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© 2009-2014 Dana H. Shultz, Attorney at Law

What is a Security Interest, and Why Should I Care?

Form UCC-1, which is used to perfect a security interest

Form UCC-1

This post explains what a security interest is, how it is used, and why it is significant.

A security interest is an interest in an asset that is intended to secure performance of an obligation. Typically, the obligation that is secured is payment of a debt.

Terminology: The person who owes money is called the debtor. The person to whom money is owed is the creditor.

Many of us grant a security interest when we buy a house. In exchange for providing money for the purchase, the lender receives a mortgage (or, in California, a deed of trust). This is a type of security interest. (more…)

Consumer Non-disparagement Clauses Nixed in California

Yelp logo, symbolizing prohibition of consumer non-disparagement clauses under California lawEarlier this month, Governor Brown approved California Assembly Bill No. 2365. This bill added Civil Code Section 1670.8, which prohibits non-disparagement clauses in consumer contracts.

Statute Prohibits Non-disparagement Clauses

Core protections are set forth in Subsection (a) of that statute. (more…)

URS – ICANN Offers Uniform Rapid Suspension against Cybersquatters

Logo for ICANN, which developed URS - Uniform Rapid SuspensionI have written several times about ICANN’s longstanding Uniform Domain Name Dispute Resolution Policy (UDRP). This post discusses a more recent way to thwart some cybersquatters, namely, URS – Uniform Rapid Suspension.

According to ICANN explains, URS exists to “provide rapid relief to trademark holders for the most clear-cut cases of infringement“. Furthermore, URS is cheaper and faster than UDRP. (more…)

LLCs: Why an Operating Agreement is Important

Logo for Quora, where Dana Shultz discussed why an operating agreement is importantThis post discusses why an operating agreement is important for every limited liability company (LLC). It expands upon an answer I provided on Quora several months ago. (See In simple terms, why are operating agreements important?)

An operating agreement is an agreement among the members of an LLC. It addresses relations among the members and how the LLC will conduct its affairs. (more…)

Browsewrap Agreements Must Be Brought to Users’ Attention

Seal of the Ninth Circuit Court of Appeals, which decided a case about browsewrap agreementsIn Online Terms can be Binding, even if You don’t have to Click!, I compared the enforceability of clickwrap and browsewrap agreements. This post discusses Nguyen v. Barnes & Noble, in which the U.S. Court of Appeals for the Ninth Circuit recently examined notice requirements for browsewrap agreements to be enforced.

Plaintiff Nguyen filed a class action lawsuit against Barnes & Noble because it had cancelled his online order for a Hewlett-Packard Touchpad tablet computer. (more…)

A DBA is not a Legal Entity

Logo for Avvo, where Dana Shultz answered a question, noting that a DBA is not a legal entityThis post is based on a question that I answered on Avvo. The question illustrates a common misunderstanding concerning DBAs. (DBA is an abbreviation for “doing business as” – i.e., a fictitious business name.) The questioner did not realize that a DBA is not a legal entity!

Q. Can someone sue a DBA for breach of contract by the parent corporation? (more…)

Can I Walk Away from My Suspended LLC?

Photo of people walking, symbolizing walking away from a suspended LLCThis post addresses a question that arises frequently from founders of California limited liability companies that have been suspended: Can I walk away from my suspended LLC?

A suspended LLC is the result of a founder who has neglected to file Statements of Information with the Secretary of State, or file returns with or pay amounts due to the Franchise Tax Board, or both of the foregoing. Please see Why was My Corporation / LLC Suspended or Forfeited? (more…)

What Does Non-binding Mean and Why Should I Care?

Photo of an arm chained to a wall, symbolizing binding vs. non-binding obligationsThis post discusses the meaning of non-binding with respect to a letter of intent (LOI) or a memorandum of understanding (MOU). (Non-binding has a similar meaning in other legal contexts, such as legislation or arbitration, but I will not discuss those contexts here.)

Although I will refer to solely an LOI in the remainder of this post, the following pertains to an MOU, as well.

The purpose of an LOI is to summarize the basic terms of a relationship into which the parties wish to enter. It also specifies that the parties will enter into negotiations to prepare a definitive agreement establishing that relationship. (more…)

Entity Conversion Can Be Easy – If You Know What You Are Doing

Logo for Quora, where Dana Shultz answered a question about entity conversionThis post about entity conversion is an expanded version of an answer that I provided on Quora yesterday. (How do I convert a Delaware LLC to a California LLC?)

In my experience, entity conversion typically occurs for either, or both, of the following reasons.

  1. The need to convert a limited liability company (LLC) to a corporation to accept an investment from an institutional investor, such as a venture capitalist.
  2. The need to move an entity from one state to another. This typically occurs because the founder relocates, or because an investor prefers to invest in a Delaware corporation.

(more…)

How Do We Issue Corporate Shares?

Share certificate, symbolizing how to issue corporate sharesSeveral weeks ago, I wrote about how to issue LLC membership interests. in this post, I am addressing how a small corporation should issue corporate shares.

To start, one must examine the Certificate of Incorporation (Delaware) or Articles of Incorporation (California) to determine the maximum number of shares that may be issued. (To simplify this discussion, I will assume that only one class of common shares has been authorized.) A corporation may not issue more shares than are authorized. (more…)