal. And given Republican opposition, the bill was unlikely to win the 60 votes needed to overcome a filibuster.

The decision by Democrats to package the two bills creates tough choices for some lawmakers. Senator Ben Nelson, Democrat of Nebraska, for instance, has reason to vote for the health care bill in part to undo a special provision that Senate leaders included giving Nebraska extra federal Medicaid money.

That provision, derided by Republicans as the "Cornhusker kickback," has become a political liability for Mr. Nelson. But Nebraska is also home to some major private student lenders, and he will be hard-pressed to vote in favor of a package that ends their lucrative business originating federal student loans.

Continue reading "Major OverHaul of Federal Student Loan Programs" »

The major factors affecting how a business is organized are usually:
The size and scope of the business, and its anticipated management and ownership. Generally a smaller business is more flexible, while larger businesses, or those with wider ownership or more formal structures, will usually tend to be organized as partnerships or (more commonly) corporations. In addition a business that wishes to raise money on a stock market or to be owned by a wide range of people will often be required to adopt a specific legal form to do so.
The sector and country. Private profit making businesses are different from government owned bodies. In some countries, certain businesses are legally obliged to be organized in certain ways.
Limited liability. Corporations, limited liability partnerships, and other specific types of business organizations protect their owners or shareholders from business failure by doing business under a separate legal entity with certain legal protections. In contrast, unincorporated businesses or persons working on their own are usually not so protected.
Tax advantages. Different structures are treated differently in tax law, and may have advantages for this reason.
Disclosure and compliance requirements. Different business structures may be required to make more or less information public (or reported to relevant authorities), and may be bound to comply with different rules and regulations.
Many businesses are operated through a separate entity such as a corporation or a partnership (either formed with or without limited liability). Most legal jurisdictions allow people to organize such an entity by filing certain charter documents with the relevant Secretary of State or equivalent and complying with certain other ongoing obligations. The relationships and legal rights of shareholders, limited partners, or members are governed partly by the charter documents and partly by the law of the jurisdiction where the entity is organized. Generally speaking, shareholders in a corporation, limited partners in a limited partnership, and members in a limited liability company are shielded from personal liability for the debts and obligations of the entity, which is legally treated as a separate "person." This means that unless there is misconduct, the owner's own possessions are strongly protected in law, if the business does not succeed.

Where two or more individuals own a business together but have failed to organize a more specialized form of vehicle, they will be treated as a general partnership. The terms of a partnership are partly governed by a partnership agreement if one is created, and partly by the law of the jurisdiction where the partnership is located. No paperwork or filing is necessary to create a partnership, and without an agreement, the relationships and legal rights of the partners will be entirely governed by the law of the jurisdiction where the partnership is located.

A single person who owns and runs a business is commonly known as a sole proprietor, whether he or she owns it directly or through a formally organized entity.

A few relevant factors to consider in deciding how to operate a business include:

General partners in a partnership (other than a limited liability partnership), plus anyone who personally owns and operates a business without creating a separate legal entity, are personally liable for the debts and obligations of the business.
Generally, corporations are required to pay tax just like "real" people. In some tax systems, this can give rise to so-called double taxation, because first the corporation pays tax on the profit, and then when the corporation distributes its profits to its owners, individuals have to include dividends in their income when they complete their personal tax returns, at which point a second layer of income tax is imposed.
In most countries, there are laws which treat small corporations differently than large ones. They may be exempt from certain legal filing requirements or labor laws, have simplified procedures in specialized areas, and have simplified, advantageous, or slightly different tax treatment.
To "go public" (sometimes called IPO) -- which basically means to allow a part of the business to be owned by a wider range of investors or the public in general--you must organize a separate entity, which is usually required to comply with a tighter set of laws and procedures. Most public entities are corporations that have sold shares, but increasingly there are also public LLCs that sell units (sometimes also called shares), and other more exotic entities as well (for example, REITs in the USA, Unit Trusts in the UK). However, you cannot take a general partnership "public."

Continue reading "Major Factors Affecting How a Business is Organized" »

Agency is an area of law dealing with a contractual or quasi-contractual relationship between at least two parties in which one, the principal, allows the other, the agent, to represent her or his legal interests and to perform legal acts that bind the principal. Agency can be created in a variety of ways, such as through the grant of a power of attorney also known as a mandate in civil law jurisdictions, it can also be implied from the conduct of the parties. says California Business Attorney Steven C. Peck.
The law of agency is used in many professional areas, from contract negotiation (business management), employment procurement (i.e. modelling agencies), by financial advisors, in the buying and selling of real estate, the negotiation of entertainment and sports deals and in many day to day transactions where one person (the "agent") is allowed to stand in for another individual to fulfill their wishes. Agents can represent the interests of one party, or they may represent the interests of several, conflicting or potentially conflicting parties. In the case of such dual agency the agent must either disclose information received by one party to the other or act in a limited agency capacity to prevent a situation where the agent's loyalty to the multiple principals is compromised.

Continue reading "Agency: Allowing an Individual to Perform Legal Acts That Bind the Principal" »

Something interesting is happening in California. Anthem Insurance Company is delaying its massive insurance rate increase. Anthem insurance company has been under fire this week because they are going to invoke an average price increase of 25 percent on about 700,000 insurance customers who purchase their own coverage. For some it would be as high as 39 percent. Anthem is getting grief all the way up to the White House.

Anthem has agreed to delay implementing their rate increase from March 1 to May 1.

Insurance Commissioner of California Steve Poizner has been working with Anthem Insurance to determine if they are living up to a law that was passed in 2006. This says that an insurance company must spend 70 cents of every premium dollar on medical care.

I personally think that is whimsical says Los Angeles Business Attorney Steven C. Peck. That means your expenses and administration come out of 30 cents on the dollar. Companies can do that if the expenses go down after the first year but I sincerely doubt that 70 cents on the dollar is realistic. And that can cause this type of problem.

The commissioner has brought in an outside firm to examine the summations of Anthem. He is skeptical that they have come to the right conclusions.

If they did not live up to the law then the Commissioner can make the company reduce the rates at risk of losing their license to sell in the state.
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Continue reading "Anthem Insurance Company Delaying Price Increase" »

When you make a monetary loan, it is always a good idea to have a promissory note setting forth the terms of the loan suggests Los Angeles Business Lawyer Steven C. Peck. A promissory note is also used in real estate transactions.

A personal promissory note for a loan has many parts. It will set forth the full names and addresses of both the lender and the borrower. The amount of the loan will be stated, along with any terms of interest and the length of the loan. Payment terms will give the amount of each month/weekly/yearly payment until the loan is considered paid in full. The promissory note will also spell out remedies and actions should the loan be defaulted upon or if payments are late. Without this type of formal agreement, there is no guarantee that loaned money will be repaid to you on time, or even at all. Promissory notes protect everyone involved. They not only assure the lender a legal recourse if the loan is defaulted upon, but they protect the borrower should the lender decide to change or alter verbal terms throughout the life of the loan. Once this form is completed and endorsed, there should be no questions, confusion and difficulty with the performance of either party. Lastly, as with any other legal forms, all signatures must be notarized and/or witnessed.

Continue reading "Monetary Loan: Have a Promissory Note Drawn Up Setting Forth Its Terms" »