Articles Posted in Limited Liability Companies

Public policy in California dictates that businesses should be free to compete against each other in the marketplace. Competition among businesses greatly benefits consumers. At the same time, competition engenders higher quality goods and higher service quality at price points advantageous to the consumer. Toward that end, California’s antitrust law, known as the “Cartwright Act,” prohibits a wide variety of conduct designed to restrain competition in the marketplace.


The San Jose business lawyers at Structure Law Group, LLP dedicate their practice to helping business owners grow their company while insulating them from harm.  Unfair competition has a negative effect on consumers and businesses. Business entities should avoid structuring agreements which arguably cause unfair competition. Failure to do so could subject those businesses to lengthy and costly litigation and expose them to potential damages.

According to California business, trusts are unlawful and against public policy. California law defines a trust as a “combination of capital, skills, or acts by two or more persons” to:

The exchange of cash for payment for a goods or services is rare these days. We have certainly become a digital society. Business make advances daily to make transactions more efficient and convenient. However, businesses engaging in e-commerce must not compromise security for expediency. Additionally, businesses store infinite amounts of personal data about their customers. These businesses, such as health care providers and health insurance companies, not only must safeguard their electronic transactions but must also secure sensitive information and proactively combat data breaches. Failure to do so can lead to a huge economic loss for the customers and the company. The savvy business attorneys at Structure Law Group, LLP advise businesses on the best practices to prevent data breaches and counsel them on the necessary steps to take if such an unfortunate event occurs.


In California, people have a constitutional right to the safety and integrity of their personal information. California’s information security act defines personal information as any information that could identify or describe a person. Personal information is also an individual’s name, address, social security number, license number, medical information, and the like. A business in possession of such information must take reasonable steps to prevent disclosure of private information. California law obligates businesses to implement security measures reasonably designed to protect the integrity of the private information. Every business entity, from a sole proprietorship to a multi-national corporation is subject to the information security act.

California law broadly defines “data breach.” Data breach includes any “unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal information maintained by the person or business.” The information may be used in good faith for the benefit of the person whose information is disclosed, provided that such disclosure is authorized.

A “fraudulent,” or more accurately “voidable” transfer, is a transfer by a party (the “debtor”) of some interest in property with the goal or effect of preventing a creditor or creditors from reaching the transferred interest to satisfy their claim or claims.

Signing contract
What Law Governs “Fraudulent” or “Voidable” Conveyances/Transfers?

Fraudulent conveyances are governed primarily by the Uniform Voidable Transactions Act (UVTA), which replaced the Uniform Fraudulent Transfer Act (UFTA) in California as of January 1, 2016.  The UVTA applies to transfers made or obligations incurred after January 1, 2016.  The UFTA will continue to apply to transfers made or obligations incurred prior to January 1, 2016.  One of the most noticeable changes made in the UVTA is the removal of the word “fraudulent” from the title and body of the act. This change emphasizes that a transfer may be, and often is, voidable even in the absence of any sort of improper intent by the debtor or the transferees.

Businesses must endeavor to guard their trade secrets jealously. Failure to do so can wreak havoc upon development and growth. It will also give competitors a leg-up in the marketplace. Knowing and understanding California’s trade secret law is therefore critically important. Implementing multiple safeguards to prevent trade secret disclosure is necessary. If a business fails to implement reasonable safeguards to prevent trade secret misappropriation, then the business may be without recourse in court. Working closely with experienced business attorneys to develop the appropriate security measures to prevent trade secret theft could prevent disaster from striking. The San Jose San Jose business attorneys at Structure Law Group, LLP (in San Jose and Oakland) have extensive experience counseling businesses on how to best protect their trade secrets and defending businesses against trade secret misappropriation in court.


California’s Uniform Trade Secrets Act (“UTSA”), which follows the Uniform Trade Secrets Act adopted in 48 states, defines a “trade secret” as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” (Ca. Civil Code §3426.1.)

In order to assert a claim for misappropriation of trade secret information, the owner of the trade secret information must identify its trade secret with sufficient specificity so that the information is separate from areas of general knowledge. For example, customer lists, marketing plans or pricing concessions are examples of broad categories of trade secret information. Or, the trade secret can be highly specific, such as a newly designed manufacturing process or the recipe for some sugary carbonated beverage, such as the recipe for Coca-Cola.

A partnership is created whenever two or more people agree to do business together for a profit. Additionally, partnerships should ensure that they follow sound business practices once they begin their new venture.

Steps in Forming a Partnership


The first step to forming a partnership is choosing its name.  In California, a partnership may use the last names of the individual partners or any fictitious names. If a fictitious name is used, it must be distinguishable from the name of any business name that is currently on record.  Before choosing the name, a search should be run in the following databases such as California Secretary of State or The United States Patent & Trademark Office.   If a fictitious name is used, the state of California requires that a fictitious business name statement is filed in the office of the county clerk where the partnership intends to do business.  The fictitious business name must also be published in the county newspaper for four weeks.

