Articles Tagged with limited liability companies

AdobeStock_244916454-300x200A limited liability company (LLC) is a type of business entity. When formed properly and managed correctly, this business type can offer some protection from liability. Many business owners prefer the LLC because it can protect their personal assets from being used to satisfy the debts of the business. An LLC is not, however, the only business entity type that exists. Los Angeles business owners should consult with a business formation lawyer to explore the different options. A Los Angeles business formation attorney can help you select the business entity that best meets your specific business goals. At Structure Law Group, LLP our experienced Los Angeles LLC lawyers help entrepreneurs form LLCs to protect their assets and run these businesses in ways that minimize the LLC owners’ personal liability.

What Are the Benefits of an LLC?

There are many benefits to forming an LLC. When one or more owners – also referred to as “members” – form an LLC, these members can protect their personal assets from being used to satisfy business debts. Only their initial investments are placed at risk. However, there are many legal formalities that must be observed to enjoy this protection. The LLC must be formed properly under state laws. Here in California, doing so means filing the required paperwork with the California Secretary of State’s office. The business must also observe certain formalities in the way it is run post-formation. This observation of formalities requirement means that LLC owners do not simply get automatic protection as soon as they have filed the LLC paperwork with the relevant state.

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.

should-you-take-your-contract-dispute-to-court-300x200
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.

real-300x199
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?

There are many California requirements for an investor to be a holder in due course.  A holder of an instrument is entitled to enforce the instrument.  However, a “holder in due course” has greater rights under the Uniform Commercial Code (UCC) and the California Commercial Code (COM) than a holder who is not a holder in due course.  Specifically, a holder in due course takes an instrument free from many of the defenses to repayment that might have been asserted against the original obligee or against another assignee or holder not in due course.  An experienced San Jose business law firm can help business owners and investors understand their rights and requirements in order to be a holder in due course.

There are specific requirements that must be met for an investor to qualify as a holder in due course, including that:

  • The investor takes the instrument for value;

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.

toad-river-brown_3737_990x742-300x253
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.

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.

strong-arm-300x200
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?

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.

Fotolia_145183132_Subscription_Monthly_M-300x180
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.

Fotolia_108968158_Subscription_Monthly_M-300x217
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.

Fotolia_95586013_Subscription_Monthly_M-300x188
 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.

Fotolia_96869690_Subscription_Monthly_M-300x237
 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: