Category: Legal

Business Law, employment law, Legal

4 Common Legal Mistakes by Small Businesses:Legal Reasons #72

Sanjay Sabarwal

1) Failing to “put it in writing” early

Before founders do any significant work together, it is essential to put into place a written agreement which outlines the roles and obligations of each respective party. Founder Agreements provide clarity regarding critical aspects of the work relationship, including but not limited to ownership percentages, salaries, removal grounds and procedures, governance and management, voting protocol and profit-sharing.

2) Failing to carry out buy-sell provisions

The decision by one founder to leave the company can lead to internal turmoil, customer erosion and disruption in revenue flow. These issues also could arise in the event a founder passes away or experiences long-term disability.

Simply put, failing to plan for the end is planning to fail. A properly drafted buy-sell agreement executed by the founders of the business at the outset (in conjunction with a founder agreement) can effectively account for how the company will proceed in the event of unanticipated change.

3) Using inadequate employment agreements

It is critical to invest in properly drafted agreements that can serve as the foundation for the employment relationship. Common terms included in an employment agreement include, among other things, the length of employment or whether the employment is at-will; the classification of the worker (i.e., employee/independent contractor, exempt/non-exempt); and rights and restrictions upon termination.

Employers should be mindful to not expose the company to liability by disregarding any prior-employment related obligations of job candidates, including any restrictive covenants and/or obligations to return sensitive documents that belong to the prior-employer.

4) Misclassifying workers

Many employers hire independent contractors rather than employees and/or misclassify employees as exempt under the Fair Labor Standards Act in an effort to avoid the payroll obligations that come with the traditional employment relationship, such as the duty to pay minimum wage and overtime. Serious liability can result from these misclassifications, including substantial wage repayment going back as far as three years and other harsh penalties.

Business Law, Legal

Reasons to Incorporate Your Business:Legal Reasons #71

Sanjay Sabarwal

Incorporating your company allows you to protect your personal assets from any actions that might affect your business. It also gives you the professionalism of an incorporated company, making it more likely that others will choose to work with you.

Business owners choose to incorporate outside their home state for many reasons. California is one of the most popular states for incorporation, because it has a thriving business community and offers important business benefits.

One major benefit of corporations in the state of California is management flexibility – the state only requires three officer positions in the filing: president, chief financial officer, and secretary. You can even fill all three of these with the same person. This allows you a lot of flexibility when it comes to filling out your corporation’s leadership team in the future.

Another reason forming a California professional corporation is a great choice is due to the anonymity of shareholders and management. The state only requires the director and resident agents to be disclosed, allowing stockholders to avoid having their names in the public record.

Finally, California corporation taxes are only 9%, with other significant advantages available depending on the type of corporation formed.

How to Incorporate in California

The process of registering a company is California is straightforward. Below is a brief overview of the steps to incorporating:

  1. Make sure your chosen business name is available under California rules and regulations.
  2. File California articles of incorporation.
  3. Have your organizational meeting and create your company bylaws.
  4. Get your Federal Employer Identification Number (FEIN) and open your incorporation’s bank account.
  5. Get business licenses from the county and/or city where you will do business.
  6. Submit your initial report, called a Statement of Information, within 90 days.
family law, Legal

California Divorce 101: Legal Reasons #70

Sanjay Sabarwal

You must be a resident of California for six months and a county resident for three months to file for a divorce, called a “dissolution.”

Either spouse can get a divorce simply by stating in the divorce papers that “irreconcilable differences” have caused a breakdown in the marriage. If both spouses are in agreement that there should be a divorce, they can agree in writing (called a “stipulation”) that the marriage can be ended.

The legal divorce process begins when one of the spouses files a “Petition for Dissolution of Marriage” with the Superior Court. The other spouse is then served with the paperwork and given time to respond. If the parties are in agreement about property and debt division, as well as any child custody and support matters, the divorce can be finalized without a trial. If the parties can’t come to an agreement, the court will set a time for a hearing in the future.

After the Petition for Dissolution has been filed, either party can request temporary assistance from the court, for instance, in the form of temporary custody and child support orders, spousal support orders, or orders to determine who pays community debts on a temporary basis.

Dividing Your Property

California is a “community property” state, which means that assets and debts acquired during your marriage will be divided equally when you divorce.

But not all property is considered “community property”.

For example, any assets you had before you married will be considered “separate property” if you kept that property separated from property acquired during the marriage.

The income produced by a separate property investment is also separate property, as long as it hasn’t been “commingled;” meaning, that it wasn’t mixed together with community money.

