What are Liquidated Damages?
This post explains the meaning of the legal term “liquidated damages“. It is part of Dana Shultz’s Canonical Questions on the Law® series of questions and answers about legal issues, concepts and terminology .
Sometimes a contract specifies an amount that a party must pay for breaching that contract. The legal terms for that amount is liquidated damages.
(more…)Which Personnel Records Can an Employee Inspect?
This post describes California employees’ rights to inspect, and receive copies of, their personnel records.
The relevant statute is California Labor Code Section 1198.5(a), which states:
(more…)Every current and former employee, or his or her representative, has the right to inspect and receive a copy of the personnel records that the employer maintains relating to the employee’s performance or to any grievance concerning the employee.
How to Redomesticate when Your State Won’t Permit It
In How Can I Move My Corporation to Another State?, I discussed redomestication, i.e., how to move a legal entity from one state to another. In this post, I explain how to redomesticate an entity when the existing state’s law prohibits redomestication.
California Corporation Cannot Redomesticate
About a year ago, the CEO of a California corporation contacted me. He was relocating to Pennsylvania, so it made sense to move his corporation there, too. Unfortunately, California does not permit its corporations, in contrast to limited liability companies (LLCs), to redomesticate. (Please see the CA Secretary of State’s Conversion Information page.)
(more…)Non-solicitation Provision Overturned in California
It is common knowledge that California generally prohibits post-employment non-compete provisions. However, people know far less about law pertaining to post-employment non-solicitation provisions.
In this post, I will describe existing post-employment non-compete and non-solicitation case law. Then I will discuss a recent case that may signal a new direction.
Background – Non-competition Provisions Disfavored
Business and Professions Code Section 16600 is the statutory basis for California’s post-employment non-compete prohibition: (more…)
GDPR and CCPA – Two Approaches to Privacy
This post compares the EU’s General Data Protection Regulation and the California Consumer Protection Act of 2018 (GDPR and CCPA).
It includes much of a Quora answer that I wrote on this topic. Please see How does the California Consumer Privacy Act of 2018 compare to GDPR?
Disclaimer: This comparison, of necessity, is limited to the broadest generalizations. While the California Consumer Privacy Act or 2018 (“CCPA”) is of a respectable length, the EU’s General Data Protection Regulation (“GDPR”) has 99 Articles, most with several Sub-articles – and that’s preceded by 173 lengthy paragraphs of recitals! Consequently, most of what follows is, in reality, subject to significant additional details, qualifications and exceptions that are too numerous to include here.
Now available for download: A four-page GDPR-CCPA comparison table that includes many more details than are in this post.
ABC Test for Employee Misclassification in California
This post discusses a recent decision by which the California Supreme Court adopted the so-called ABC Test for misclassification of employees as independent contractors.
The relevant case is Dynamex Operations West, Inc. v. Superior Court, decided on April 30, 2018. (more…)
When is a Shareholder Vote Required?
This post discusses when a California corporation must hold a shareholder vote.
It is based on an Avvo answer that I wrote recently. Please see Beside elections, are there corporate decisions that REQUIRE the vote of the shareholders?
California Shareholder Vote Requirements
A corporation must hold a shareholder vote to approve the following actions. Please note that this may not be a comprehensive list. Reference links are to the relevant California Corporations Code sections. (more…)
$800 Franchise Tax is Due Even if LLC is Canceled
This post about California’s $800 franchise tax is based on my recent answer to a Quora question.
A.: One can cancel a California limited liability company before the 15th day of the fourth month. However, such cancellation will not eliminate the obligation to pay the $800 annual franchise tax. (more…)
May a Minor Be a Partner?
This post answers the following question: May a minor be a partner (in a partnership legal entity)? It is based on my answer to an Avvo question. Please see In California, can a minor be a partner in a General Partnership?
As initially written, this answer applied solely to California. However, an update, below, discusses applicability to other states. (more…)
Moonlighting Employees Protected by California Labor Code
Moonlighting employees in California have a right to hold down their second jobs (or to work on startups in their spare time).
The right to moonlight – and to engage in other activities on one’s own time – is expressed in Labor Code Section 96(k).
Labor Code Section 96
Section 96 identifies, generally, the types of employee claims that the California Labor Commissioner is obligated to accept. These include, for example, claims pertaining to payment of wages and expenses; damages arising from misrepresented conditions of employment; claims for vacation pay; and awards for workers’ compensation benefits.
Moonlighting is addressed as follows. (more…)
CA-RULLCA Receives Corrections Two Years Later
In RULLCA Brings New LLC Laws to California in 2014 , I explained how California’s version of the Revised Uniform Limited Liability Company Act (“RULLCA” or “CA-RULLCA” – Corporations Code Sections 17701.01 – 17713.13 ) was to take effect January 1, 2014. This post describes changes to CA-RULLCA that took effect on January 1, 2016.
Most of the changes were minor clean-up of the sort that one expects when major new legislation is adopted. However, some of the changes are noteworthy. (more…)
“Work Made for Hire” Can Convert a Contractor to an Employee
In California, a “work made for hire” (WMFH) provision in a contract can convert a contractor to an employee. This post describes the statutory basis for this little-known area of the law.
Before providing details, I will note that the (likely unwanted) ability to convert a contractor to an employee will arise only under narrowly-defined circumstances.
- The independent contractor must be an individual rather than a legal entity (a corporation or limited liability company).
- The relevant contract must expressly specify WMFH treatment for the contractor’s work product.
- The contractual relationship must be governed by California law. (I don’t know whether any other states have similar laws.)
Personal Cell Phone Use for Work Must be Reimbursed
California Court of Appeal for the Second District (Los Angeles)
This post discusses a 2014 case (Cochran v. Schwan’s Home Service, Inc.) which held that California employers must reimburse employees who use a personal cell phone for work.
Plaintiff Colin Cochran, as class representative, brought a class action lawsuit against Schwan’s Home Service (“Home Service”) on behalf of 1,500 service managers employed by Home Service. The suit sought, among other things, reimbursement of the managers’ work-related personal cell phone expenses. (more…)
What is an Operating Agreement?
I have used the term “operating agreement” in quite a few of this blog’s posts. However none of those posts explains in detail what a limited liability company (LLC) operating agreement must contain. This post provides that information.
The required contents of an operating agreement depend on the state in which the LLC is formed.
Operating Agreement – California
In California, where I practice, the definition of an operating agreement is set forth in Corporations Code Section 17701.02(s). (more…)
What are Repeated and Successive Transactions?
In Doing Business in CA? Be Sure to Register, I discussed when a foreign entity must register to do business in California. The test is whether the entity has transacted intrastate business, i.e., has engaged in repeated and successive transactions of business within the state. This post explores the meaning of “repeated and successive transactions“.
“Repeated and Successive Transactions” Not Defined
The term “repeated and successive transactions” appears in Corporations Code Subsection 191(a). Unfortunately, that term is not defined. However, another portion of Section 191 provides a bit of help. (more…)
Who Is Bound by a Pre-incorporation Contract?
This post about entering into a pre-incorporation contract is based on a question I answered on Avvo. See Can I legally speak as my company in things like terms & conditions if I have not officially registered the company yet?
The term “pre-incorporation contract” properly should apply only to corporations, because that is the only type of business entity that is incorporated. Other types of business entities, such as limited liability companies (LLCs), are formed, rather than incorporated. However, as is discussed below, a pre-formation contract (in California, at least) is treated like a pre-incorporation contract. See 02 Development, LLC v. 607 South Park, LLC . (more…)
Fraudulent Email Prohibitions Supplement CAN-SPAM
In Commercial E-mail and CAN-SPAM: What You Need to Know, I discussed how the federal CAN-SPAM Act makes commercial email more truthful, more transparent and more avoidable. This post addresses how California law concerning fraudulent email supplements CAN-SPAM.
In particular, this post discusses preemption, by which, under certain circumstances, U.S. federal laws can invalidate state laws that address a given subject matter. (more…)
Can Parties Enter Into a Perpetual Contract?
This post is about whether parties may enter into a perpetual contract (one that never ends).
It is adapted from my answer to a question on Quora. See Is it possible to structure a contract with no end date?
It turns out the the answer depends, to some extent, on which state’s law applies. (more…)
What is Successor Liability and Why Should I Care?
This post about successor liability is prompted by a question that I answered recently on Quora. (See Can I dissolve my corporation and transfer its website to my personal ownership?)
The following is oriented somewhat toward California law, but similar considerations likely apply in other states. (more…)
Good Faith and Fair Dealing – Part of Every California Contract
This post discusses and explains the covenant of good faith and fair dealing.
For decades, courts have held that this covenant is implied in every California contract.
Purpose of Good Faith and Fair Dealing
In 1942, the California Supreme Court stated that “in every contract there exists an implied covenant of good faith and fair dealing.” The intent of this covenant is that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract“. (Universal Sales Corporation v. California Press Manufacturing – emphasis added.) (more…)
Consumer Non-disparagement Clauses Nixed in California
Earlier 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…)
Browsewrap Agreements Must Be Brought to Users’ Attention
In 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…)
Entity Conversion Can Be Easy – If You Know What You Are Doing
This 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.
- 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.
- 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.
How Do We Issue Corporate Shares?
Several 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…)
Meaningful Privacy Policy Statements – the California Perspective
Last month, California’s Attorney General published her latest privacy-protection guidelines. The title of the publication is “Making your Privacy Practices Public – Recommendations on Developing a Meaningful Privacy Policy“.
Executive Summary – Meaningful Privacy Policy Statements
Quoting from the beginning of the publication’s Executive Summary [emphasis added]: (more…)
How Can I Move My Corporation to Another State?
This post addresses how one may move an existing corporation to another state. It is based on a question that I answered on Quora (What state is best to incorporate an S-corp if you plan on moving away?).
I find that for most entrepreneurs, it makes sense to incorporate in the state where the entrepreneur resides. As I wrote in In which State should My Startup Incorporate?
Incorporate in the state in which you are doing business, unless there is a good reason to do otherwise [in which case the other state chosen probably will be Delaware]. (more…)
Who Appoints the Members of a Board Committee?
This post addresses a generalized version of a question that I answered on Quora concerning committees of corporate boards of directors. Q. Who appoints the members of a board committee?
A. Appointment of board committee members is governed by the corporation’s bylaws, or by applicable statutes if there are no bylaws. In my experience, bylaws (or statutes) state that a board committee is appointed by a majority of the board members. Committees are not appointed by the CEO or the Chair of the Board. (more…)
Can I Form a Corporation with a Future Filing Date?
This post expands upon an Avvo answer that I provided. Q. Can I form a corporation with a future filing date?
A. Yes. The answer will vary slightly depending on the state of incorporation.
Future Filing Date in Delaware
If you want a future filing date in Delaware, Section 103(c)(4) of the General Corporation Law says, in relevant part:
What if I Don’t File a Limited Offering Exemption Notice?
This post is based on a question that I answered on Quora: What happens if you do not file a Limited Offering Exemption Notice in California?
Limited Offering Exemption Notice Requirement
I first addressed the Limited Offering Exemption Notice in Section 25102 (f) – Securities Law Compliance if You Incorporate in California. As that post explains, LOEN filing is required for corporate share issuances that are exempt from securities registration requirements in California.
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RULLCA Brings New LLC Laws to California in 2014
RULLCA is an abbreviation for the California Revised Uniform Limited Liability Company Act. That Act will bring new LLC laws to the state starting January 1, 2014.
RULLCA – Up to Date and in the Mainstream
RULLCA is intended to reflect changes in LLC law during the past 20 years. Also, it will make California’s LLC law more similar to LLC law in other states.
Perhaps most interesting, the new law applies automatically to all California LLCs in existence as of the effective date. It will apply to all out-of-state LLCs that are registered in California, as of that date, as well. No new documents need be filed with the Secretary of State. The new law has neither opt-in nor opt-out procedures.
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Future Services Can’t Buy Shares in CA but *Can* Buy LLC Membership
Future services seem like a great no-cost way to buy equity in a startup. In California, however, whether you legally can buy equity with future services depends on whether the startup is a corporation or a limited liability company (LLC).
Corporations Code Section 409(a)(1) specifies the types of “consideration” that can be paid for corporate shares. These include, for example, “money paid; labor done; [and] services actually rendered to the corporation or for its benefit or in its formation or reorganization”.
However, “neither promissory notes of the purchaser [subject to certain exceptions] nor future services shall constitute payment or part payment for shares of the corporation“. So a California corporation cannot grant shares in exchange for future services.
Privacy on the Go – California Attorney General Publishes Recommendations
Privacy on the Go was published by California’s Attorney General in January 2013. It offers the AG’s privacy practice recommendations for participants at all levels of the mobile ecosystem.
Privacy on the Go begins with a message from the AG. Part of that message explains why the publication was produced (emphasis added).
The world has gone mobile. Today, 85 percent of American adults own a cell phone and over half of them use their phones to access the Internet. The mobile app marketplace is also booming with more than 1,600 new mobile apps being introduced every day. These apps allow us to do everything from streaming movies to hailing a cab to viewing our own X-ray and ultrasound images.
Can I Sell a Partnership Interest in California?
I recently answered an Avvo question about whether one can sell a partnership interest. The question and answer are paraphrased below (with emphasis added).
Q. In California, is a general partnership terminated upon the sale of one partner’s interest to a third party? How would the remaining partner and new partner continue business? Would a new entity need to be formed? There is no written partnership agreement.
A. Corporations Code Section 16201 states that “A partnership is an entity distinct from its partners.” Therefore, a membership change does not, by itself, create a new partnership.
Labor Compliance Office Joins Hall of Shame
Labor Compliance Office is one of many companies that use fear of the law and subterfuge to extract money from naive owners of small businesses. What is interesting about LCO, however, is that it focuses on compliance with labor laws rather than corporate laws.
One of my clients brought Labor Compliance Office to my attention. (As agent for service of process for several other clients, I had already received copies of LCO’s pink-accented NOTICE.) Fortunately, even though the notice looks like it came from a governmental entity (the disclaimer is not readily apparent), my client was not taken in by the threat of fines up to $17,000.
Labor Compliance Office proposes to help the reader’s business avoid such fines by providing for $275 a poster that includes all notices required by California and federal labor laws. In addition, the business receives:
Section 25102 (f) – Securities Law Compliance if You Incorporate in California
When startups incorporate, they typically want to avoid the expense, delay and effort associated with registering the sale of their shares. In California, the most common exemption from registration is found in Corporations Code Section 25102 (f).
Section 25102 (f) says that a corporation need not register the sale of its shares if all of the following requirements are met:
- The shares are sold to no more than 35 shareholders.
- All purchasers have a preexisting relationship with the corporation or its officers, directors or controlling persons.
- Each purchaser is buying shares for the purchaser’s own account and not for resale.
- The offer and sale of the shares is not accompanied by the publication of any advertisement.
What is an Inc. and Why Should I Want One?
Frequently, an international prospect or client will tell me that he wants to create an Inc. to run his business in the in the United States. This post explains what an “Inc.” is and where the term comes from.
History and Other Countries
For centuries, in the interest of fostering economic activity, governments have recognized certain types of businesses as separate legal entities. Investors’ liability is limited to the amount invested (“limited personal liability”). Investors’ other assets, beyond the amount invested, may not be taken to satisfy the business’s debts or other obligations.
How Should I Use a Fictitious Business Name?
This post is adapted from my answer to a Quora question about use of a fictitious business name (FBN): Q. Must an LLC with a fictitious business name display the LLC name on its website?
A. In my opinion, an entity’s proper name and complete identification should be provided in every agreement. Agreements include website terms of service. Example showing how to include both the entity name and the FBN:
[Company Name], LLC, a California limited liability company doing business as [Fictitious Business Name], with a place of business at [address]
California Secretary of State Reduces Turnaround Times!
California Secretary of State turnaround times for corporate and LLC formation – which stretched to their longest ever early this year – now have been reduced significantly.
The reason: In April, the state Legislature passed a bill authorizing $1.6 million for overtime and temporary personnel to resolve a backlog of 122,000 business filings! (more…)
Independent Contractor Misclassification Can Be Expensive
I have written several times about potential undesirable consequences of misclassifying an employee as an independent contractor. It’s time for an update.
In 2012, California Labor Code Section 226.8 took effect. That statute is directed toward willful (i.e., voluntary and knowing) misclassification of employees as independent contractors. Consequences can include the following. (more…)
Directors’ Inspection Rights Include (Almost) Anything in California
I have written about shareholders’ rights to inspect corporate financial records and shareholder lists. This post discusses directors’ inspection rights, which are far greater.
California Corporations Code Section 1602 states:
Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. This section applies to a director of any foreign corporation having its principal executive office in this state or customarily holding meetings of its board in this state. (more…)
Who Gets to See the Shareholder List?
The founder of a closely-held corporate client, knowing that some employees soon would be shareholders, recently asked whether those employee-shareholders would have the right to find out how many shares he owns. Here is the information I provided concerning who gets to see the shareholder list.
Because the client is a California corporation, Corporations Code Section 1600(a) governs who gets to see the shareholder list. That Section states, in relevant part (emphasis added):
A shareholder or shareholders holding at least 5 percent in the aggregate of the outstanding voting shares of a corporation…shall have an absolute right to…inspect and copy the record of shareholders’ names and addresses and shareholdings during usual business hours upon five business days’ prior written demand upon the corporation….
The Definition of Director May Depend on the Context
While working with one of my international clients several months ago, I re-learned a lesson that I already knew: The meaning of a word (in this case, the definition of Director) may depend on the context.
The client is located in Vietnam and wanted to open a branch office in the Bay Area. It would be “doing business” in California, so it needed to qualify as a foreign corporation.
I duly prepared a Statement and Designation by Foreign Corporation and had it signed by the client’s most senior officer. That officer’s title, translated as “Director,” was entered onto the form.
Which is Best – “Inc.”, “Corp.” or Something Else?
This post is based on and expands upon an answer I provided on Quora. Q. Which company suffix to choose: “Inc.”, “Corp.”, etc? What are the criteria?
Many states – notably including Delaware (General Corporation Law Section 102(a)(1)) but, under most circumstances, excluding California – require that the name of a corporation include a word or abbreviation designating corporate status. Those that are used commonly include Corporation (Corp.), Incorporated (Inc.) and Limited (Ltd.).
The choice is totally a matter of style. This is more a marketing issue than a legal issue.
In my experience, “Inc.” is most popular – typically without a preceding comma, nowadays, for a cleaner look. Indeed, most of my foreign clients say “an Inc.” when they mean “a corporation”!
Related post: What is an Inc. and Why Should I Want One?
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Do LLC Officers Have a Fiduciary Duty?
Officers of a corporation have a fiduciary duty to both the corporation and its shareholders. (See California Officers Need to Be More Careful than Directors.) I recently had to consider, for a limited liability company in California, whether LLC officers have a similar duty.
Section references below have been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
I was preparing the operating agreement for a client’s LLC. The client was to be the sole member (equity owner) and manager. (more…)
If You Want Personal Info from CA Residents, You Need a Privacy Policy
Any Website provider or online service – including any mobile app – that collects personally identifiable information from users residing in California needs to have a privacy policy. And that privacy policy must be posted conspicuously. The details are set forth in Business and Professions Code Sections 22575 through 22579.
Personally identifiable information includes, but is not necessarily limited to:
- First and last name
- Physical address, including street name and name of a city or town
- Email address
- Telephone number
- Social security number
- Any other identifier that permits the physical or online contacting of a specific individual
California Commissioned Employees Must Have a Written Employment Contract
Effective January 1, 2013, every employee in California who is compensated, entirely or partially, by commission must have a written employment contract that states the method by which commissions will be computed and paid.
Labor Code Section 2571(a) says:
By January 1, 2013, whenever an employer enters into a contract of employment with an employee for services to be rendered within this state and the contemplated method of payment of the employee involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid.
How Can I Enter a Non-US Address on the Statement of Information Form?
This post is adapted from an Avvo question that I answered. The questioner was having trouble figuring out how to enter foreign addresses in the Statement of Information form that California corporations file with the Secretary of State each year.
Q. I need to file Form SI-200 for a California corporation. The officers are foreign persons living outside of the US, but the form does not have a field for country. How can I solve this Problem?
“Doing Business” Requires More than an Employee and an Office
In Doing Business in CA? Be Sure to Register, I wrote that an out-of-state corporation that “enter[s] into repeated and successive transactions of its business in [California] other than interstate or foreign commerce” must register with the Secretary of State as a foreign corporation, and that a penalty for failing to do so is being precluded from maintaining actions in California courts. A recent case in the US District Court for the Northern District of California (Jarzab v. KM Enterprises) provides an example of what does not constitute “repeated and successive transactions”.
What is a Branch Office?
Generally, when a foreign client starts a new business in the U.S., we form a new corporation for both business and legal reasons. Recently, however, I had an interesting experience helping a foreign client set up a branch office without forming a new legal entity.
The client acknowledged the benefits of a new corporation. However, procedural issues for the client (located in Southeast Asia), would result in the necessary approvals taking too long. As a result, the client asked that I first provide help setting up a branch office in Silicon Valley. That branch office later would be used by a new California corporation that we would form.
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What is a Quasi-California Corporation?
This post is the result of my research on the duties of a director of a Delaware corporation that is located, and doing much of its business, in California. Specifically, I wanted to confirm that California law governed those duties, because it is a so-called quasi-California corporation.
Quasi-California Corporation Criteria
Corporations Code Section 2115 addresses non-California corporations for which (a) most voting shares are held by shareholders in California and (b) the average of the following three factors exceeds 50%.
- The percentage of its property that is located in California.
- The percentage of its payroll that is paid in California.
- The percentage of its sales that take place in California.
You Can’t Use “Corp” in the Name of an LLC (in CA or NY)
This post is based on a question about limited liability companies that I answered on Quora. (The answer focuses on NY, because that was the questioner’s state, and CA, because that is where I practice.) Q. Can I use the word “Corp” in the name of an LLC (for example, AcmeCorp LLC or WhateverCorp LLC)?
The section reference? below has been updated to reflect California?s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
A. No. NY LLC Law Section 204(e) states, inter alia, that the name of an LLC may not contain “corporation” or “incorporated” or any abbreviation or derivative thereof. This prohibition is not unique to NY. California Corporations Code Section 17701.08(e) has a similar prohibition for LLC names.
Check out all posts about LLCs.
Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Angel Investment: California Leads in Deals and Dollars
On March 8, The Angel Resource Institute, Silicon Valley Bank and CB Insights released the first Halo Report, which analyzes early-stage investments by angel investment groups. Of particular note: In 2011, California accounted for 21% of the deals and 29.8% of the funds invested.
Other noteworthy findings: (more…)
Holland in the Valley: Incorporation for International Companies
Several weeks ago, the Netherlands Consulate’s Holland in the Valley staff interviewed me about incorporation for international companies.? Excerpts from our conversation recently were posted at the Holland in the Valley website.
Among the topics we discussed were:
Non-compete Enforced to Protect Trade Secrets
California is well-known for enforcing post-employment non-compete provisions only under narrowly-defined circumstances. A recent case in the United States District Court for the Northern District of California (Richmond Technologies v. Aumtech Business Solutions) saw a non-compete enforced for the protection of trade secrets.
Jennifer Polito, a former employee of plaintiff Richmond Technologies (which does business as ePayware), started working for defendant Aumtech. ePayware brought suit, alleging that Ms. Polito misappropriated ePayware’s source code, license keys and customer list to help Aumtech compete against ePayware. (more…)
Which Financial Information Must an LLC Provide to its Members?
Several months ago, I wrote “Which Financial Information Must a Corporation Provide to its Shareholders? “ This post – prompted by a client’s question – discusses the financial information that a California limited liability company must provide to its members. It also explains that such information cannot be waived by any member.
Section references below have been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014). (more…)
MarketWatch: Europe’s Start-ups still Drawn to the Valley
An article, “For Europe?s start-ups, Silicon Valley still calls”, was published yesterday by MarketWatch, part of The Wall Street Journal Digital Network. It discusses why the tech entrepreneurs behind Europe’s start-ups continue to flock to the San Francisco Bay Area.
The article’s theme:
Divided by geography, language, regulation and, in some cases, just old-fashioned cultural prejudice, the region has struggled to shed fully its image as a place where men and women with ideas are born, but where they do not necessarily stay, prosper or secure funding.
Re-incorporation Won’t Save Amazon Affiliate from Termination
This post is based on a question that I answered on LawPivot: Q. I have a web business that has been adversely affected by the termination of Amazon’s affiliate program in California, where I currently run the business, resulting from the state’s new sales tax law. Does each state have its own requirements as to what constitutes “doing business” in that state, and is there any way I could maintain CA as my primary place of residence, were I to incorporate in a different state?
Non-compete Snares Conspiring Employer
California courts are known for not enforcing non-compete provisions except under narrowly-defined circumstances (see “California doesn’t *always* prohibit non-compete provisions”). In a case last year (Silguero v. Creteguard, Inc.), the Court of Appeal for the Second District held that an employer may not terminate an employee because of another company’s unenforceable non-compete agreement.
In 2003, Rosemary Silguero began working for Floor Seal Technology, Inc. (“FST”). In 2007, FST threatened Silguero with termination if she did not sign a confidentiality agreement that included an 18-month post-employment non-compete provision. Two months later, FST fired her.
Can a Corporation Issue More Shares than are Authorized?
This post is based on a question that I (and others) answered on Quora: What happens when a corporation issues more shares than are authorized under the Articles of Incorporation?
Answer: The supposedly-issued shares are void – in effect, they do not exist. For the shares to be issued, the Articles (CA) or Certificate (DE) of Incorporation must be amended to increase the authorized number of shares. Then, to be safe, the shares should be re-issued pursuant to an appropriate board resolution.
Related posts:
- Must a Corporation Issue All Authorized Shares?
- How Many Shares Should My Corporation Authorize and Issue?
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
What’s the Difference between a Shareholder and a Stockholder?
I recently learned that some people are confused by the terms “shareholder” and “stockholder” and wonder what the difference between them is. Short answer: There is no difference. Each refers to the owner of one or more shares of a corporation’s stock.
“Shareholder” is the term used in the California Corporations Code, and “stockholder” is the term used in the Delaware General Corporation Law.
When referring to the law of one of those states, I use the term that appears in that state’s statutes. In general discussions, however, I tend to use the term “shareholder” because I am, and most of the corporations that I form and counsel are, located in CA.
Related post: How Most States Chose “Shareholder” as Delaware Kept “Stockholder”
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
When “Doing Business” isn’t “Doing Business”
Significant responsibilities or liabilities can depend on whether one is “doing business” in a state. As this post explains (principally referring to California law for examples), “doing business” can mean three different things in three different contexts.
Doing Business as a Foreign Entity
First, an out-of-state entity will need to register with a state as a “foreign” entity if it is doing business in the state. As explained in “Doing Business in CA? Be Sure to Register”, the term used in the California Corporations Code is to “transact intrastate business”, which is defined as “entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce” (emphasis added). (more…)
WSJ: Lots of Money for Social Startups
In an article published yesterday (“Money Rushes Into Social Start-Ups”), the Wall Street Journal reported that VCs are investing in companies that are taking social networking from computers to mobile phones. The rationale, according to the article (emphasis added):
Behind the spurt of new services is also the idea that the phone, carried by people at all times, can reinvent the notion of a social network by sharing more real-time information about where people are, what they’re seeing and even who they’re around.
Other points made in the article: (more…)
Employee Right to Wage Claim Hearing Trumps Arbitration Clause
A recent court decision held that an employee in California has the right to file a wage claim and to have a hearing on that claim before the Labor Commissioner, even if the employee has signed an arbitration agreement.
In California, employees who are not paid what they are owed can file wage claims (see Wage Claims – Nasty but [Sometimes] Necessary). Because the employee need not retain legal counsel, and because the Labor Commissioner may help the employee, a wage-claim hearing provides to the employee benefits and leverage that are not available in other venues, such as litigation or arbitration.
“Giant Cock” Excluded from Apple’s App Store
Yesterday, in San Francisco, I talked to one of the many foreign attendees at the Game Developers Conference. He told me about a game he had developed, which featured a giant rooster.
In the developer’s native language, the word for “rooster” is similar to the English word “cock”, so he called the game “Giant Cock” and submitted it to Apple’s App Store. Apple rejected the game without explanation. (more…)
I Think the Economy – and Business Confidence – are Improving
I think the economy – and business confidence – are improving. The reason: During the past week, two of my clients received unsolicited acquisition overtures from well-known Bay Area companies.
I’ll readily admit that this? does not represent a statistically valid sampling of local businesses. Nevertheless, I find this development meaningful because the last time a client was acquired was years ago. (more…)
What If I No Longer Need My DBA?
Let’s assume that you have been doing business under a fictitious business name (FBN – also known as a DBA for “doing business as”). You are about to shut the business down, so you would like to get rid of the DBA as part of you effort to minimize the likelihood of any ongoing obligations or liabilities. How can you do this?
