The High-touch Legal Services® Blog • For Startup/Early-stage Companies

Continuing the last post’s discussion of the fictitious business name (FBN – or, colloquially, the DBA for “doing business as”), this post is prompted by a client’s question as to when his company should apply for its fictitious business name.

California Business & Professions Code Section 17910(a) states that a Fictitious Business Name Statement must be filed within 40 days of the time when the FBN first was used by the registrant to conduct business in the state.

The Statement is filed with the County Clerk in the county where the registrant’s principal place of business is located in the state, or in  Sacramento County if there is no such place (Business & Professions Code Section 17915). In addition, if the registrant wishes, FBN Statements can be filed in other counties.

After the FBN Statement is filed, it must be published in a newspaper of general circulation once per week for four successive weeks (Business & Professions Code Section 17917; Government Code Section 6064).

The process is not difficult, and there is a statutory incentive to do things right: No lawsuit may be brought based on a contract or transaction entered into under the FBN until the filing and publication procedures have been complied with (Business & Professions Code Section 17918).

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Follow-up: As noted by Staci Riordan on the Fashion Law Blog, when you choose a fictitious business name, you should think about whether to register the name as a trademark or service mark.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

This post is based on an answer that I provided on Avvo. The user wanted to know, among other things, whether he could assign a fictitious business name (FBN – or, colloquially, a DBA, short for “doing business as”) from his sole-proprietor business to a limited liability company (LLC) that he was about to form.

He probably would assign all of the sole-proprietor assets (and liabilities) to the new LLC. However, there are special considerations with respect to assigning a business’s FBN.

California Business & Professions Code Section 17920(b) provides that if any of the facts (other than certain addresses) set forth in the FBN statement filed with the county clerk change, the FBN expires 40 days later.

Upon assignment of the FBN to the LLC, the facts pertaining to who is using the FBN will change. Accordingly, the LLC should file a new FBN statement promptly following the assignment, and in any event within 40 days. Furthermore, every FBN expires in any event after five years (Business & Professions Code Section 17920(a)), so it is important file a new FBN statement before the end of the five-year period.

Related posts:

• Should I form an LLC or a corporation?
• Can I form an LLC without a lawyer?

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

California is well-known for refusing to enforce non-compete provisions, especially in the post-employment context (see Choice-of-Law and Non-Compete Provisions), so individuals will not be deprived of gainful employment. But provisions limiting competition aren’t always taboo.

Business and Professions Code Section 16601 says, to oversimplify a bit, that anyone who sells his entire ownership interest in a partnership, limited liability company (LLC) or corporation may agree not to compete with the entity in the geographic area where it operates so long as the buyer, or a successor, continues to operate the business. Sections 16602 and 16602.5 provide similarly in the event that a partnership or LLC dissolves, or a partner disassociates from a partnership, or a member withdraws from an LLC.

The rationale: The buyer / new owner of an interest in a business should have an opportunity to make the business a success without being undermined by the seller / former owner.

Practical tip: When you buy a business, it’s OK – even prudent – to put restrictions on the seller’s ability to compete with you…even in California.

Photo credit: stock.xchng

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Four months ago, I wrote about a Wall Street Journal report that the Internal Revenue Service planned to audit 6,000 randomly-selected U.S. companies to determine the extent to which companies misclassify employees as independent contractors (The “Independent Contractor” Trap Becomes More Dangerous).

Today The New York Times reported that both federal and state officials are cracking down on misclassification (U.S. Cracks Down on ‘Contractors’ as a Tax Dodge). The incentive: To reduce record budget deficits.

By misclassifying personnel, companies avoid paying Social Security, Medicare and unemployment insurance taxes. The article goes on to say that, on average, misclassified personnel do not report 30% of their income. The 2010 federal budget projects that the crackdown will net at least $7 billion over ten years.

Implication for companies of all sizes: If you have been lax in classifying workers, now would be a good time to start doing things correctly. Avoiding the “Independent Contractor” Trap may help you determine how to improve your classification procedures.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Two recently-acquired clients had similar situations that brought up the importance of complying with legal requirements.

Each company is a multi-founder startup where one founder became non-productive, and even somewhat detrimental to the business. The other founders wanted to move the problem founder off to the side, where he could cause no more trouble, in a manner that would be fair to everyone involved.

Unfortunately, each company had failed to comply with some of the most basic legal requirements: Holding annual shareholder meetings to elect directors, annual board of director meetings to appoint officers, etc. As a result, in each instance we had to spend time and money taking corporate actions, and recording those actions appropriately in meeting minutes, before the real problem could be solved.

So here is my view of how important legal compliance is:

• Without question, top priorities include making sales, delivering products / services, and taking in revenue.
• When it comes to administrative tasks, however, legal should be closer to the top of the list than the bottom. If legal affairs are not in order, problems can become greatly magnified.

