Articles Posted in Corporations

Mergers and acquisitions (M&A) are complex business transactions with much on the line.  If a merger or acquisition is not successful, a business can lose substantial assets.  Of course, no one would intentionally enter into an acquisition transaction knowing it would fail; however, reports have indicated that more than half of acquisitions do fail at some point.

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It is important to understand how acquisitions fail, steps to take to prevent failure, and how your business can recover from a failed merger and acquisition.  An experienced California merger and acquisition lawyer from Structure Law Group, LLP can help you understand all aspects of a merger and acquisition and help you prepare for any outcome.

Common Reasons For Failed Acquisitions

Selling a business can be an extremely lucrative prospect, but like any business transaction, the deal can go wrong and can be unnecessarily costly.  The sale of a business usually is not the sale of one asset; instead, all the assets of the business are sold or transferred.  One way to ensure that the sale of your business ends up in your favor is to skillfully negotiate the definitive agreement that sets out the final terms of the sale.  The experienced corporate attorneys at Structure Law Group, LLP have helped many entrepreneurs sell their businesses to achieve cost effective and positive results.

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The following are only a few questions to ask when drafting a definitive agreement to sell your business:

  • What does the sale include – what is the business, what are the business assets and liabilities?

Often, selection and formation of a startup can be stressful and confusing.  But it is not the end of the process.  In order to protect your startup and its status, many steps must be followed to continue to ensure the startup remains in good standing with local and state laws.  The experienced California corporate lawyers at Structure Law Group, LLP can help entrepreneurs and businesses, at any stage of the process, protect and maintain their corporate form.

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Why It Matters

Formation of a limited liability company (LLC) or incorporation of a startup takes time and money to gain the protections offered by the corporate form.  If a business owner fails to maintain the ongoing requirements, the startup’s status may be put in jeopardy, and as a result, can lose the protection offered by the corporate form.  Maintenance of a corporation or an LLC is a continual process, requiring completion of steps to be in compliance with all applicable California state and local laws.

If proper procedures are not followed and the protections of the corporate form are lost, each business owner can be exposed to potential personal liability.  For example, if your business is sued while its status is expired or not in good standing, it is possible that the plaintiff can pursue both business assets and your personal assets.

What is Required?

The requirements for a business will vary based on whether the business is a corporation or an LLC.  Requirements also vary by state and local laws.  Be sure to check your local requirements or speak with an experienced California corporate lawyer in your area to ensure you are following all of the applicable requirements.  Below are only a few common requirements:

  • Annual Reports – California requires that businesses file a report with the state, either every year or every other year, depending on the year the business was registered. In California, these documents are called “Statements of Information”.
  • Fees – A business is required to pay a fee at the time of filing the report to renew registration with the state. Be sure to check the amount of the fee each year, as it is subject to change.
  • Internal Requirements – These state requirements apply to the internal operation of the business. For example, corporations are required to adhere to certain corporate formalities by doing the following: holding annual director and shareholder meetings, adopting and updating bylaws, and issuing stock and keeping updated records of those stocks. LLCs have less stringent requirements, but it is still recommended that all LLCs maintain good corporate records and updated operating agreements.

California Corporate tax rates

Entity type Tax rate
Corporations other than banks and financials 8.84%
Banks and financials 10.84%
Alternative Minimum Tax (AMT) rate 6.65%
S corporation rate 1.5%
S corporation bank and financial rate 3.5%

 Effective January 1, 2015, for taxable years beginning on or after January 1, 2014, California law requires business entities that prepare an original or amended return using tax preparation software to electronically file (e-file) their return to us.

Call a California Corporate Lawyer Today

If you are unsure if you have taken all of the necessary steps to maintain your startup’s status as a corporation or an LLC, reach out to a California corporate lawyer right away.  Many of the most common deficiencies can be remedied to restore your status and the accompanying protections.  It is suggested to have an experienced corporate lawyer review with you all of the requirements for maintaining your business’ corporate status on an annual basis.

The California corporate lawyers at Structure Law Group, LLP have the experience needed to help guide you through each requirement and ensure that your corporation or LLC is set up for success.  Call us at 408-441-7500 or fill out our online contact form today.

An earnout is a type of pricing structure used in mergers and acquisitions that makes some of the purchase price contingent on the performance of the business after the acquisition has taken place. In this sense, the sellers must “earn” this part of the sale price. At its most basic, these provisions serve to reallocate post-sale risk to both the buyer and the seller.  When considering a merger or acquisition, it is often best to get counsel from an experienced Silicon Valley merger & acquisition attorney to fully understand the terms and conditions of the agreement.

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When Are Earnouts Employed?

Earnouts can be employed in a variety of situations to resolve points of contention in the negotiations of a merger or an acquisition. Commonly, they are used when the seller is more optimistic about the future value of the company than the buyer. The earnout clause will allow both parties to reach an agreement that they believe to be fair. They can also be used as a financing mechanism and for the sale of startups with little operational and financial history.

Government contracts can be lucrative for many companies, large or small. Often, one company wants to bid on a government contract but needs assistance from another company to fully perform the contracted work. In such cases, the two companies would combine their resources to share the bid and the contract, if awarded.  When this situation arises, it is critical to ensure that the companies have an agreement, a “teaming agreement”, stating how the work set forth in the government contract is to be divided to protect the interests of each business.

