US Supreme Court Declares Railroad Stock Options Not Taxable Many San Diego and California businesses offer their employees stock options as a form of compensation. Sometimes (rarely) the stock option is without cost; more often, the option is a right to purchase company stock at a set price. Assuming [...]
San Diego Business Contracts: What is Fraudulent Inducement? There are many possible defenses to a claim of breach of contract. One such defense is a charge of fraudulent inducement. Under California law, there are two types of fraudulent inducement with respect to contracts - fraud in the "executing of" [...]
New SEC Guidance: Cryptocurrencies are Not "Securities" (but Sometimes They are) In mid-June, 2018, William Hinman, Director of Corporate Finance for the Securities and Exchange Commission (“SEC”), offered new guidance on the question of whether cryptocurrencies are "securities." See news report here. Previous guidance and SEC enforcement actions had [...]
How Detailed Job Descriptions can Help Avoid Employee Lawsuits If your San Diego business has employees, you want to put your business in the best position possible to avoid employee litigation and to help win those lawsuits if they are filed. One often-overlooked aspect of avoiding employee litigation is [...]
Dealing With Avoidance of Executory Contracts Under the Bankruptcy Code In this article, we discuss another aspect of the US Bankruptcy Code (the "Code") as it relates to business contracts. In a previous article, we discussed the automatic stay, which limits your rights to continue efforts to collect debts [...]
Trademark Basics: Coexistence Agreements and Consent Agreements As many know, in San Diego and in California, you and your business are not allowed to infringe upon the trademark rights of another person or business. Infringement will bring expensive litigation and hefty civil penalties. As with many commercial dealings, there [...]
Using Contract Provisions to Shorten Statute of Limitations and Reduce Risk In San Diego and elsewhere in California, there are certain statutes that limit the amount of time in which a lawsuit can be filed. These are generally known as statutes of limitation. With respect to contracts, for example, [...]
Selling a San Diego Business: Minimizing Contractual Indemnity Obligations If you are selling a San Diego business, almost certainly, the contract for purchase/sale will contain provisions requiring various indemnifications. In a companion article, we discussed the definition and general basics of indemnification clauses. In this article, we discuss how [...]
San Diego Business Law: What is Contractual Indemnification? Typically, a business sales/purchase contract will contain provisions imposing indemnification obligations. These are often called "hold-harmless” provisions. In general, one party to a contract indemnifies the other party by agreeing to “hold them harmless” by paying for the legal fees, litigation [...]
San Diego Joint Ventures: Limiting Risk and Capital Exposure With many types of business efforts and potential market exploitations, joint ventures offer many advantages such as: Cost sharing, which can be particularly useful if none of the joint venturers can independently fund the enterprise Sharing of divergent talents, skills, [...]
Employee or Independent Contractor? California Supreme Court Might Have Established a New Test Under long-standing California law, the test for whether a person working for a business is an "employee" or an "independent contractor" has focused on the right to control the methods/means of the work. As one court [...]
FAQs About Forming a California Corporation Starting your own San Diego business can be exciting, but can also generate a lot of questions. Among the most common questions that we get here at San Diego Corporate Law are questions about forming a corporation, whether to form a corporation, when [...]
Nullifying a Contract Before it Forms: Revocation of an Offer San Diego business contracts must have an offer and an acceptance to come into existence. However, there are some circumstances in which a contract can be nullified before it actually forms. This is the legal concept of revocation of [...]
Stock Price: Majority Shareholders Owe Fiduciary Duties to Minority Shareholders Under California law, majority shareholders of a corporation owe various fiduciary duties to the other shareholders. This has long been the case. See Jones v. H.F. Ahmanson & Co., 1 Cal.3d 93 (Cal. Supreme Court 1969). In general, majority [...]
San Diego Business Contracts: What is the Concept of "Novation?" Generally speaking, contracts are agreements between people and/or businesses. Assuming the legal formalities are met, an agreement is a "contract." As with any agreement, the parties can change their minds and make a new agreement. This is at core [...]
