Out-House General Counsel

What If I Do Not Pay My Payroll Taxes

2012-01-24T11:08:00.000-08:00

What if I don't pay my payroll taxes? We were asked this payroll question recently, and here's our answer: you should never ever fail to pay your business payroll taxes!

What happens if I don't pay my employer payroll taxes or my withheld employee payroll taxes?

When asked this question recently by a small business owner, we were shocked to think that somebody might think they could get away without paying payroll taxes.

It's very important to pay your payroll taxes because you will be held personally liable for them, even if you think you have limited your liability through your company's legal structure.

Personal Liability for Payroll Taxes

The federal tax code imposes personal liability on any "responsible person" who fails or refuses to collect and pay the required taxes.

A responsible person includes someone who controls the employer's money, has signature authority on a payroll account or is a corporate officer.

As outlined in Section 6672 of the Internal Revenue Code, the responsible person is personally liable for a 100% payroll penalty for any failure pay withheld taxes from employees. In other words, you personally will owe the IRS all of that money.

Note that this is for employee payroll taxes that you have withheld, not for the employer payroll taxes. The covered employee taxes include federal withholding and the employee FICA and Medicare taxes withheld.

Bankruptcy Won't Get Rid of Your Personal Liability for These Debts

A scenario in which a business owner might be tempted into not paying payroll taxes owed is when things are really tight.

Instead of missing a payroll or an important vendor payment, a desperate business owner might use the withheld payroll taxes from a previous payroll to pay current obligations.

You should never do this. If the business is struggling that much, a bankruptcy filing may be around the corner.

While filing for company bankruptcy will stall and/or eliminate many business debts, the IRS has taken steps to ensure that your debts to them will not go away.

Obligations to government agencies for taxes, interest and penalties survive bankruptcy proceedings.

You can close the company down and distribute assets to creditors on a pro rata basis, but you will need to pay the government in full, even if it comes out of your own pockets.

You can even go to jail if you fail to live up to your tax obligations, and ignorance or mistakes are no excuse in the "eyes of the government" for your not paying correctly.

So, a word to the wise – treat your payroll tax obligations to the IRS as sacrosanct. As tempting as it might be to use that money for other purposes, don't do it

If you find youself in a Payroll tax bind, contact me at (800) 730-5691 or The Out-House General Counsel.

12 Reasons for A Startup Not To Be An LLC

2011-10-13T10:21:00.000-07:00

12 Reasons for a Startup Not To Be An LLC

By: Davis Wright Tremaine 's Startup Law Blog

Jewels of Change: Lady Lawyers Impacting the World

2011-08-09T13:43:00.000-07:00

Please support this project!

Small Business Horror Story #1: Shady Partner + Generic Operating Agreement = Disaster

2011-06-26T15:07:00.000-07:00

This is a re-post from one of my favorite Business Attorneys (other than myself) Gina Bongiovi out of Las Vegas, Nevada. She tells a story I have come across all too often.

When I sign a new monthly retainer client, I always conduct what I call a "legal checkup" on the business. I review the company's formation, licensing, employee or contractor agreements, lease agreements, service agreements, etc. to find ways I can better protect the company and its owners.

Wait, let me clarify. I *request* these documents in order to review them. Often, it takes the owners a while to gather all the information to give me and sometimes they simply ignore my requests, preferring that I instead put out fires. While I'm great at putting out fires, my real value lies in working proactively - modifying these documents to better protect the company before a fire breaks out.

One particular client was in an LLC with another person. We'll call them Jack and Bill.* Jack requested the initial meeting with me, apparently without telling Bill. Bill walked in during our meeting, demanded to know "who the hell" I was, and threw a fit, yelling at the top of his lungs that "we don't need no &*%$ attorney!" Following that outburst, I gently asked Jack to send me a copy of the company's operating agreement. He said it was the one that came with the corporate binder he got when he formed the company and he had no idea where the binder even was. Seeing the writing on the wall, that this partnership was going to crumble sooner rather than later, I made a more urgent request to see the operating agreement. And I requested the operating agreement every few days for the next two months with no response.

A month ago, Jack called to say Bill was leaving the company. I again asked for the operating agreement to make sure Bill's exit was in compliance with its terms. I also suggested that Bill be removed as a signer on all company bank accounts as soon as humanly possible. No response.

Last week Jack called in a panic. While he was at the bank removing Bill as a signer on the account, Bill was at a different branch, withdrawing $21,000 in cash from the company's checking account.

Because Bill was still a signer on the account, the bank had no choice but to give him the money.

Because the operating agreement didn't restrict an LLC member's ability to take money out of the account, Bill didn't breach any agreement.

And because Bill pulled the money out in cash, there was no way to stop payment.