Property you inherit from your family or otherwise gifted to you during your marriage will generally be considered your own separate property if it was willed exclusively to you and you did not commingle it with community assets during the marriage.

It’s important to collect all the information you can about all your property, including when you purchased it, approximately how much it is worth, and details such as account numbers, serial numbers, and so forth. Collecting this information before you see a divorce lawyer can save you a lot of time and money.

Alimony

A court can order alimony, which is called “spousal support” in California. A court will generally consider such factors as:

  • The standard of living established during the marriage
  • The duration of the marriage
  • The needs of each party
  • The financial resources and liabilities of each party
  • The impact on the children of having the care-giving spouse working
  • The contribution of each party to domestic duties and the education and career of the other party
  • Any tax consequences
  • All sources of income available to either party

A court can order temporary spousal support while the divorce is pending. Spousal support is usually ordered for a specific length of time. Once ordered, it can be modified only upon a showing of a “change in circumstances.”

Child Custody and Visitation

In California, the court can make custody decisions based on what is in the “best interest” of the child, but will do so only if the parents can’t come to an agreement between themselves. In deciding which parent should have primary custody, the court will consider:

  • Which parent is more likely to allow the child frequent and continuing contact with the non-custodial parent
  • The history of contact between the parents and the child
  • The health, safety, and welfare of the child
  • The mental and physical health of the parents, including any history of continual alcohol or drug usage
  • The preference of the child, if the child is intelligent, understanding, and experienced/mature enough to express a preference
  • Evidence of child abuse

After the custody order is signed by the judge and filed with the court clerk, both parents are bound by it. If a parent is denied court-ordered access to a child, he or she may bring the issue back before the court to enforce visitation. The judge may decide to modify the custody/visitation order, order makeup visitation for the time missed, or order counseling or mediation.

Child Support

In California, child support is based on factors, such as:

  • The incomes of both parents
  • How many children the parent is responsible for supporting
  • How much time the children spend with each parent

If necessary, a court can set aside a portion of joint or separate assets of the parties to be put into a separate trust or fund for the support and education of the parties’ children.

A California child support order can be modified if there has been a “change in circumstances.” Examples of this would include:

  • A big increase or decrease in either parent’s income
  • The child spending a lot more time with the other parent
  • The child being several years older or having special financial needs such as schooling or medical expenses
Business Law, Legal

What Every Good Partnership Agreement Should Contain: Legal Reasons #69

Sanjay Sabarwal

Although not required, I strongly recommend that partnerships have a partnership agreement in place to detail the business ownership and responsibilities of partners. The clearer and more complete the agreement, the less that is up for debate or disagreement when partners don’t quite see eye to eye.

1. Contributions

Make sure you clearly lay out each partner’s stake in the formation and ongoing finances of the business. How much will each partner contribute to start the business and what will each partner’s responsibilities be for future needs? In your agreement, define what each partner will put forth—not only in the amount of money, but also with regard to time, effort, customers, equipment, etc.

2. Distributions

You’re all in the business to make some money and create and sustain a comfortable life, right? Your partnership agreement should detail how the partners will split your business profits? How much will each partner get paid and who will get paid first? Outline not only how profits will be distributed, but also define if each partner will be paid a salary (and of course how much that salary will be).

3. Ownership

What if something changes with regard to ownership of the business? If you sell it, which partners will get what? What is your partnership’s position on taking on new partners? If one partner wants to withdraw from your business, what happens then? What are the options for buying out another partner? Your agreement should carefully describe how ownership interests would be handled in various scenarios like those and others, such as in the event of any partner’s death, a retirement, or bankruptcy. And to protect your business from a partner leaving, setting up a new company, and stealing your customers, you should also consider adding in a non-compete clause. Better safe than sorry!

4. Decision Making

I can’t emphasize enough how important this is! Trust me, you and your partner(s) will not agree wholeheartedly about everything. You need to define how day-to-day management and long-term decisions will be made. Who gets the last say? Identify what types of decisions require a unanimous vote by partners, and what decisions can be made by a single partner. By setting up a decision-making structure that everyone understands and has agreed to, you’ll have the foundation for a more friction-free business.

5. Dispute Resolution

Ugh! No one wants to think about this, but you should. If things get ugly between partners, how will disputes be handled? Your partnership agreement should define the resolution process. Should mediation be the initial step? Will you require arbitration to settle differences? Keep in mind that if a dispute goes to court, lawsuits become part of public record. Setting up how you’ll handle disputes will take the guesswork out of navigating dissention.