What are the "Reasonable" Efforts Needed to Protect Your San Diego Trade Secrets? California law protects the trade secrets of every San Diego and California business. Trade secrets do not have to be extra-special technology locked in a high security vault. Trade secrets are normal everyday things like customer [...]
Seven FAQs Regarding Securities in San Diego and California Everyone generally thinks of "securities" as shares of stock in a corporation. But, beyond that, there is a great deal of confusion. When you are starting a new business and if you are thinking of issuing shares, you should consult [...]
You Must be a Shareholder to Sue for Breach of Corporate Fiduciary Duty An interesting case out of the US District Court for the Southern District of California reminds us that, in order to sue officers and directors for breach of fiduciary duties, one must actually BE a shareholder. [...]
Can I Stop Performing Under a Contract if the Other Side Cannot Perform? Under California contract and business law, a party to one side of a contract can stop performing if the other party to the contract either stops performing or cannot perform. This is known as the legal [...]
Differences Between California Corporations and LLCs: Alter Ego Doctrine California law has a number of alternative corporate forms for businesses to use with respect to running their businesses. Each form -- such as a corporation vs. a limited liability company -- has advantages and disadvantages compared to the alternatives. [...]
San Diego Mergers and Acquisitions: Avoiding a De Facto Merger When buying a business in San Diego or elsewhere in California, one key consideration is whether you, as the buyer, are intending to accept any or all of the liabilities of the target business. As we have discussed, there [...]
Director/Manager Personal Liability for Health and Safety Violations In general, forming a corporation or a limited liability company will shield the officers and directors of the company from personal liability for corporate debt and obligations, including obligations that are violations of laws. However, there are some circumstances in which [...]
Bankruptcy Basics for San Diego Businesses: The Automatic Stay As a San Diego or California business, occasionally you deal with customers or clients who have gotten so far underwater in terms of debt and financial obligations that they are forced to file bankruptcy. Bankruptcies are governed by federal law. [...]
Choice of Law And Waiver of Jury Trial Provisions: California Law Prevails In general, under the California Constitution, individuals and businesses in San Diego and California have an inviolable right to a jury trial. The right is so strong that, in 2005, the California Supreme Court held that individuals [...]
Can You Fire an Employee for Tweeting Something Offensive? In general, a San Diego business can fire an employee for tweeting something offensive, although there are some precautions if you are dealing with an employee under contract. A good corporate lawyer can help. Here are a few thoughts. San [...]
Supreme Court’s Decision in Epic Systems: Employees can be Required to Arbitrate and Waive Their Right to File Class Actions The US Supreme Court recently handed down its opinion in Epic Systems v. Lewis, 584 US (2018) holding that employers can require their employees to agree to mandatory arbitration [...]
San Diego Nondisclosure Agreements: Protecting Against "Compelled" or Privileged Disclosure San Diego and California nondisclosure agreements are essential to protecting your company's valuable trade secrets and confidential information. As we have noted many times on this blog, intellectual property is one of the most valuable assets owned by any [...]
Social Media Reviews/Criticisms Are Not Advertising for Purposes of Deceptive Business Practices and False Advertising As we discussed on this blog here, San Diego and California businesses must avoid false and deceptive advertising. There are a number of laws that prohibit deceptive and false advertising including these: Federal Trade [...]
Company or Workers: Who Owns Rebates and Frequent Flyer Mile Rewards? One of the more contentious issues that has arisen in the last few years involves the question of who owns frequent flyer miles ("FFM") rewards for airplane trips flown for company business and paid for with the company [...]
Written Contracts 201: Intermediate Level Recently, we wrote about the basics of written contracts -- the "bare minimums," so to speak. In this article, we offer a more detailed discussion expanding on those basic requirements and adding others. You need a good corporate lawyer to properly draft written contracts. [...]
KCD Financial: SEC Says Press Releases are Advertising for Purposes of Rule 506(c) In general, securities offered or sold in San Diego and or in California must be registered unless there is an exemption to registration. See US Securities Act, 15 U.S.C. § 77b; Cal. Corp. Code, §§ 25000 [...]