Jack's only option would be to file a lawsuit against Bill, hope that he wins, and then hope that he could collect the money. Of course, a lawsuit would drag on for months and more likely years, tying up company resources in what is probably a losing battle. Plus, even if Bill lost, he could file bankruptcy and then the company would have lost the original $21,000, plus attorney fees, plus time lost while embroiled in a lawsuit.

Lessons learned:

1) make sure your operating agreement is thorough and addresses issues like when a member can take money out of the account,

2) if someone leaves the company, remove them from the bank account IMMEDIATELY. Unless you notify the bank that someone is no longer an owner, the banker has no way of knowing not to give an owner access to company funds.

* Names have been changed to protect the innocent.

You can read Gina's original post at Shady Partner + Generic Operating Agreement = Disaster

If you have any questions or concerns about any of the above, you can contact me at (800) 730-5691 or The Out-House General Counsel.

Saturday Academy of Law’s Fourth Commencement

2011-04-22T13:39:00.000-07:00

The UCI Saturday Academy of Law staged its fourth commencement ceremony Saturday. The 60 Santa Ana ninth graders were encouraged in their academic pursuits by the experiences of Dean’s Cabinet member Daniel J. Alexander II, the keynote speaker. All graduates received a pocket copy of the U.S. Constitution, and will be followed by UCI undergrad mentors throughout their high school careers.

Half these ninth graders were taller than me, can you pick me out?

Top 10 Typical Labor Law Faults Done By Companies

2011-03-06T21:13:00.000-08:00

The contemporary American workplace is susceptible to numerous federal, state, and local laws and regulations that impose strict obligations on businesses (e.g., wage and hour legal guidelines, nondiscrimination laws and regulations, etc.). Most companies, especially smaller organizations, tend not to know the scope of such obligations and, consequently, frequently (albeit inadvertently) violate legislation. These violations can cause costly lawsuits, and also civil and criminal penalties. In my experience of being a defense attorney in addition to being a plaintiff's lawyer, the most frequent employment law mistakes done by corporations are these (in no particular order):

- Wrongfully classifying workers as independent contractors. Generally, only workers who operate their unique separate corporations are "independent contractors." Few workers meet this test; in reality, most personnel are considered "employees" for the law, meaning these are eligible to the total variety of workplace protections.

- Wrongfully classifying non-exempt personnel as exempt. Generally speaking, all workers are eligible for minimum wage and overtime pay, unless these are "exempt" under state and federal law. The exemption rules (e.g., for executive, administrative, and professional staff members) only apply in limited circumstances, however; therefore, many staff members who're claimed by businesses to become "exempt" in reality have entitlement to minimum wage and/or overtime pay.

- Not complying with state wage payment laws and regulations. i.e. New York imposes several specific rules regarding how businesses be forced to pay their staff members. These rules include providing new personnel with written notice of the rate of pay and regular pay date; prohibiting deductions from wages unless for that employee's benefit and authorized in writing; requiring written contracts for commissioned salespersons; and providing terminated workers with written notice of the last day's work, their last day's benefits, and their right to make an application for unemployment benefits. (Make sure you are aware of your state's specific rules).

- Not owning an employee handbook. A personnel handbook is a vital tool for effective employer-employee relations. It notifies personnel of the company's values, policies, and procedures; promotes compliance with labor and employment legislation; so it helps create an orderly, efficient, and transparent workplace.

- Not documenting employee job performance. A well-managed organization clearly communicates its employees' duties and responsibilities (e.g., through written position descriptions), trains and supervises workers to be sure they are meeting these requirements, and offers regular, objective, consistent feedback (e.g., through written evaluations and, where necessary, disciplinary actions). A deficiency of accurate, complete, contemporaneous documentation can cause liability in the case of a case by a staff member.

- Not training supervisors regarding EEO laws. Federal, state, and local equal employment opportunity (EEO) law regulations prohibit businesses from taking adverse actions against staff members (e.g., demotion, termination) for reasons not linked to an employee's job performance, including those according to an employee's race, color, sex, age, disability, religion, national origin, sexual orientation, and marital status ( to mention the most typical "protected characteristics"), plus retaliation for an employee's good faith complaints of discrimination. It is imperative that supervisors learn the way to manage personnel without violating (or appearing to violate) these law regulations.

- Not providing reasonable accommodations for disabled personnel. Most EEO law regulations prohibit businesses from taking adverse actions against employees depending on certain protected characteristics, but disability discrimination legal guidelines also impose an affirmative obligation on businesses to "reasonably accommodate" disabled workers in an attempt to make them perform the fundamental functions of these jobs. Such accommodations can include restructuring job duties, modifying work schedules, or providing assistive devices. Businesses must give a disabled laborer with needed accommodations unless this would cause an "undue hardship" for the company (e.g., very costly, too disruptive).

- Not obtaining releases from terminated staff members. When terminating a worker, businesses need to get a release that waives the employee's potential legal claims against the enterprise. The simplest way to get a release is in exchange for an offer of severance (where appropriate). Normally, companies are not necessary to pay for severance to staff members (unless essential to an employment contract or possibly a collective bargaining agreement). If they opt to do this (e.g., in association with layoffs), they must require personnel to sign a release in return for the payment.

- Not protecting confidential business information. Every organization depends upon certain vital, often confidential, information regarding its company operations, including trade secrets, marketing and advertising practices, and customer and client lists. Access to this information must be restricted to personnel with a "need to know" and may be protected by appropriate non-disclosure, non-compete, and/or non-solicitation agreements (depending on the nature of the information along with the employee's position).

- Not consulting an experienced employment law attorney. Perhaps the one most critical point to take away from this discussion is always that businesses must consult an experienced employment lawyer to ensure they are in compliance with all the increasingly numerous and complex legislation that carpet work just like a minefield. Large organizations will often have attorneys and hr professionals working to help them in this field. Small- and medium-size companies often don't. Their biggest mistake is wanting to navigate this minefield automatically.

And also you? What exactly are your top mistakes made in employment law?

The author Stacia Abner writes her blog, http://www.employmentlawtraining.org/, to help the public get all the information they need to raise awareness on labor rights and employment law and its associated benefits to support workers and companies on a daily basis.

Corporate Record Keeping - Company Records Explained

2011-03-04T08:52:00.000-08:00

This article was originally posted by Imke Raschko of New York, but it is applicable to Corporate Record Keeping anywhere. It is a real back to basics post and I hope you enjoy it. If you have any questions about your corporate record keeping, do not hesitate to contact me at The Out-House General Counsel or (714) 432-6370.

To view to article hit this link Corporate Record Keeping Explained.

How is the Out-House General Counsel different from other "Business Attorneys?"

2011-01-17T20:47:00.000-08:00

I have created an "out-house general counsel" model. The idea behind it is simple. I offer my business clients a variety of "in-house" type legal services from an experienced attorney in a manner that fits their budget and improves the level of legal service delivery to the client. I am not a total replacement of the company's outside law firm, instead I do most of the work in-house at a far lower cost than variable hourly rate firms. Most importantly, I always approach legal issues from a "business" perspective. What makes perfect "legal" sense doesn't always make "business" sense. My goal is to take both a "legal" and "business" perspective when providing out-house general counsel services to my clients.

My clients have a dedicated attorney who takes the time to understand their business from the inside out, and knows how to work with businesspersons on achieving result-oriented otucomes. I offer flexible billing models, including fixed-fee monthly membership programs, for clients who want to limit their exposure to legal fees and be able to budget accurately. Because my model is streamlined with very limted overhead, the cost of my legal services is much lower then traditional firms.

All the major corporations in the United States have "legal departments" to handle the legal aspects of running their businesses. Your business has the same legal needs as the big guys. Contact the The Out-House General Counsel for a free consultation.

What Issues, Opportunities and Risks Face Business Owners in 2011

2010-12-09T22:49:00.000-08:00

As a General Counsel to business owners, I am often asked my opinion about opportunities and risks that business owners should be aware of as the new year approaches. In this down economy, there are a lot of opportunities for businesses with some liquidity to acquire distressed assets with appreciating potential. There are also a lot of quality labor talent willing to work for less. These economic times also make current and former employees more apt to sue you for wage disputes. Regulators are also coming down on wrongfully classifying Independent contractors. Finally, technology has created employee privacy issues that need to be addressed. These are just a few of the opportunities and risks that are out there.

Buy Your Own Building. With commercial property prices hitting rock-bottom, it's a great time for owner-operators with some capital to buy their own buildings. It will be an investment with a big long-term payback. Clients of ours who did this in the last downturn in the 1990's are collecting big checks now.

Finding tenants for any unoccupied space will not be easy if you don't use the entire building. You can overcome this by sweetening the deal to include giving potential tenants a small equity stake - after paying yourself a preferred return on your invested capital. Finding financing will be difficult but not insurmountable, especially if you have a decent balance sheet.

Upgrade Your Talent. Take advantage of the deep pool of talented and hungry job applicants to upgrade your labor force. Spend more time evaluating the performance level of your current employees. Compare them with the available talent and make appropriate changes. Given the high quality of job applicants, it's unlikely that you'll have to pay more for more talented and motivated workers.

Independent Contractors. Many businesses have reduced costs by hiring as independent contractors workers that should legally be classified as employees. This saves on tax payments, unemployment compensation, workers compensation, benefits and other employment-related costs. But regulatory agencies are being pressed to generate revenues. For them, going after companies for wrongfully classifying employees is low-hanging fruit. Expect a greater level of scrutiny in this area. Take a hard look at your contractors. If they don't qualify, convert them to employees before you feel the lash of the regulator's whip.

Employee Privacy and Technology. What can an employee say about you on Facebook, Twitter or a blog? Can you ask for passwords? Can you fire them for negative content? Get them to change it? What if it contains misinformation or confidential information? These are just a few of the many issues blossoming with the increasing uses of social media websites and the technology that is spreading it. If you haven't thought about them you'll need to - and develop new policies or upgrade existing policies to minimize the risks.

Non-Wage and Hour Class Actions. Wage and hour violations have been so much the subject of class action lawsuits that new cases for plaintiff's lawyers are harder to come by. This group is now starting to focus on working condition class actions, which may be the next wave of cases. Portending this is Currie-White v. Blockbuster Inc, a 2009 case on the employer's failure to provide seats for its cashiers. The plaintiff's lawyers are after penalties, which potentially are $100 per employee per pay period for the first pay period and $200 for each subsequent pay period. Other potential violations are the failure to provide suitable lockers or closets, changing rooms or "suitable resting facilities". It's a good time to review the wage order applicable to your business to make sure your working conditions are compliant.

I would like to thank Gerald D. Block of The General Counsel, LLC for bringing these risks and opportunities to light in his newsletter. If you have any questions or concerns regarding any of the above, please contact me at The Out-House General Counsel or press the call me button on my blog.

Do Friends Make Good Business Partners

2010-12-08T18:55:00.000-08:00

Do Friends Make Good Business Partners? No. For a closer look at this issue, please follow this link http://klplaw.blogspot.com/2010/12/do-friends-make-good-business-partners.html. It is a great post by a like minded Small Business Attorney in Georgia. Her name is Ms. Dar'shun N. Kendrick and she can be contacted at dkendrick@kendricklaw.net. If you are in California and have any business law issues, please contact me at (951) 737-4040 x1 or Daniel J. Alexander II.

Internet Home Business Rules and Laws To Follow

2010-12-04T08:14:00.000-08:00

Click the title to go to the article. If you have any questions call me at (951) 737-4040 x1 or email me at Daniel J. Alexander II.

Have You Met GINA?

2010-11-30T09:10:00.000-08:00

Genetic Information Non-Discrimination Act (GINA).

First, the basics. The GINA applies to all employers who have at least 15 employees as well as employment agencies and labor organizations. It prohibits employers not only from using genetic information to discriminate against or harass employees or applicants, but from even requesting such information, except in the limited circumstances described below. In the specific instances where it is “OK” to request genetic information, it still must be kept confidential and cannot be used to discriminate against or harass the individual.

The GINA provides the same damages for violation as the ADA and Title VII (including recovery of punitive damages and attorney fees!). It also has a posting requirement like the FMLA.

For a more information on GINA please follow this link GINA or contact me at Daniel J. Alexander II or (951) 737-4040 x1.

So you want to do business in Japan

2010-11-27T21:29:00.000-08:00

I have a client that wants to start a new company in Japan. I was asked to set up a new business entity for him that could operate in both the United States and Japan. In researching this issue, we came across the Japanese LLP. Below is an excerpt from an article I found at Venture Japan. I hope you find it informative.

The Japanese LLP; Japan's first hybrid entity

Japan's government is very conservative and the need for fundamental change to Japan's education policies is difficult for the government to accept. It is far easier to point at something tangible (pun intended) which can be emulated, and so the Japanese government, specifically the policy makers at the Ministry of Economy, Trade & Industry "METI", proposed two new corporate entities (the Japanese LLC and the Japanese LLP) to encourage Japanese university professors and other academics to 'get into industry'. The concept of reducing taxes to promote investment is not part of the Ministry of Finance's "MoF" mandate though, and doubtless the prospect of creating a true US LLC equivalent corporation, with total flexibility of ownership and tax treatment, was more than the MoF could bear. The net result is the yugen sekinin jigyou kumiai or Japanese LLP which supports the government's intent while not leaving the stable door open.

The Japanese LLP limited liability partnership is Japan's first hybrid corporate entity and combines the limited liability characteristics of a corporation with the pass-through income tax characteristics of a partnership. The tokumei kumiai 'silent partnership' or Japanese LP has pass-through tax characteristics but does not have true limited liability (although the silent partners in effect benefit from limited liability). The nin-i kumiai 'unlimited partnership' also has pass-through tax characteristics but does not provide any limitation of liability.

The Japanese LLP gives its partners limited liability and because it is a pass-through entity, its profits or losses are allocated to the partners and not subjected to Japanese business income tax at the LLP level. Put another way, the Japanese LLP does not pay Japanese business income tax but instead distributes its profits (or losses) directly to its partners and then the partners declare their portion of the profits or losses on their income tax returns. This is identical to the tax treatment of a US LLP, or of a US LLC that elects through its Articles of Incorporation to be treated as a pass-through entity for income tax purposes.

