San Jose Business Lawyers Blog

Pros and Cons of a C Corporation vs. an S Corporation

Selecting a business entity is one of the most important decisions an entrepreneur faces. There are numerous options including sole proprietorships, partnerships, limited liability companies and corporations. To make things even more complicated, there are two primary types of corporations, each with its own benefits. In order to ensure you choose the best business entity for your purposes, you should always conduct careful research and consult with an experienced California business attorney to discuss your options.

Once you have decided you want to incorporate, your options are to form a regular C Corporation or an S Corporation. Though these two types of corporations are quite similar, there are a few key differences that can determine which one is right for your business.

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3 Similarities between S & C Corporations

The following are a few ways that an S Corporation and C Corporation are alike:

1. Both types of corporations are owned by the shareholders, who have protections from liability for business debts and most business-related legal matters.
2. Both are structured the same way: the shareholder/owners elect a board of directors that oversees major issues. The board of directors then elects officers, who handle the day-to-day operations of the business.

3. Both must comply with state law regarding document filings, fees, bylaw and more.

Differences Between S Corporations and C Corporations

The most important difference between an S Corporation and C Corporation is the way that they are taxed. In both cases, shareholders pay taxes on dividends of any distributions of profits. A C Corporation, however, may also be taxed on the corporate level, which means it may be subject to double taxation. On the other hand, the taxes for an S Corporation all pass-through to the shareholders, so there is only single taxation. This pass-through taxation is authorized by IRS Code, Subchapter S of Chapter 1.

Though the single taxation of an S Corporation likely sounds preferable, the S Corporation entity is not an option for every business. Another difference between the two is that, while a C Corporation can be quite large and have numerous shareholders, an S Corporation may only have a maximum of 100 shareholders. In fact, the IRS created Subchapter S in part to encourage small businesses and entrepreneurship. Therefore, the size of your business may play a significant role in the type of corporate entity you choose.

If you have any questions about C Corporations, S Corporations, or other business entities, do not hesitate to contact an experienced attorney at the Structure Law Group for assistance today.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

An employment contract can be a useful tool to protect your business while providing clarity and structure for your employees. An effective agreement should clearly spell out the terms of both employment and termination. In this post we’ll take a look at the basics of creating an employment contract.

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Understanding Employment Contracts

A well-designed contract outlines an employee’s roles and responsibilities. What tasks is the employee expected to perform? What does the job pay? What benefits will the employee receive? Clearly stating this information upfront will protect your business from future lawsuits, provided you abide by the contract.

You’ll want to be specific that the employment relationship is at-will. This means either the employer or the employee can terminate the agreement at any time for no reason. If instead it is not at-will, you should be sure to spell out the grounds for termination.
One thing to keep in mind is what happens after an employee is either terminated or leaves. Who owns the right to any material he or she produced? What about confidentiality? An employment contract can protect your business by safeguarding its intellectual property.

Advantages of Employment Contracts

Besides offering reassurance, an employment contract can be a great way to attract new talent. Think of a contract as an offer sheet. You’re providing a prospective employee with job security and a clear path to success.

Contracts can also make it easier to manage employees. The expectations can be laid out for all to see, which means there’s less gray area. Unfortunately, not all employees work out and a contract can avoid any confusion between employer and employee as to whether it is working out or not. make it easier to terminate employment should the need arise.

If you’re thinking about putting together an employment contract, contact the professionals at Structure Law Group. We can help you create something that is specific to your business and adheres to the law.

About Structure Law Group
Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

In a previous blog post we briefly talked about operating agreements. This topic is important enough to merit further examination. We’ll specifically look at what you need to include in an operating agreement for an LLC.

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The Purpose of an Operating Agreement
Think of an operating agreement as the founding document that spells out the essentials of your business. Everything should be outlined including the management structure, membership interest, capital contributions and the financial allocations and distributions. More isn’t always better, but in this case being as detailed as possible will help you in the long run.

What to Include in an Operating Agreement

It’s important to outline your management and financial structure. This will deter any potential disagreements if the LLC has more than one member. Failure to include such information in your operating agreement could make you subject to your state’s default laws. For instance, some states have statutes that say members of an LLC must split profits and losses equally, regardless on ownership.
As mentioned above it is important to outline the capitalization of the Company. Capital Contributions are the amounts of money and values of property contributed by member(s). Also important is the distribution of profits and losses. Are members entitled to revenue generated by the LLC? If so, how much and how often are funds dispersed?
Finally, it is important to include guidelines for transfers of membership interest in the event of a death, incapacity, bankruptcy or if a member leaves or is bought out. You’ll need to include rules detailing the buyout provisions. This can help make clear terms on how much is to be paid and when.

Creating an operating agreement can be a lot of work. It’s best to consult a professional like the ones at Structure Law Group. A skilled attorney can help secure your business and provide you with peace of mind.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

There are a number of ways to fund a startup. We’ve all heard about loans, grants and crowdfunding but new rules from the SEC will make it easier for entrepreneurs to raise capital. In this post we’re going to look at changes to “Regulation D” and what that means for startups.

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Understanding Regulation D

Regulation D is part of the Securities Act of 1933. Section 506 specifically deals with the solicitation of private offerings. In the past, the SEC essentially banned all forms of advertisement for private investment. The revised Regulation D does away with most of the restrictions. It’s now possible for a company to publicly solicit funds for a private venture.

The New Regulation D

The game has changed but that doesn’t mean there aren’t rules. Only accredited investors can utilize the changes to Regulation D. These are people with $1 million in net worth or who make $200 thousand dollars a year in individual income. There is also a strict process for weeding out “bad actors.” Generally, these are people who have committed some kind of financial crime or who have been disciplined by the SEC.

What it Means

The change to Regulation D is great news for startups. Increased access means greater opportunity to spread the word about a business and its product. A startup can now use every tool at its disposal to try and raise money. Another interesting aspect of Regulation D offerings is that there isn’t a limit to the amount of capital that can be raised. Crowdfunding is a popular way to support startups. The key difference is that the total dollar amount in this model is capped at $1 million.

There is plenty more to learn about Regulation D and its cousin Regulation A. To find out more, contact the professionals at Structure Law Group.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Forming a corporation may seem like a lot of work but the process isn’t too difficult. In this blog post we’ll walk you through some important steps to incorporate in California. Every state is different so make sure to check with the Secretary of State’s Office in your area before getting started.

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1. Pick a Name

The name you pick for your corporation must not be the same, or similar to, one already on file with the California Secretary of State. You can search on the Secretary of State’s website to see if the name you’re thinking of using is original. You should also check beyond the state, e.g. nationally and even internationally. A name that is the same as, or similar to, one used in another state or country can pose problems.

2. File Articles of Incorporation

Be sure to include the corporation’s name, purpose, name and address of a registered agent plus the number of shares the corporation is authorized to issue.

3. Appoint a Registered Agent

An agent is an individual or corporation that agrees to accept legal papers should your business be sued. You can find a list of registered agents by visiting the Secretary of State’s website. You can also choose one of the company’s owners to be a registered agent for your corporation.

4. Prepare Bylaws

Bylaws dictate how your corporation will be run. You’re not legally required to file them, but most banks, investors, and others won’t do business with you if they can’t see how your company operates.

5. Appoint a Board of Directors

Among other things, this board will appoint officers, adopt bylaws and determine the corporation’s fiscal year. The number of board members can vary, within certain parameters, and the directors need not be shareholders of the company, though they often are.

6. Issue Stock

Every shareholder should receive paper stock certificates. The stock is a security, and therefore, subject to state and federal securities laws. Properly complying with securities laws is an important step and one your attorney can help you with. Proper compliance will avoid liability for securities fraud in the future.

This list is by no means comprehensive but it does provide a working outline. For further assistance visit Structure Law Group’s website.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

A merger or acquisition can be a great way to grow your business. Joining forces or purchasing another company increases your market share and potential profits. There’s no real way to know if the venture will pay off. However, the proper due diligence can provide reassurance that the move you’re making is a good one. Due diligence is a multi-step process, so in this post we’re going to focus on just one part: liabilities.

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Understanding Liabilities

Any merger or acquisition comes with a degree of risk. Liabilities are the debts and obligations incurred through the course of doing business. Loans are considered a liability as are accounts payable and accrued expenses. It’s important to take a look at the total number and dollar value of all liabilities. Also, look at the company’s payment history. Are bills paid on time? Is there a record of default? These are red flags that should give you pause. Remember, once you’ve assumed liabilities the responsibility is yours.

Unrecorded Liabilities

An unrecorded liability is exactly as it sounds. This type of liability won’t show up on any records or accounting statements. Before you call off your merger or acquisition, understand that unrecorded liabilities are normal. A common example is vacation time. Let’s say an employee rolls over vacation time and, come retirement, hasn’t used it all. He or she will be owed money in exchange for the hours. This can be a substantial cost if enough employees have banked their hours. The best way to find out about a company’s unrecorded liabilities is to ask the right questions and request the relevant documents, or you can hire an experienced attorney.

Due diligence is a critical component of any merger or acquisition. Failure to do your homework can have dire financial consequences.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

contract.jpgAny business with multiple owners should have a buy-sell agreement. A buy-sell agreement, provides order and clarity should anything happen to one of the owners. In this post we’ll take a look at buy-sell agreements, how they work and what to include.

Understanding an Agreement

Let’s say you and some family members get together and form a corporation or an LLC. Things are going pretty well, the business is making money and everyone is happy. Then something happens, maybe one of your family members dies or simply decides to leave the business. What happens to that person’s stake in your company? A business without a buy-sell agreement can easily fall into in fighting and costly litigation, not to mention the impact on consumer confidence.

How to Craft a Buy-Sell Agreement

Really, the first thing you should do once you start thinking about forming a corporation, LLC or partnership is to hire an attorney. However, that doesn’t mean you can’t start talking with each other about what to include in a buy-sell agreement. Generally, you’ll want to list the conditions that would lead one owner to buy out another. This can be anything from death to termination. You’ll also want to outline the process for transferring ownership. Will the owners purchase the shares with their own money or will it be done through the business? Also, how will the sale price be determined? Some companies negotiate that upfront while others use a formula.

It’s important to be detail oriented. You and your fellow owners should understand each part of the agreement. You don’t want to be surprised later on when one of the owners sues you for paying in installments instead of one lump sum. The more specific the better. In the end, a buy-sell agreement may not only save your business, it may save your relationships.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

rules.jpgOne of the first things any newly formed corporation should do is draft bylaws. Bylaws are a corporation’s operational blueprint. They identify what the business does, how it is run and who is in charge. Here then are five steps to drafting a set of bylaws.

5 Steps to Creating Corporate Bylaws

1. Detail relevant information concerning shareholders. This includes who holds stake in your corporation, what rights they hold and when and where meetings are to be held.

2. Identify the Board of Directors. Include information on meetings, procedures for resignation and removal or addition of directors.

3. Outline the procedure by which officers are elected. Officers are people like the CEO or CFO. Detail their roles and responsibilities as well as how they will be compensated.

4. Indemnification of Officers, Directors, and Agents. In order to protect those who labor on behalf of the corporation, the bylaws should spell out who is indemnified for acts taken on behalf of the corporation, as well as the procedure for handling claims.

5. Finally, bylaws are made to be amended. What’s the process look like? Deciding on this issue now will prevent headaches down the road. You’ll want to figure out who has the authority to add, alter or completely remove a bylaw.

These five steps are really just a working model. There are fine points that should really only be handled by a professional. An attorney can help you craft a set of bylaws that are clear, sensible and legal. In reality, this process consists of at least six steps with the first being contacting a local lawyer to help get you started.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

hands.jpgA strategic alliance is a fairly simple concept. Two companies with similar interests join forces to produce favorable outcomes for all involved. An everyday example is the Starbucks inside of Barnes and Noble bookstores. This move helped Starbucks expand, but it also kept people in the bookstore, perhaps reading the first few pages of a book they were thinking of buying. A strategic alliance is good for business, but you’ll need to take the proper steps to make it work.

1,2,3 – The Steps to Creating a Strategic Alliance for Your Company

Step 1: Choosing a Partner

Companies create a strategic alliance to help increase their profits. A solid partnership is one that generates revenue that couldn’t be achieved by going it alone. Therefore, it’s important to pick a partner you trust and that has a solid reputation. Also, a strategic alliance is a long-term commitment. Results are monitored over years, not months, so be sure the company you pick is one you can work with for the foreseeable future.

Step 2: Crafting a Deal

Perhaps the most important part of this step is determining a strategy. How will you go about achieving your goals over the next 3-5 years? This is also the time to set boundaries and determine roles. It’s critical that you and your potential partner agree on such things like operation details and rules for intellectual property.

Step 3: Making it Work

Remember, these are two companies with two different ways of doing things. To make your alliance work you’ll need to cultivate relationships. You’ll need to know who’s in charge and what happens when something unexpected happens. The way you handle a particular situation may be different than your strategic alliance partner.

The best way to avoid confrontation is by creating a clear contract. A good contract will outline roles and responsibilities as well as provide an “out” should the alliance fall apart. The team at Structure Law Group can craft an agreement that satisfies such objectives. By putting everything in writing you protect your company legally from any problems that may arise.

Have questions about creating a strategic alliance for your company? Contact Structure Law Group today!

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

lease.jpgWhether you’re starting a business or looking to expand, chances are you’ll encounter some kind of lease. The most common are the gross lease and the net lease. In this blog post we’ll take a look at the differences between the two and the benefits of each.

Gross Lease

In this scenario, the tenant pays a fixed amount each month. The landlord is responsible for the costs associated with property taxes, insurance and maintenance. A gross lease offers some flexibility because these properties are generally deemed as either Class B or Class C. They’re less desirable so the landlord may be willing to negotiate over things like who pays the utility bill.

Net Lease

You’ll likely see a net lease in properties deemed Class A. These are typically high value structures in a popular part of town. As such, tenants can expect to pay a fixed amount along with maintenance charges, insurance and taxes. The benefit to you as a business owner is exposure and the possibility of working in a new, less problem prone building.

Letter of Intent

Before you sign a gross lease or net lease, it’s a good idea to craft a letter of intent. This document typically addresses issues like length of the rental, when the space is available and whether or not expansion is possible. You’ll want to have a lawyer look over any lease documents. The professionals at Structure Law Group can help you craft a suitable letter of intent that protects your interests.

There is plenty more to consider when crafting a lease. At least now you understand the key differences between the two main types of commercial leases. This information will help you when you’re coming up with a budget for your business. Knowing these costs up front eases some stress and makes it easier to get started.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.