Photo credit: stock.xchng

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

On December 28, 2009, RockYou, a developer of applications for Facebook and other social networks, was sued in the U.S. District Court for the Northern District of California. The class action complaint alleges failure to encrypt users’ e-mail addresses and passwords and was filed shortly after a hacker copied that information for 32 million RockYou users.

RockYou’s potential exposure is huge. Among the various causes of action are:

• Breach of contract
• Negligence
• Violation of California’s Unfair Competition Law (Business & Professions Code Section 17200)
• Violation of California’s Computer Crime Law (Penal Code Section 502)
• Violation of California’s Security Breach Information Act (Civil Code Section 1798.80)
• Violation of California’s Consumer Legal Remedies Act (Civil Code Section 1750)

The lesson for any company that stores users’ personally identifiable information: Make sure that information is encrypted!

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

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I recently learned that one of my LinkedIn answers in Employment and Labor Law was selected as the Best Answer. The question and my answer are reproduced below.

Question: Which state law matters for employment contract questions (for the CEO of a firm), the law of the state of incorporation or the law of the state where the headquarters are located?

Answer: Please note that you actually have asked two different questions: (1) Which state’s law governs? (2) Where can / must the lawsuit be brought?

Answer to Q1: Most employment agreements will specify the applicable law. For agreements that do not, the court will need to make a “choice of law” decision. Assuming that the employee resides and works in the state where the company is headquartered, that state’s law probably will be chosen.

Answer to Q2: If the agreement has a mandatory jurisdiction and venue provision (stating where the suit *must* be filed), then that provision will apply – even if the law of a different state is to be applied. Otherwise, it is conceivable that multiple states could satisfy venue and jurisdiction requirements, though, again, the state where both parties are located would be most likely.

Getting to what may be the heart of your questions: In an employment-contract lawsuit, where the company is incorporated is not likely to matter.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

We all are familiar with well-known  franchises, such as McDonald’s restaurants. What many people do not realize, however, is that a trademark license agreement, if it has certain characteristics, can be considered a franchise agreement under state or federal law, creating huge potential liabilities for the unwary licensor.

In California, Corporations Code Section 31005(a) says that a franchise exists if three elements are satisfied:

1. A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; and
2. The operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and
3. The franchisee is required to pay, directly or indirectly, a franchise fee.

The second and third elements (the right to use a mark, and the obligation to pay a fee) are routine components of trademark license agreements. The first element – the franchisor’s “marketing plan or system” – thus is what distinguishes a franchise.

I was reminded of this point, recently, when a prospective trademark-licensee client showed me the licensor’s proposed Trademark License Agreement. The agreement included an obligation for the licensee to operate its business “in compliance with” the licensor’s “policies, specifications, procedures, and instructions”. To me, that looks like a “system prescribed…by a franchisor” as specified in the statute.

The good news for the prospective licensee is that the penalties for failure to comply with franchise laws are directed toward the franchisor (licensor) rather than the franchisee (licensee).  Nevertheless, any investigation or action related to franchise laws could be disruptive to the licensee, so I consider it appropriate for the licensor to agree to indemnify the licensee against any resulting costs or liabilities.

Lesson: If you are a trademark licensor, be careful about whether and how you control the licensee’s management of its business.

Photo credit: stock.xchng

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Copyright protects works of authorship and, in the U.S., subsists from the time the work is created in fixed form (see Copyright Protection in One Easy Lesson).

Demonstration in Sweden in support of file sharing, 2006

In certain circles, however, there is fervent opposition to copyright (see the Wikipedia entry for Anti-copyright).

Suppose that an anti-copyright author wants to abandon the copyrights in his works. Can he do so under U.S. law? Although there is no statutory basis for abandonment, there is widely-accepted case law stating that a copyright owner may abandon his copyright by an overt act that manifests a purpose to surrender his rights to the work and let the public copy it.

An example of language that should satisfy this requirement is provided by the Creative Commons CC0 Waiver:

To the greatest extent permitted by, but not in contravention of, applicable law, Affirmer hereby overtly, fully, permanently, irrevocably and unconditionally waives, abandons, and surrenders all of Affirmer’s Copyright and Related Rights and associated claims and causes of action, whether now known or unknown (including existing as well as future claims and causes of action), in the Work (i) in all territories worldwide, (ii) for the maximum duration provided by applicable law or treaty (including future time extensions), (iii) in any current or future medium and for any number of copies, and (iv) for any purpose whatsoever, including without limitation commercial, advertising or promotional purposes (the “Waiver”). Affirmer makes the Waiver for the benefit of each member of the public at large and to the detriment of Affirmer’s heirs and successors, fully intending that such Waiver shall not be subject to revocation, rescission, cancellation, termination, or any other legal or equitable action to disrupt the quiet enjoyment of the Work by the public as contemplated by Affirmer’s express Statement of Purpose.

Bottom line: One cannot abandon a copyright accidentally or halfheartedly; one must intentionally express an unambiguous desire to abandon the copyright and make the work available to members of the public to use as they see fit.

Photo credit: Wikipedia

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.