6. Critical Developments

Sometimes, the unexpected happens. It’s what makes business so exciting—and unnerving at times. Your partnership agreement should address possible scenarios and concerns, such as:

  • A partner getting sick or dying—What happens then?
  • A buyout—How will the business be evaluated (and what is the split) if an offer is laid on the table?
  • Retirement provisions.
  • Circumstances under which you can modify your partnership agreement—and the process for making changes.

These are the most common issues. And there are numerous others you should think about.

7. Dissolution

Your agreement should also include what steps should be taken to legally end your partnership. You might opt to do this if you and your partners can’t agree on the future of your business. Also research what your state requires to dissolve partnerships. State law governs dissolution and your state’s website should define the process and provide the forms you need to complete.

employment law, Legal

Employment Laws All Small Businesses Should Know

Sanjay Sabarwal

Parental Leave for Small Employers

An important new law requires that small employers provide new parents with up to 12 workweeks of unpaid leave.

SB 63, the New Parent Leave Act, requires small businesses with 20 or more employees to provide eligible employees up to 12 weeks of unpaid, job-protected leave to bond with a new child — leave that must be taken within one year of the child’s birth, adoption or foster care placement. SB 63 requires employers to provide parental leave only for baby bonding; it does not require employers to provide leave for other reasons, such as a family member’s medical issue.

Ban-the-Box Law

AB 1008 prohibits employers with five or more employees from asking about criminal history information on job applications and from inquiring about or considering criminal history at any time before a conditional offer of employment has been made. There are limited exemptions for certain positions, such as those where a criminal background check is required by federal, state or local law.

No More Salary History Questions

AB 168 bans employers from asking about a job applicant’s prior salary, compensation or benefits (either directly or through an agent, such as a third-party recruiter).

In addition, employers cannot rely on salary history information as a factor in determining whether to hire the applicant or how much to pay the applicant. However, an employer may consider salary information that is disclosed voluntarily by the applicant without any prompting.

Worksite Immigration Enforcement and Protections

The Immigrant Worker Protection Act (AB 450) provides workers with protection from immigration  enforcement while on the job and imposes varying fines from $2,000 to $10,000 for violating its provisions.

This bill also makes it unlawful for employers to reverify the employment eligibility of current employees in a time or manner not allowed by federal employment eligibility verification laws.

 

 

 

Business Law, employment law, family law, Legal

How Much Will It Cost? Legal Reasons #67

Sanjay Sabarwal

When clients ask, “how much does a lawyer cost,” the answer can vary from $150 to $350 or more per hour. But if you’re facing a legal issue, working with a lawyer is very helpful and can affect the outcome of the case. Before hiring a lawyer, you should talk to him or her about fee schedules, flat-rate vs. hourly billing, retainer vs. contingency fees, and a ballpark estimate of the total cost based on the case.

As you consider how much a lawyer will cost, think about how much you have to spend and what the outcome is worth to you.

For example, if you’re thinking about taking legal action against a local business that did not repair your refrigerator properly, do you have enough money available to hire a lawyer, present evidence, and get the court to rule in your favor? Even if you do have enough money, is the overall cost of replacing the refrigerator or having someone else repair it worth the trade-off?

If you decide to move forward with legal action, or you need assistance with a legal matter, ask all potential lawyers that you meet with about their billing practices and fees. If the lawyer is not willing to discuss the costs with you, it’s a sign of poor client service.

Most lawyers bill under one (or several) of the following arrangements:

  • Hourly rate: this is the most common way for a lawyer to bill. This process requires careful documentation of all time spent working on documents, reviewing case files, presenting information in court, and any other tasks related to the client’s case. The client and lawyer will agree on the hourly rate before getting started with the case.
    • A lawyer’s hourly rate varies drastically based on experience, location, operating expenses, and even education.
  • Retainer fee: many lawyers require a retainer fee up front, which is something like a down payment on the case. As the lawyer works on your case, he or she will deduct the costs from the amount you paid and send you periodic invoices showing the deductions.
    • If you drop a case for which you have already paid a retainer fee, it is most likely non-refundable.
  • Flat fee: a lawyer may offer a flat fee for a specific, simple, and well-defined legal case. Examples of cases eligible for flat fee billing include uncontested divorces.
    • Before agreeing to a flat fee, make sure you understand what is covered in the agreement. It may not include filing fees or other fees associated with the legal process, so you’ll need to plan accordingly.
  • Contingency fee: a lawyer may offer this type of billing in a  personal injury case. With a contingency fee, the client doesn’t pay until the case is resolved. Upon resolution, the contingency fee is a percentage of the settlement or money awarded on behalf of the attorney’s client.