In California, the answer is provided in the Business & Professions Code. Section 17920(c) says (emphasis added) “A fictitious business name statement expires when the registrant files a statement of abandonment of the fictitious business name described in the statement.” (more…)
What’s in a Name? A Lot, if You’re a Corporation
In Act II, Scene II of Shakespeare’s Romeo and Juliet, Juliet wishes that she and Romeo could simply set aside their warring families, famously asking, “What’s in a name?” I thought about this question recently as I was helping a foreign client set up a corporation here in the U.S.
The foreign client is based in the U.K. It wanted to form a U.S. subsidiary with a similar name for brand-identification purposes. To avoid revealing the identity of the client, I will refer to it as “Amalgamated Widget Solutions, Ltd.” and the desired name of its U.S. subsidiary as “Amalgamated Widget Solutions, Inc.”
Handbook Defeats Employee Claim of Attorney-Client Confidentiality
In “Inspection of Employee Text Messages ? Be Careful“, I described provisions concerning company-provided technology that every employer should include in its employee handbook. A recent California Court of Appeal case, Holmes v. Petrovich Development Co., shows that such provisions are strong enough to defeat a claim of attorney-client confidentiality!
Gina Holmes brought suit against her former employer, alleging sexual harassment, wrongful termination and other causes of action. The employer presented as evidence e-mails between Holmes and her attorney – e-mails sent from her employer’s computer – that supported the employer’s case.
Which is the Easiest, Cheapest and Best Way to Incorporate?
The following is an almost-verbatim copy (emphasis added) of a Quora question posted today and my answer. Q. Which is the easiest, cheapest and best way to incorporate a California C corporation, preferably online?
A. Cheapest: Use the appropriate nolo.com book.
Best and easiest: Use a qualified lawyer.
Preferably online: None of your three criteria will be satisfied. If you are interested in the basis for this opinion, please go to my blog’s Hall of Shame. (more…)
Compliance Services Joins Hall of Shame
If you form a corporation, the Postal Service soon will inundate you with official-looking forms from companies offering to create or file corporate documents on your behalf. Earlier this week I rescued a client from one of these unnecessary companies, Compliance Services.
Unpaid Interns: What You Need to Know
Many companies – especially startups – like the idea of using unpaid interns as free labor. This post discusses whether and how a California company can use unpaid interns.
Paid or Unpaid Interns vs. Employees
If individuals are interns under California law (as discussed below), then they need not be paid. Furthermore, they are not subject to other employment protections, because they are not employees.
If, on the other hand, individuals are determined to be employees, then they must be paid at least minimum wage.
(more…)
Which Financial Information Must a Corporation Provide to its Shareholders?
The CEO of a client recently asked about the level of financial detail that must be disclosed to a (troublesome) shareholder. The client corporation was formed in Delaware but is located in California, so both states’ laws apply.
California Corporations Code Section 1601 says, in relevant part (emphasis added), that “[t]he accounting books and records of any domestic corporation, and of any foreign corporation keeping any such records in this state or having its principal executive office in this state, shall be open to inspection upon the written demand on the corporation of any shareholder . . . during usual business hours, for a purpose reasonably related to such holder’s interests as a shareholder . . . . Such inspection . . . may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts.”
Who Can Sign a Contract for an LLC?
Several months ago, I answered the question Who Can Sign Contracts for a Corporation? This post addresses who can sign a contract for a limited liability company (LLC).
Section references below have been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
The LLC’s Articles of Organization may address who can sign a contract, but this rarely occurs. The subject is more likely to be addressed in the Operating Agreement.
What Must We Do Regarding Corporate Board Meetings?
The following question (edited for length) is from Founders Space. Q. What’s the minimum two founders must do regarding board meetings for a startup Delaware corporation doing business in California?
A. You should hold an annual stockholder meeting – or, alternatively, prepare a written consent – at which the stockholders elect the board of directors. See Delaware General Corporation Law Sections 211 and following. (more…)
How Can I Revive My Suspended / Forfeited Entity?
Yesterday I wrote about how the status of a corporation or limited liability company (LLC) in California might be suspended or forfeited. Please see Why was My Corporation / LLC Suspended or Forfeited? This post explains how one may revive a suspended of forfeited entity.
Section references below reflect California’s new LLC law that took effect on January 1, 2014. See RULLCA Brings New LLC Laws to California in 2014.
The steps required to revive the entity depend on whether it was suspended or forfeited by the Secretary of State, by the Franchise Tax Board, or by both the SoS and the FTB: (more…)
Why was My Corporation / LLC Suspended or Forfeited?
If you do a business entity search using the California Secretary of State database, you might find that the status of a corporation or limited liability company (LLC) is “suspended” or “forfeited“. This post explains what those terms mean.
Section references below have been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
Corporations and LLCs have many “powers, rights and privileges” under California law. Those powers, rights and privileges can be taken away if the entity: (more…)
How to Resign as Agent for Service of Process (or Disclaim a Corporate Position)
In “Incorporation: Not All (States’) Agents are Created Equal“, I discussed how agents for service of process in California are less formal – in both their appointment and their responsibilities – than registered agents in other states. California agents can resign more easily, too.
Corporations Code Section 1503(a) states that an agent for service of process may resign simply by filing a signed and acknowledged written statement. The Secretary of State? has provided Form RA-100 for this purpose. (more…)
Incorporation: Not All (States’) Agents are Created Equal
In a post last week (FreeRegisteredAgent.com Inaugurates Hall of Shame), I wrote that corporations (and other entities) formed in California do not require registered agents. After replying to a comment on that post and a separate e-mail from another reader, I realize that I should be more explicit about how an agent for service of process (in California) differs from a registered agent (in Delaware and many other states).
Here is the difference:
- A registered agent typically is picked from a list maintained by the state and is paid for its services. (In Delaware, especially, registered agents are a major industry.) Furthermore, there generally is a requirement that the registered agent be available at its office sufficiently frequently to receive service of process, and it must forward to the corporation notice of its obligation to file an annual franchise tax report. (See, e.g., Delaware General Corporation Law Section 132.)