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Many teaming agreements involve a large corporation acting as the primary contractor and one or more smaller businesses acting as subcontractors. Smaller businesses naturally want to protect their interests against larger corporate entities with more resources. Preparing bids can be costly and time consuming and can take focus away from other day to day operations of the business.

Unfortunately, the problem is that many teaming agreements have been deemed unenforceable by California state courts. Because a teaming agreement is signed before a contract is awarded and whether it takes effect is dependent upon winning the contract, many courts have stated that teaming agreements are “an agreement to agree” in the future instead of a binding contract. This means that a subcontractor could take the time to prepare a bid and enter into an agreement with a primary contractor, and once the government contract is won by the primary contractor, it could decide to use a different subcontractor, leaving little legal recourse for the subcontractor.

Many considerations go into deciding which legal entity to choose when starting a business. In some cases, as the business grows, it may even want to convert into a different entity type. For example, if it began as an LLC and the owner now plans on seeking angel investment, he/she may consider converting to a corporation. In these situations (formations or conversions), one critical factor to consider is meeting the formalities required for different legal entities.

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When a California business is considering converting its entity type, it should not do so without consulting with an experienced California corporate attorney. In addition to filing conversion documents, there are many internal factors that should be considered and discussed before transitioning (the company’s management structure and capitalization structure, as well as any special voting considerations, are only a few examples).

Now, we will look at some of the similarities and the differences in formalities required for limited liability companies (LLCs) and corporations.

If your business employs at least one person, you should always be aware of the ever-changing wage and hour laws in California and your particular city. In addition, if your company has locations and employees in multiple states or cities, you need to be in compliance with the laws of those jurisdictions, as well. One important aspect of employment law is that many states and cities are raising the required minimum hourly wage. Ignorance of the changes to minimum wage laws is not a valid defense to violating those laws and noncompliance can be costly. Contact the California employment attorneys at Structure Law Group, LLP to stay up-to-date on the latest employment law.  The following is a brief overview of the recent updates to minimum wage in California and increases in other parts of the United States.

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 California Minimum Wage Adjustments

 California has a legislative plan in effect that aims to raise the minimum wage across the state to $15.00 per hour by the start of 2022 for most businesses and by 2023 for smaller businesses. There is one set of guidelines for companies that employ 26 or more individuals and another set for companies with 25 or fewer, so it is important to know which set of guidelines applies to your business.  However, depending on where you conduct your business, a higher minimum wage may apply than what has been enacted by the California legislature, as many cities across the state have increased the minimum wage on their own.  For example, San Francisco raised its minimum wage to $13.64, which will increase to $14.00 per hour on July 1, 2017.  San Jose’s minimum wage is currently $10.50 for all employers and will increase to $12.00 per hour on July 1, 2017.  It is critical to know what the local and state minimum wage is in order to ensure compliance and the employment attorneys at SLG can help.

As the owner of a corporation, LLC, or other business, you want employees on your team who improve efficiency and increase profits. However, as cautious as you may be during the hiring process, there is always the chance that an employee may become a problem. In some cases, talking to an employee and discussing an issue can result in them changing their behavior for the better. In other cases, behavior may get worse. You may be getting complaints from your customers, vendors or even other employees. In such cases, it may be best to terminate the employment relationship.

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 Often, the problem is that not many people take getting fired lightly.  While California is an “at-will” employment state, meaning employees can be fired for any legal reason (e.g., non-discriminatory) or no reason at all, many people get angry and look for a reason to hold the business accountable for their job loss, even if it did nothing wrong. For example, if you excuse a male employee for being late regularly yet fire a female employee for tardiness, you may be accused of sex discrimination. Allegations of discrimination, harassment, retaliation, and wrongful termination can be made. Even if such allegations are unfounded, you could have to spend valuable time, energy, and money defending against these claims.

The experienced employment law attorneys at Structure Law Group, LLP can help you establish employment practices and employee handbooks that will allow the employment process to run more smoothly.  The following are some things to consider when firing a problem employee:

Previously on this blog, we discussed two important matters relating to the formation of the Terms of Use on your business’s website: avoiding using boilerplate language in favor of terms tailored to your specific business and having a privacy policy regarding the collection of customer information. The following are two more important things to consider during the process of drafting and posting your website’s Terms of Use.

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Have Clear Sale Conditions

Many companies use their website to conduct online sales. No matter what your product is or the size of your operation, failing to have clear conditions of sales on your Terms of Use can result in disputes and even legal claims. The terms of a sale should be in clear language that the customer can read and agree to prior to making a purchase. Some terms to address in this part of your Terms of Use include the following:

Every time a contract is signed, the potential exists that one party fails to perform the obligations specified under the contract. In such cases, the aggrieved party may elect to file a lawsuit to try to seek performance under the contract or, more typically, for losses incurred as a result of the other party’s non-performance. However, in some cases, there may be a defense to the enforcement of the contract.  One such defense is undue influence.

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Undue influence is the unfair or improper persuasion of one person by another or excessive persuasion that causes another person to act or refrain from acting by overcoming that person’s free will resulting in inequity. A party’s apparent consent to a contract (or transaction) is not free or real when it is obtained through undue influence. In other words, a contract obtained though undue influence is voidable.  Consent is deemed to have been obtained through undue influence when the purported consent would have been refused if the acts constituting undue influence had not existed.

In California, there are four circumstances, prescribed by the civil code, in which undue influence occurs: