Articles Tagged with Corporations

Section 544 of the Bankruptcy Code, commonly referred to as the “strong arm” clause, gives the bankruptcy trustee the rights of a secured creditor.  This allows the trustee to avoid for the benefit of the debtor’s creditors transfers or obligations that could have been avoided by an unsecured creditor under nonbankruptcy law, provided such creditor exists.  Generally, this allows the trustee to avoid unperfected liens and fraudulent transfers.

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Section 544 of the Bankruptcy Code sets out the strong arm clause in full.  Section 544 provides in relevant part that “[t]he trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor” that could have been avoided by certain judicial lien holders or bona fide purchasers. The Bankruptcy Code can be confusing and intimidating to some.  An experienced San Jose bankruptcy lawyer can help creditors understand their rights, options and risks not only with the “strong arm” clause, but the entire Bankruptcy Code.

What Claims Can Be Avoided?

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.

When forming a Limited Liability Company (LLC), one must choose who will be responsible for managing the operations of the company. LLCs are managed by either its members or by a manager(s) and are, therefore, either member-managed or manager-managed. Some entrepreneurs know which form they want for their business from the start while other don’t know which would be best and don’t know how to come to the right decision.  Consulting with a knowledgeable Silicon Valley corporate attorney will allow the entrepreneur to understand every avenue for their company and reassures them that their business is moving forward in the right direction.

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Member-managed LLCs

In forming an LLC, the “members” are the owners of the company. In a member-managed LLC, the members of the LLC are actively involved in the running of the LLC’s business. It is the members who handle the day-to-day running of the company and share in the responsibility for management decisions.

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:

A commercial landlord is confronted with a number of issues when a tenant files bankruptcy. When a tenant files bankruptcy with an unexpired lease, the debtor tenant is given the option to “assume” or “reject” the lease. If the debtor elects to assume the lease, it agrees to be bound by all terms of the lease and it must cure all defaults and provide the landlord with “adequate assurance of future performance” under the lease. If the debtor rejects the lease, the rejection constitutes a breach of the lease, giving the landlord claims for damages.

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Assumption or Rejection. The first question that a commercial landlord will want to know is whether the debtor will assume or reject the unexpired lease.

If the debtor assumes the lease it means that the debtor intends to remain at the property as a tenant (or possible that it plans to assign the lease to a third party). In order for a debtor to assume a lease, the debtor must either not be in default under the lease or it must cure all pre- and post-petition defaults; it must give the landlord “adequate assurance of future performance under the lease,” and it must obtain bankruptcy court approval to assume the lease.

Venture capital financing can be an extremely important asset to startups that do not have access to other types of traditional business financing, such as bank loans or the public markets. There can be many benefits to venture capital financing for entrepreneurs, including the following:

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  • Venture capital involves equity capital, so it does not leave a startup with substantial debt from the start;
  • Venture capitalists often take greater risks on young and unestablished companies because they see the potential for extensive growth and, therefore, higher returns;

Corporate merger and acquisitions are highly technical transactions with a lot at stake for all parties involved. It can take thousands of hours of dedicated work to finalize this type of deal and the last thing you want is to commit time, energy, and money to the process only to have one party back out at the last minute. For this reason, the early stages of any merger and acquisition should involve a carefully drafted and negotiated letter of intent (LOI) that is signed by all parties.

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What is a Letter of Intent?

Before you begin the merger and acquisition process, both parties should be on the same page regarding the basic terms of the transaction. These terms are set out in a letter of intent that the parties can review and negotiate to ensure they are in general agreement regarding the basic terms of the final agreement before they commit resources to the transaction. Though you want the terms of a letter of intent to be attractive to the other party, you should also always be realistic.  Disputes can arise later in the M&A process that can halt the process and you could even be accused of acting in bad faith.

If you are looking into ways to market your business online, you have undoubtedly come across articles extolling the virtues of social media marketing. Sites like Facebook, Twitter, and LinkedIn allow businesses to target certain groups of consumers with pinpoint accuracy, interact with them directly, and build brand recognition. Furthermore, there are often no costs associated with creating social media presence for your business and there are certainly ways to engage in social media marketing without spending money on paid ads. If your business posts a piece of content that goes viral, it could easily result in millions of views from individuals who may become paying customers or clients.

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Unforeseen Liability

Before you rush out to join the social media marketing frenzy that is in progress, you should consider some of the legal issues that may be implicated. The good news is that it is completely possible to engage in social media marketing without incurring legal liability; it is important, however, to determine whether there are any legal problems that could potentially arise. Here are some of the potential issues to consider:

Foreclosure of a Charging Order

Limited liability companies (LLCs) provide their owners (members) a number of protections that do not exist for partnerships or sole proprietorship’s. One critical protection is limited liability protection.  Because an LLC is considered a separate legal entity and its assets and debts are separate and distinct from any assets or liabilities that its owners may have, a creditor of an LLC member typically cannot reach or interfere with the LLC and vice versa. However, California law does provide a tool for creditors to try to reach a judgment debtor’s LLC interest. The tool is called a charging order.

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A charging order is roughly akin to a wage garnishment, but instead of directing an individual’s employer to pay over a portion of the individual’s salary to the creditor, it directs an LLC in which the individual judgment debtor has a membership interest to pay over any distributions that would otherwise be made to the member to the creditor. Notably, a charging order ordinarily cannot compel an LLC to make a distribution to a member and does not confer any management rights, instead extending only to distributions made to a member. For this reason, charging orders do not always result in payment to the creditor. Nonetheless, a charging order can still be effective because they can cut-off an LLC member’s rights to receive any distributions from the LLC and may impact the member’s dealings with the LLC and its other members.