- An agent for service of process can be any individual or any corporation (other than the one being formed, and subject to Corporations Code Section 1505) in California and need not necessarily be paid. So, for example, an individual forming a corporation in California can designate himself, or (presumably, with permission) his brother-in-law or his lawyer, as the corporation’s agent for service of process. Furthermore, the Corporations Code does not subject the agent obligations such as availability to receive service. California agents can resign more easily, too – see “How to Resign as Agent for Service of Process“.
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Are LLC Memberships Securities that Must be Registered?
The following are (somewhat edited) an Avvo question and my answer: Q. Is it necessary to file a Form D securities exemption when forming a California limited liability company (LLC) and only issuing an interest to the forming members?
A. The short answer is “no“. The somewhat longer answer is as follows: (more…)
Corporate Suspension and Personal Liability are Two Different Things
This is an edited version of a LinkedIn question and my answer. (They no longer are available there because LinkedIn removed its Q&A feature.) Q. In California, does suspension of a corporation automatically “pierce the corporate veil” resulting in personal liability (suspension for non-payment of taxes would seem to be the ultimate in “disregard of corporate formalities”)?
A. In my opinion, mere failure to pay taxes does not constitute disregard of corporate formalities or the basis for an alter ego finding. (more…)
Why did both the President and the Secretary of the Corporation Sign that Document?
Contracts and other documents usually are signed on behalf of a party by a single representative (see Who Can Sign a Contract for a Corporation?). However, at least in California, important documents often are signed on behalf of a corporation by two officers, such as the President and the Secretary. This post explains the reason for two signatures.
Corporations Code Section 313 says, in relevant part (emphasis added) that: (more…)
Directors’ Fiduciary Obligations: Delaware vs. California
Delaware: Paying Ovitz $130 million was not grossly negligent.
In Why are So Many Corporations Formed in Delaware?, I stated that Delaware law minimizes directors’ responsibility for decisions that have made. This post explains my point by comparing Delaware and California law regarding directors’ fiduciary obligations. (more…)
Which Financial Information Must a Private Company Provide to Employees with Vested Stock Options?
This post is based on a Quora question that I answered (Q and A are somewhat edited). Q. Which financial information must a private company provide to employees with vested stock options?
A. In California, Corporations Code Sections 1500 and 1501 specifies records that must be kept by each corporation. Shareholders’ rights to inspect records are set forth in Sections 1600 and 1601.
I know of no comparable statutory provisions with respect to holders of vested options, however. Unless the stock option plan grants you such rights, the easiest way for you to gain such rights would be to exercise your option with respect to one share and, then, exercise your rights as a shareholder.
Related post: Which Financial Information Must a Corporation Provide to its Shareholders?
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
How Can I Change the Name of My Corporation?
Sometimes a corporation needs to change its name – perhaps its products or services have changed, or the name is similar to another company’s name, or there is a better way to suggest what makes the company special. This post explains how easy it is for California and Delaware corporations to change their names. (There are exceptions, but the following will apply under most circumstances.)
California corporations:
- Both the board of directors and the shareholders (before or after the board) must approve the name change. (Corporations Code Section 902(a))
- Then the corporation files a Certificate of Amendment of Articles of Incorporation.
Why Your Lawyer Need Not Sign an NDA
Once in a while, when I send an engagement letter, the prospective client wants to add confidentiality provisions to protect its trade secrets. The following is the explanation that I provide as to why such provisions – let alone a separate nondisclosure agreement (NDA) – are not required in an attorney’s engagement letter.
California Business and Professions Code Section 6068 specifies the fundamental obligations of an attorney. Subsection (e)(1) states that each attorney must “maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.” (Emphasis added.) Attorneys in other states have similar obligations.
Make Sure that Your Release Means What It Says
Title page from the California Civil Code enacted in 1872 and published in 1880
I recently prepared a Stock Redemption Agreement pursuant to which one of the founders would leave a corporation (my client). The agreement included a General Release by which the parties would release one another from all liability. The corporation’s CEO had a difficult time understanding the need for, and the significance of, a provision that cited a particular Section of the California Civil Code.
California Civil Code Section 1542 says:
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. (more…)
Need an Angel Investor? Consider AngelList
AngelList Logo
There are plenty of companies seeking seed-stage financing, and plenty of seed-stage investors. How can they find one another effectively? AngelList is one answer.
Started in February 2010, AngelList is a straightforward application of social-media principles: (more…)
Where Do I Get a Business License?
You’ve started a new business. Don’t forget to apply for (and next year, renew) your business license!
Most cities (in some instances, counties) require that businesses located within their borders obtain what is commonly called a business license. In reality, this is an application to pay business taxes.
Here are links to the business license applications for several of California’s largest cities:
Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Don’t Steal Your Former Employer’s Customers (Unless You’re Confident…)
Many people know that, when one leaves a job in California, the former employer typically cannot stop the former employee from working for a competitor. However, some people mistakenly believe that the right to compete includes the right to steal the former employer’s customers!
According to Civil Code Section 3426.1(d), a trade secret is “information…that [d]erives independent economic value…from not being generally known to the public…and [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” For many employers, a customer list is an important trade secret.
Do VCs care where my company is incorporated?
Several weeks ago, a first-time entrepreneur called. He had read that venture capitalists prefer investing in Delaware corporations, and he sought my input on the subject.
I replied that, in my experience, incorporation either here in California or in Delaware is fine. Then I started wondering why what the entrepreneur read differed from what I had experienced.
I did some research and conducted an informal survey of a few VCs. Here are my tentative conclusions:
- California-based VCs are comfortable investing in corporations that are formed in either CA or DE (thus my experience, because the vast majority of the VCs whom I know are here in the Bay Area).
- VCs outside California have a preference for investing in Delaware-based corporations, though that preference can be weak or strong, depending on the VC. Even with a strong preference, however, a Delaware-preferring VC will invest in a corporation in another state if it is the right deal
Related posts:
- Why (not) Incorporate in Delaware?
- Why are So Many Corporations Formed in Delaware?
- In which State should My Startup Incorporate?
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.
Forming a Corporation in California? Get Ready to Wait
July 2013 update: California Secretary of State Reduces Turnaround Times!
* * *
California’s budget crisis is affecting how quickly entrepreneurs can form their business entities: Standard turnaround time for hand-delivered Articles of Incorporation now is close to four weeks. (The situation for limited liability companies [LLCs] is better at two weeks, though still much longer than it was just half a year ago – see LLC Formation in Record Time.)
Update as of February 6, 2013: LLC filing time now is approximately six weeks, and corporation filing time is more than seven weeks!
When should I apply for a DBA?
This post continues the last post’s discussion of the fictitious business name (FBN – or, colloquially, the DBA for “doing business as”). I am writing this because of a client’s question as to when his company should apply for a DBA / 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 registrant first used the FBN to conduct business in the state. (more…)
California doesn’t *always* prohibit non-compete provisions
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. (more…)
Should I Deposit a Check Marked “Payment in Full”?
A customer owes you money but is disputing the amount that should be paid. To your surprise, you receive a check for half of the amount in question. On the back, the customer has written “Payment in Full”. If you deposit the check, will you give up the right to ask for the other half of the disputed amount?
The answer depends on which state’s law governs the transaction. I will provide an answer based on California law.
Why (not) form an LLC in Nevada (or Wyoming)?
Questions about forming a limited liability company (LLC) in Nevada (or, increasingly, Wyoming) come up so frequently that I feel compelled to write about this topic.
There is something approaching the status of urban legend about the wisdom of forming an LLC in Nevada or Wyoming because they do not have an income tax. The problem is that lack of an income tax will benefit you only to the extent that you do business in in that state! (more…)
How to Kill Your Company when That’s the Only Choice
Yesterday I wrote about ways that businesses with two equal owners can avoid management deadlocks (Resolving Small-business Disputes: The 50-50 Deadlock). Today I am writing about dissolution, i.e., termination of a California entity’s existence – the only reasonable outcome if a serious deadlock cannot be resolved.
LLC section references below have been updated to reflect California?s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
The essence of the dissolution process for a California corporation is as follows: (more…)
LLC Formation in Record Time
Last week, I formed a new limited liability company (LLC) for a client. The California Secretary of State turned the Form LLC-1 around in only two days rather than the standard one week! (24-hour turnaround is available for an additional fee of $350, which is hardly worth paying under these circumstances.)
Has the recession reduced the number of new businesses being formed? Datasearch, the filing service that I use in Sacramento, did not know.
Follow-up: Eighteen months later, turnaround times have deteriorated terribly – see Forming a Corporation in California? Get Ready to Wait.
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Securing IP Requires More than an NDA
When it comes to protecting intellectual property (IP), non-disclosure agreements (NDAs) are ubiquitous. What many entrepreneurs fail to realize, however, is that securing IP requires more than an NDA. For an NDA to do its job, the company must actually own the IP in the first place!
The most serious ownership problems arise when there is no written agreement between the company and the individual developing the IP. Depending on the nature of the IP (for example, whether copyright or patent protection applies) and whether the developer is an employee of the company or an independent contractor, the developer may own the IP. If this is the case, the company has, at most, a non-exclusive license.
(more…)
Corporate Housekeeping: Keeping Documents in Order
From time to time, clients with established businesses have asked me to bring order to their legal affairs. I refer to this as ” corporate housekeeping “.
Usually, the request results from an extraordinary, but desirable, event. This might be an acquisition offer, a prospective new investor, or a restructuring for tax purposes. In each instance, the client quickly realizes that it has not been paying close enough attention to legal documentation.
Although the clients are in different industries, their stories are similar. In essence, they limit their legal activities and expenditures to those required to bring business in the door, satisfy customers’ needs, and pay employees. This approach works on a day-to-day basis. Yet when the extraordinary event comes up, the company suddenly needs to devote scarce resources to legal clean-up. (more…)
Arbitrating Employment Disputes: Pro and Con
I prepared a Proprietary Information and Invention Agreement (“PIIA”) to be signed by the employees of a small but established technology company in the Bay Area. The PIIA ensures that the company owns whatever employees create on the job, and it obligates employees not to disclose the company’s proprietary information to third parties.
The client pointed out, however, a conflict between the PIIA and the existing Employee Handbook: The PIIA states that any dispute will be resolved in state or federal court in San Francisco, but the Handbook states that all employment disputes will be subject to arbitration. The client asked me how this conflict should be resolved.
(more…)
Beware Your Alter Ego
This post discusses the alter ego doctrine, particularly as it is applied by courts in California.
The section references below has been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
Corporations have existed for centuries. One way they promote economic activity is by allowing stockholders to limit their personal liability for corporate debts to the amount of their individual investments in the corporation (“limited personal liability”). (more…)
Name that Business – Avoiding Rejection by the Secretary of State
California law requires the Secretary of State to determine that a proposed business entity name (for a corporation, limited liability company, or limited partnership) is not the same as or too similar to a reserved name or to the name of an existing business entity (of the same entity type) and is not misleading to the public.
The Secretary of State’s office adopted regulations on May 14, 2009 that provide guidelines to assist the public in selecting a business entity name prior to reserving the name or filing documents. These regulations are helpful because The Secretary of State returns documents unfiled if proposed business entity names are unavailable under the statutory standards. There now are specific guidelines for selecting business entity names prior to filing documents with the Secretary of State and, thus, more certainty that proposed business entity names submitted for reservation and/or filing will be acceptable.
Why (not) Incorporate in Delaware?
Let’s assume that you are starting a new business in the San Francisco Bay Area (where I live and work). And let’s assume, further, that you have decided to form a corporation to establish limited personal liability and to provide an easy way to accept investment capital, if and when appropriate. Should you incorporate in Delaware or in California?
Registered Agents Say Incorporate in Delaware
Registered agents cite a variety of reasons to incorporate in Delaware. Those reasons tend to fall into two categories: (more…)