California law requires employers to take reasonable steps to prevent and address alleged discriminatory and harassing conduct, to provide a government-issued brochure on sexual harassment to all employees, and to conduct sexual harassment prevention trainings if the employer has 50 or more employees.  As of April 1, 2016, the California Department of Fair Employment and Housing (DFEH) has enacted regulations that will require employers to develop written anti-discrimination and harassment policies with certain content requirements.

Under the new regulations, the anti-discrimination/harassment policy must be in writing, and must at a minimum:

  1. List all of the protected categories under California’s Fair Employment and Housing Act, which currently include race, creed, color, national origin, age, ancestry, physical and/or mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, and military and/or veteran status,

by

A limited liability company (“LLC”) is one of the most favored forms of business entities because they combine the advantages of a corporation, such as limited liability and protection of their members from investor-level liability, with the advantages of a partnership, such as “pass-through tax treatment.” Additionally, LLCs are characterized by the informality of its organization and internal governance, set forth through an internal contract called the operating agreement.  An LLC member can be an individual, a corporation, a partnership, another limited liability company or any other legal entity.


An LLC can be structured as a manager-managed or member-managed LLC.  In a manager-managed LLC, the members appoint a manager or managers to run and manage the LLC while the members take on a more passive role.  In a member-managed LLC, all the members share in managing the day-today operations of the LLC.  The managers or managing members who have been charged with the responsibility of running the LLC are obliged to act in the best interest of the LLC. The duties connected to this obligation are  known as fiduciary duties.   The key fiduciary duties are the duty of loyalty and the duty of care.  These duties are specifically defined by California law, as discussed in more detail below.

Requirements of a Fiduciary Duty

by

At some point during the life of a limited liability company (LLC), the owners may decide that it is time to close the business.  The process of closing a business  is just as important as the process it took to create the LLC, because, among other things, the owner(s) need to provide notice to creditors and ensure that the LLC is beyond the reach of creditors.  The formal process of closing your LLC is called “dissolution.” While there are many ways to dissolve an LLC, including involuntary dissolution, this article focuses on voluntary dissolution by the LLC’s member(s) and for those LLCs which were active in conducting business during its lifespan.

Dissolving the LLC 

In order to voluntarily dissolve an LLC, the member(s) should first look to the company’s formational documents, which are the articles of organization and operating agreement.   In the majority of cases, one of these two documents will contain procedures and/or rules for how to dissolve the company.  In most cases, the procedure begins with a vote of the LLC members on a resolution to dissolve.  It is important that any specific requirements regarding the voting of member(s) are followed, such as providing for when a meeting to vote should take place, whether any advance notice to the LLC’s members is required in preparation for the meeting, and what required percentage of members is needed to pass the vote.

If your business employs at least one person, you should be thoroughly familiar with both the California and federal wage and hour laws. These laws regulate many aspects of employment from minimum wage to guaranteed rest and meal breaks. One important part of compensation that is regulated by wage and hour laws is overtime payments for individuals who work more than 40 hours per week.


Overtime laws entitle certain employees to time-and-a-half payments for additional hours worked. However, not everyone is entitled to overtime and the laws that regulate overtime exemptions can be complex. One important rule under the Fair Labor Standards Act (FLSA) is that anyone who earns less than $455 per week for full-time work ($23,660 annually) is automatically entitled to earn overtime. If employees earn more, a closer examination into their job duties must be made. In addition, once an employee earns $100,000 annually, they are considered to be “highly compensated” and no longer have the right to overtime provided his or her job duties meet certain minimum requirements.

The Department of Labor updated the overtime rules with regard to the income threshold and the new rules will take effect on December 1, 2016. The new threshold for automatic entitlement to overtime will be $913 per week for full-time work ($47,476 annually) and the new highly compensated threshold will be increased to $134,004. It is estimated that over four million people will receive a new entitlement to overtime.

Issuing equity in a company is a popular form of employee compensation. This trend is especially popular here in Silicon Valley, where startup companies often defer cash compensation to their employees in exchange for a share of future growth through the issuance of equity. If you own a non-public company, you may wish to compensate your employees partially by issuing them equity in the company. Equity aligns incentives between employers and employees while enabling employees to build up wealth over a longer term. Equity issuance can be done in different ways, including by issuing restricted stock grants or by issuing stock options. Each of these forms of compensation can have its own pros and cons and you want to make sure you carefully analyze the decision and decide which is best for your circumstances.


Restricted Stock

Restricted stock is a stock award that will not fully transfer to the employee until certain conditions have been met. These conditions can include a certain length of time working for your company, meeting certain performance or financial goals or milestones, and more. These restrictions can be helpful for owners to ensure that employees do not simply walk away from your venture and that they must wait for the award to vest before they receive the stock benefits. In addition, by making an 83(b) election with the IRS within a certain period of time after the restricted stock grant, employees can save significantly on the tax burden once the stock vests. If no election is made, however, employees may face hefty tax liability at the time of vesting depending on the value of the shares. Restricted stock is less risky and easier to manage in comparison to regular stock.  However, restricted stock has less favorable tax treatment than options.