Articles Tagged with Corporation

AdobeStock_74836089-300x200A corporation can be formed under the laws of any state, so long as the business and its owners qualify for business entity status. Many business owners use these laws to find a state that offers the most tax and legal advantages. (This is why so many businesses incorporate in the state of Delaware.) But it is important to understand that California law can still apply to your business even if it was formed out of state. Be sure to consult with a California business lawyer about the implications of California law upon your business entity.

What is the Pseudo-Foreign California Corporation Statute?

Section 2115 of the California Corporation Code applies to foreign corporations that have connections to California and satisfy the applicable statutory tests. If both of the following tests are met, the corporation is considered “pseudo foreign,” and it is treated as if it had been incorporated in California in the first place.

AdobeStock_201973585-300x200The right of first refusal is an important legal protection that allows business owners to protect their financial and ownership interests in a company. It allows a business to purchase stock from an employee or owner before that stock is sold to an external purchaser or outside party. This, in turn, allows the business owners to retain their control of the company by preventing an outside purchaser from obtaining voting rights or an equity stake in the business.

The right of first refusal can be exercised after the seller has already solicited an offer from an outside purchaser. It can also be exercised as a “right of first offer,” in which the company has the right to make a purchase offer before the seller solicits an offer from an outside purchaser. The specific terms and conditions of a company’s right of first refusal should be clearly stated in writing in official company ownership documents between the company and its shareholders, employees, or founders.

LLC and Operating Agreements

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.

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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 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

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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.

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.

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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.

While many well-known businesses are either corporations or limited liability companies, partnerships remain a common and savvy business entity selection. In fact, some of the biggest names in tech—Apple, Microsoft, and Google—started out as partnerships.

What is a Partnership?

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Partnerships exist whenever there is a cooperative endeavor of two or more people, entities, or some combination thereof, to provide a product or service. The main characteristic of any partnership is that the partners share in the profits and losses of the business.

Very generally stated, the Board of Directors of a California corporation is responsible for the way in which the corporation is run. California law requires every corporation in the state to have a board of directors and, according to the text of the law, “all of the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board.” While this may make is seem as if a company’s board of directors participates in the everyday management of the business, this is usually not the case, and corporate boards regularly delegate management of a business to individuals who may or may not be a member of the board.

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How is a Board of Directors Formed?

When a company incorporates, it is required to file a document called “articles of incorporation” with the Secretary of State’s Office. This document establishes much of the basic identity about a corporation, including its name, how much stock it will issue, and the way in which the board of directors will be chosen.  California law requires that every board of directors has a chairperson or a president (or both), a secretary, and a treasurer or chief financial officer (or both), as well as any other named officers that may be required by a corporation’s bylaws.

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