The Japanese LLP for doing business in Japan

Many foreign companies doing business in Japan have low costs in Japan relative to the revenues they earn here. Sometimes it is because the Japanese market value of a product is much higher than elsewhere even though the costs of marketing and sales are comparable, and sometimes it is because their Japanese business costs are pure sales and marketing while their entire product development and production costs are overseas (as happens with software and other intellectual property). For years such foreign companies have searched for a way to get their Japanese profits out of Japan without paying excessive Japanese business income taxes. For US companies, a tokurei yugen kaisha allows them to get pass-through treatment on the US side but of course the tokurei yugen kaisha still has to physically pay the taxes in Japan (so the effect is at a group level and is diluted).

So, is the Japanese limited liability partnership 'yugen sekinin jigyou kumiai' the new entity of choice for foreign companies to do tax-efficient business in Japan?

If you are looking to do business in Japan, please feel free to contact Daniel J. Alexander II at (951) 737-4040 x1 or The Out-House General Counsel.

Do Employers Need to Report The Amounts That They Pay For Employees' Health Insurance

2010-10-19T14:05:00.000-07:00

Establishing A Legal Presence in Russia

2010-10-19T11:31:00.000-07:00

A client recently came to me and said they wanted to move into the Russian Market and asked me to research what was necessary to establish a legal presence in Russia. I was excited about this requested because I minored in Russian in college and was conversational when I graduated. I am posting this because someone once told me that if I ever had to research something that I didn't know the answer to, it would likely make for a great blog post. I hope you find this interesting.

Choosing which type of legal entity to register is one of the most important stages before undertaking business activity in Russia.

The type of legal presence will influence all activity, including financial and tax reporting, customs and currency control. Therefore, an investor should pay special attention to determining the appropriate corporate form which will help him achieve his goals while meeting all legal requirements.

A foreign investor may act through one of several legal forms:

►As a representative or branch office of foreign legal entity;

►As a Russian legal entity; and

►As a foreign investor.

The procedures for establishing a company in Russia are quite well-developed and are regulated by the RF Civil Code and by

additional RF laws.

Russian Legal Entities

In accordance with the Civil Code, the following are some of the most important types of legal entities:

►Joint stock companies (JSC);

►Limited liability companies (LLC);

►Additional liability companies;

►General partnerships; and

►Limited partnerships.

Joint stock and limited liability companies are forms that are most frequently used by foreign investors to enter the Russian market

and are reviewed below.

Limited Liability Company

The limited liability company (hereinafter LLC) is recognized as a company established by one or more persons, whose authorized capital is divided into participation interests, the size of which is stipulated by founding documents. Participants of the LLC do not bear liability by its obligations but bear the risk of losses connected with the company's activity within the cost of the contributions they have made. An LLC can be founded by either a person or group of people, or a Russian or foreign company. The number of participants in an LLC cannot exceed 50. If the number of exceeds 50, then the LLC is subject to reorganization into a JSC within a year. On the expiry of this term, if the number of participants has not been reduced, it shall be liquidated under the court decision. The minimum authorized capital may not be less than RUR 10,000 (approximately $370) and at least 50 percent of the capital must be paid in prior to the company’s registration. Contributions can be made in cash or in-kind.

The founding documents of an LLC are known as Articles of Incorporation signed by its founders, and the Charter, which is approved by them. If the company is set up by a single person, its foundation document is the Charter.

An LLC has a three-tier management structure which consists of:

►General participants meeting, the highest governing body which has exclusive rights to amend the Charter, approve annual

financial reports, etc;

►Board of Directors, which supervises the general company’s activity; and

►Executive body, which may be an individual (usually the general director) and a collegial body. The primary function of the

executive body is the daily management of a company.

Joint Stock Company

A joint stock company (JSC) is a company, whose authorized capital is divided into a definite number of shares; the owners of the JSC (the shareholders) do not bear liability for its obligations, but do accept the risks involved with losses connected to the JSC’s activity within the value of their shares.

There are two types of JSCs:

►Closed joint stock companies (CJSC); and

►Open joint stock companies. (OJSC)

The distinctions between the two above mentioned forms are as follows:

Open Joint Stock Company	Closed Joint Stock Company
Minimum authorized capital is RUR 10 000 (approximately $370)	Minimum authorized capital is RUR 100,000 (approximately $3,700)
Unlimited number of shareholders	Limited number of shareholders, which cannot exceed 50. Otherwise, the company is subject to reorganization into Open Joint Stock Company within one year
Shares may be freely sold to third parties	Shares may not be freely sold. Share transfers are subject to preemptive rights of other shareholders

The management structure of a JSC is similar to the management structure of an LLC. Both open and closed JSCs are obliged to have two governing bodies: the General Shareholders’ Meeting and the Executive Body. The OJSC with over 50 shareholders must have a Board of Directors or Supervisory Council. Furthermore, a JSC must annually undergo a professional outside audit for control and approval of its annual financial reports.

Branch and Representative Offices

Branch and representative offices of foreign legal entities are not considered to be Russian legal entities, but bodies representing the interests of foreign legal entity with headquarters in another country.

The table below provides a comparison of the two forms:

Representative Office	Branch
A representative office is subdivision of a foreign legal entity which represents the company’s (headquarters) interests in Russia and cannot undertake commercial activity. The main purpose of establishing a representative office is marketing research for the Russian market and promotion of commercial relations between the head company and Russian companies.	A branch is a subdivision of a foreign legal entity which may undertake commercial activity.
The term for which a representative office can be set up is a maximum of three years, with the right of extension.	The term for which a representative office can be set up is up to five years, with the right of extension.

The management structure of a representative or a branch office is represented by the executive body in the person of the head of the branch or representative office. The head of the subdivision of a foreign legal entity acts on the basis of a Power of Attorney issued by the parent company.

Registration

Once a form of a legal presence is chosen, the procedure for state registration must be started. In accordance with the Federal Law “On State Registration of Legal Entities,” registration is performed by tax authorities which file documents with the Unified State Register within five days.

Afterwards, the following procedures must be completed:

►Registration with the State Statistics Committee

►Registration with non-budgetary funds (the Pension Fund, Obligatory Medical Insurance Fund and Social Security Fund)

►Opening of bank accounts

►Notification of tax authorities about the opening of bank accounts

►Production and registration of a company’s seal

►In case of establishing a JSC, the securities issue must be registered with the Federal Service for Financial Markets of the Russian Federation.

Branches and representative offices must also be accredited with state bodies authorized to grant such accreditation. Usually, these authorities include the State Registration Chamber at the Ministry of Justice of the Russian Federation, the Chamber of Commerce and Industry and various Ministries of Russia. For example, if the company is engaged in educational activity, a representative or branch office may be accredited with Ministry of Education.

To establish a company, a foreign investor has to prepare a comprehensive list of documents required by Russian law. All documents from the home country of a foreign legal entity must be notarized and apostilled and a notarized translation into Russian must be provided.

If you have any questions about this post or any legal aspect of running your business, please contact me at (951) 737-4040 x1 or The Out-House General Counsel.

New Regulations for California Business Owners and Businesses with California Customers- SB 1386

2010-10-11T09:57:00.000-07:00

If you’re a Business Owner in California, or if any of your customers are in California, you’ll have to comply with SB 1386 (the California Information Practice Act). This law requires that your company provide notice to customers whenever any technological hack, or other attack has occurred and caused personal information to be exposed and vulnerable to theft. Meant to safeguard against identity theft, this state law also applies to any subcontractors of companies that maintain information about California residents. This particular law is ground-breaking, since although it is on paper just a California law, it has, in reality, become a federal law. California is the largest state, population-wise, in the U.S., and any mid-size company and many smaller ones have at least a few customers in California, regardless of where the company is actually located. If, for example, your company is in Maine, but your mail order division sold some products to someone in California, you must comply. Compliance simply means that if your network is attacked, you must notify your customers. Although this can be done individually, most companies actually make notification on their Web sites, or through issuing a public press release.

If you have any questions about SB 1386 or any other law that may affect your business, please contact The Out-House General Counsel via email at the link provided or at (951) 737-4040 or (415) 633-6702.

Free Twegal Advice

2010-09-28T22:01:00.000-07:00

As many of you know, I love Twitter. If you don't already do so, please follow me at The Out-House General Counsel Twitter Feed. I set up a second twitter feed called Twegal Advice. I offer free Twegal Advice on Twitter. If you can Tweet me a legal question in 140 characters or less, I will Tweet a response in 140 characters or less. All for free!

Free Twegal Advice..follow me and tell a friend.

Logos: The Gray Area between Copyright and Trademark

2010-09-28T08:32:00.001-07:00

12 Things You Need to Know About New Small Business Jobs Act

2010-09-28T08:29:00.001-07:00

Best Industries to Start a Business in Right Now

2010-09-25T09:37:00.000-07:00

Estate Planning in California: California anti-deficiency statute and estate planning

2010-09-21T21:38:00.000-07:00

Estate Planning in California: California anti-deficiency statute and estate planning

Why You Must Carefully Choose Your Legal Business Structure

2010-09-15T23:15:00.000-07:00

I get a lot of calls and emails from people who ask me to help them set up an S-Corporation or an LLC. The first thing I ask them is "why do you want that form." At least I give them credit for calling me with the question. To many business owners, the question of "legal structure" begins and ends with the completion of a pre-printed form from the office supply store and the payment of a nominal filing fee to the Secretary of State. The fact of the matter is that many business owners leave money on the table and unknowingly take significant risks by failing to select the appropriate business entity when they start out, or by forgetting to reexamine their choice at different stages in the companies development.

In order to make an educated decision regarding entity choice, the business owner must carefully examine the following issues:

Tax considerations;
Day-to-day operations;
Growth Opportunities;
Exposure to liability; and
Exit strategy.

TAX CONSIDERATIONS. Sole proprietorships, limited liability companies, S-Corporations and Partnerships are the so-called pass-through entities in which profit and loss is taken at a personal level for the owners. Other entities are subject to different tax treatment. I always recommend consulting with a CPA before choosing an entity. The failure to match the type of business to the legal structure can result in significant (and often unnecessary) tax liability.

DAY-TO-DAY OPERATIONS. Business owners are called upon to make countless decisions in the course of a typical day. Vendor selection, the placement of orders, which contracts to sign or projects to undertake, hiring, promotion, demotion, firing, taking on an investor, liquidating or expanding - the list is endless. Some of these decisions are ordinary. Many decisions have long-term repercussions. The question of who has the authority to make these decisions, therefore, is very important. Legal structure, and the agreements through which the company are formed, determine the identity of the decision-makers as well as the procedures for ensuring that all necessary voices are heard on the issues that matter.

GROWTH OPPORTUNITIES. Choice of entity can and should be influenced by the founder's vision of the company's growth. If outside investment will be sought, corporate or LLC status are usually preferable to a general partnership or a sole proprietorship inasmuch as most investors insist on shielding themselves from liability. In addition, certain types of entities, for example an S Corporation, are statutorily prohibited from taking on a corporate shareholder. Accordingly, the company's timeline and preferences for growth should play a large role in selection of the entity.

EXPOSURE TO LIABILITY. Depending upon the type of business, limited liability companies and corporations are often vastly preferable to other structures because they insulate their owners from personal liability for acts of the entity. An owner's personal assets (such as a house, cars, bank accounts, and personal property) are often directly at risk when business is being conducted through a sole proprietorship or in a partnership setting. Protection from risk constitutes a fundamental basis for selecting a business structure.

EXIT STRATEGY. This is one of the most important and most ignored business planning issue. All good things must come to an end. Whether the business owner is anticipating a fifty year career or a two year cash-out in the business, exit strategy must always be considered in business formation. If one is looking to approach the investment community for a capital infusion, anticipates bank financing or hops to sell to employees or a third party at a later date, it is best to select a business structure and negotiate terms with co-owners most amenable to the particular scenario envisioned.

Finally, regardless of their current business entity, business owners can decide to change their structure at any point in the company's evolution. It is, however, easier said than done, and such change is often accompanied by significant legal, accounting, and tax expenditures. So, although change is possible, it is better (as in most things) to get it right the first time. Getting it right involves considering all the above factors before choosing a business structure.

If you have any questions or concerns about any of the above, please contact a qualified business attorney in your area. If you are in California and would like to explore any of these issues you can contact me at (951) 737-4040 or (415) 633-6702. You can also reach me by email at The Out-House General Counsel.

Beware of Online Legal Forms....You Get What You Pay For

2010-08-21T12:39:00.000-07:00

With online legal forms, you get what you pay for. For example, employment lawyer Karen Lundquist recently took a good, hard look at LawDepot’s $15 employment agreement. She found that it actually contained a provision that was illegal under federal law. In other words, there is no state in the country where the term would be legal. In every state, a company that tries to cut costs by using LawDepot’s employment agreement is just begging to get sued.

While online legal forms provide a good foundation for drafting your own documents, they do not replace the counsel of a reputable attorney, especially in the employment area. Employment litigation is on the rise. Invest in having your documents prepared (or at the very least) reviewed by a qualified attorney before you use them.

If you have any questions or concerns about any legal forms or contracts, feel free to contact me at (951) 737-4040 x2 or The Out-House General Counsel.

Reduce Risk of Personal Liability with Corporate Formalities.

2010-08-20T20:29:00.000-07:00

One of the things I love about being a small business attorney is interacting with other small business attorneys across the country and reading other small business law blogs. One such blog is the Entrepreneur and Start-Up Law Blog by Michelle Grenier.

Here recent post about corporate formalities is re-posted below because it presents this important subject matter in a very easy format to understand and follow. You will not get this information from LegalZoom. Ms. Grenier practices in Massachusetts and Maine. If you have any questions about corporate formalities, please contact a qualified business attorney.

Below are some suggestions for reducing the risk of personal liability for Shareholders and Directors of your corporation:

Here is the “Do” list:

Schedule, Give Notice of and Hold Shareholder and Director Meetings:

■Read and know the provisions set forth in your corporate By-Laws. I know it is not the most exciting reading, but it is important to know and comply with the "rules" of your corporate organization.

■Your corporate By-Laws should set forth the date for your annual Shareholders' meeting.

■Your corporate By-laws should require an annual Board of Directors meeting to be held on a date relatively soon after the annual shareholders' meeting.

Schedule, Give Notice of and Hold Special Meetings of the Board of Directors for important matters, for example:

■Changing an officer’s salary;

■Opening a new bank account;

■Offering to enter or entering into a new lease or option to lease;

■Applying for or entering into a funding commitment for a substantial sum;

■Making an offer concerning a substantial agreement or entering into any other significant contractual agreement ;

■Filling a vacancy on the Board of Directors (Note, Shareholders typically elect Directors) or appointing a new officer;

■Broadening the purpose of the business and/or the business activities which the corporation will be involved (e.g. entering a new industry);

■Considering the sale, in whole or in part, of the assets or the dissolution of the business (Note, Shareholders typically have to approve, on this subject as well).

Create and maintain good corporate records.

■Record minutes of all shareholder and director meetings;

■Maintain accurate corporate record book.

■Create and maintain good financial records.

Act in best interest of shareholders; Keep corporate information confidential.

■Directors owe a fiduciary duty to the shareholders of the corporation, meaning that they must act in the best interest of the corporate shareholders.

■Keep matters that come before the Board of Directors as confidential as possible.

Develop a Review and Analysis Plan:

■Review, analyze and revise goals (6 month goals, 1 year goals, 5 year goals, 10 year goals and 20 year goals).

■Review and revise budget at least every six months.

■During the first and last month of each fiscal year, review each year's business activities.

■Review business operations with your attorney.

■Review business operations with your CPA.

Authorized Signatories should sign all contracts in their corporate capacity (e.g. as President of xyz, inc.). Otherwise, the signatory could be exposed to personal liability for the contents of the signed document.

■ Corporation should have a resolution authorizing certain officer(s) to sign certain documents.

■All purchases for corporate should be made in the name of the corporation (name of corporation should be on all invoices, purchase orders, etc.)

■Maintain separate corporate bank account for corporate funds, assuring that such funds are not co-mingled with any other funds.

■Obtain and maintain liability insurance policy with limits not less than industry standard, for the corporation and directors.

■Fund the corporation at the time of incorporation with enough funds to maintain the corporation until supplemental influx of revenue.

■Always comply with provisions set forth in the By-Laws, Articles of Incorporation and other controlling corporate or contract documents.

Here is the short “Don’t” list.

Don’t fail to do the “Do’s.”

If you have any questions about anything contained in this post, please do not hesitate to contact me at (951) 737-4040 x2 or The Out-House General Counsel.

Franchisee 101 - What Should I do Before I Purchase a Franchise?

2010-08-11T19:33:00.000-07:00

I often get calls from recently downsized people who want to buy a franchise. What do I need to do first? What is the best type of franchise for me? Luckily, I have a great resource in Barry Kurtz, PC, a great franchise attorney out here in California. He recently sent out a newsletter with a great introductory article on becoming a franchisee.

FRANCHISEE 101 - WHAT SHOULD I DO BEFORE I PURCHASE A FRANCHISE?

You must conduct substantial due diligence (research all available information on the franchise system and industry) before purchasing any franchise. You should start with a comprehensive review of the Franchisor's franchise disclosure document (FDD). The FDD outlines key provisions of the franchise agreement and also provides crucial information about the franchisor. Review it with an eye to these points:

Compare franchising opportunities within the industry you are interested in to determine which franchise is best suited for you and which franchise may be the most successful. Once you have chosen to purchase a particular franchise, speak with as many franchisees in that system as possible, including franchisees recommended to you by the franchisor as well as those that were not.
Is the FDD current? A FDD expires after a year. You should insist upon seeing the currently registered version. If it is close to a year old, make certain that a newer version has already been written or submitted to the governing agency for approval.
Study the audited financial statements attached to the FDD, particularly the most recent one. By studying the financial statements, you should be able to determine how successful the franchisor is and how successful its existing franchisees are. Question any aspect of the statements that aren't clear to you. Ask your accountant to review them and provide feedback to you.
Visit the franchisor's headquarters. Do they appear to have the resources that are needed? Does personnel appear to be competent?
Prepare a business plan. Be as realistic as possible with your projections.
Get actual numbers whenever possible. Ask your accountant to review the plan and provide feedback.
Ask probing questions.

Barry Kurtz is available to assist you in reviewing the FDD and in overseeing your purchase of the franchise. Once you purchase your franchise you will need a qualified business attorney to help you navigate the legal maze of running your franchise. I can assist with that. If you have any questions regarding anything in this post, please contact me at The Out-House General Counsel or (951) 737-4040 ext. 2.