Non-Conforming Goods or Services: What to do? Occasionally, when your San Diego business makes a contract, the other party to the contract delivers non-conforming goods and/or services. Here is a quick rundown on your options if this happens to you. First, you should retain and consult with a good [...]
The Dangers of Using "Industry Standards" in Your Business Contracts Often those drafting contracts will make reference to "industry standards" when identifying the level of quality that is expected with respect to obligations under the contract. Typical examples of such contracts include: Home building and other construction projects Creation [...]
California Contracts: What is "Lack of Capacity?" In general, to form a contract, both -- or all -- parties to the contract must have the capacity to enter into the contract. "Capacity" is legally defined, or more accurately, California law defines when legal capacity does NOT exist. Of relevance [...]
Forgery With Respect to San Diego Business Contracts When most people think of "forgery" and business contracts, an image comes to mind of a forged signature on a contract or maybe a forged signature on the back of a paper check. Indeed, most of the case law with respect [...]
The Basic Requirements of a Written Business Contract What comes to mind for most people when they think of the word "contract" is a formal written contract that has signatures on the final page. Beyond that, what is required in a written contract is murkier. In this article, we [...]
Separation of Home and Business: Thoughts on Starting a San Diego Business with Your Spouse Statistics show two things - the majority of businesses in San Diego and in California are family owned and run, and the divorce rate in the US is about 45% (but higher in California). [...]
Commercial Lease Renewals: Should I Stay or Should I Go? Commercial lease renewals are, in many respects, more complicated and present more legal and business issues than signing the lease originally. If you did not have competent and experienced legal counsel review and provide advice on the lease at [...]
How California Courts Interpret Contracts: What is the “Construction Against Drafter” Doctrine? Recently, we wrote a quick description of how California courts interpret contracts. In this follow up article, we discuss the concept of "construction against drafter." This is the final step used to interpret contracts, or the "tie-breaker," [...]
What is a Third-Party Beneficiary of a San Diego Contract? In general, if there is a dispute about a contract, the only parties that are able to file a lawsuit for breach of contract are the parties that entered into the contract. Occasionally, however, there is a so-called "third-party [...]
How California Courts Interpret Contracts It can be said that all San Diego and California businesses "run on contracts." This article discusses the way(s) in which California courts interpret contracts if there is a dispute between the parties. This is important because, when drafting a contract, it is crucial [...]
San Diego Businesses: What is the Work-Made-for-Hire Doctrine? The doctrine of "work-made-for-hire" relates to copyrights. In general, the legal rights that exist by virtue of copyright law lodge and vest in the author or authors of any creative work and those rights vest at the moment of creation. See [...]
Do San Diego Home-Based Businesses Need to Use a Corporate Entity? Many people work from home and own home-based businesses. Back in 2013, Forbes Magazine stated that more than half of Americans work for small business and over 50% of those are home-based. See here. Since 2013, even more [...]
Top Reason for Having Company Policy for Employee Use of Company Resources Employee use of company equipment, supplies, and resources is very common; it can involve something as simple as worker using his/her assigned computer to send personal emails and/or "surf the net." That sort of behavior is lost [...]
Can an Exchange of Emails be a "Contract?" As we have discussed here on this blog occasionally, there are significant legal issues with respect to how contracts are formed. There are many legal requirements for formation and enforceability. For example, there must be adequate consideration -- value given and [...]
San Diego Employment Contracts: Do Businesses Need Morality Clauses? Morality clauses are standard provisions in many types of contracts including endorsement, sports, and entertainment contracts. Such clauses generally give one party to the contract the right to terminate if the other party behaves in some manner that is immoral, [...]
Ensuring Your San Diego Business Owns Any Employee-Created IP Intellectual property ("IP") is commercially valuable to all San Diego businesses. IP includes assets like trade secrets, copyrights, and inventions and, under proper circumstances, legally protectable IP can include items like customer lists and business methods. When it comes to [...]
Choice of Law Clauses in San Diego Business Contracts (Part II) In part I of this series, we discussed how California courts apply the concept of choice of law with respect to a factual/legal situation where the parties themselves did not otherwise specify which law they wanted applied. As [...]
Choice of Law for San Diego Businesses (Part I) If you are running a business in San Diego, it may be reasonable to assume that California law will be applied to all of your contracts and to any case or litigation that is filed based on tort. As an [...]
Minimizing the Risk That Your San Diego Business Will be Held Liable for Crimes of Your Employees If you are running a business in San Diego or California, your business CAN be held liable for crimes committed by an employee. Under some circumstances, your business can be held directly [...]
Avoiding Employee Lawsuits With a Good Employee Handbook Every San Diego and California business needs a good employee handbook ("EH") for their staff and employees. Finding a generic EH on the internet is not good enough; you need a competent and knowledgeable corporate attorney to draft an EH that [...]
Buy-Sell Agreements Should be Reviewed Annually If you are running a San Diego partnership, limited partnership, closely-held corporation or an LLC, it is important that you have a well-crafted buy-sell agreement. If you do not have one, it is time to have one written. A good San Diego corporate [...]
Thoughts Concerning Force Majeure Clauses Many San Diego and California business contracts contain what are called "force majeure" clauses. These generally absolve or excuse performance if there is some event that occurs outside of the party's control like war or an "act of god." A good San Diego corporate [...]
How California Contracts can be Held Void as Against Public Policy In general, as long as San Diego and California contracts meet the requirements with respect to being properly formed, such are enforceable in California courts. However, there are some circumstances in which courts will refuse to enforce a [...]
Master Agreements versus One-at-a-Time Agreements When your San Diego or California business has an ongoing relationship with another business -- for services or for product -- you have a few choices in terms of how to set up the contracts. Probably the most common is a series of one-at-a-time [...]
Drafting a Business Plan to Pitch Investors If your San Diego or California startup is seeking to attract venture capital, you are going to need a good written business plan to pitch to your potential investors. A business plan is the written version of all of the good and [...]
The Duty of Care for a Corporation Versus a Limited Liability Company There are many reasons why you might want to form a San Diego limited liability company instead of forming a San Diego corporation. Among those include: LLCs require fewer corporate formalities like annual shareholder meetings, etc. LLCs [...]
How Does the Secretary of State Determine Business Name Availability? As many know, when you form a corporation here in San Diego or anywhere in California, you must specify the name of the corporation (or LLC or Limited Partnership). According to Cal. Corp. Code, § 201(b), a business name [...]
Employers are Responsible for Their Employees' Negligence and Wrongful Acts If your San Diego or California business has employees, then your company is responsible for the accidents, mistakes, and bad behavior of your employees. The legal origin of this principle is the doctrine of respondeat superior. Here is a [...]
Tips for Avoiding Unconscionability in Your San Diego Business Contracts Here in San Diego and in California, there are a few circumstances in which courts will not enforce a contract or contract provisions. One such circumstance is when the contract is deemed to be "unconscionable." Here is a quick [...]
Using Business Contracts to Limit Possible Damages Recoverable in Litigation Under California law, it is possible to use contract language to limit your San Diego business's liability for damages in the event of future litigation. In general, these are called "Limitation on Damages" clauses and, with exceptions, such provisions [...]
Sexual Harassment Lessons From a New Maryland Law San Diego and California businesses are aware that sexual harassment is not allowed and is not to be tolerated in California workplaces. The #MeToo movement has highlighted the issue and among the goals of the movement is to remove the cloud [...]
Some Tips on Getting Out of a "Bad" Contract In general, San Diego and California businesses want to honor their contracts. But, maybe you ended up signing a "bad" contract. Every business does it at some point; it is nearly inevitable. The contract can be bad for any number [...]
"No Waiver" Clauses in San Diego Business Contracts Many sophisticated business contracts in San Diego and California contain what are called "no waiver" clauses. The intent of these clauses is to prevent an accidental or inadvertent waiver of contractual rights in the event of breach of contract. Usually, “no [...]
"At-Will" Employment in San Diego In San Diego and California, with some exceptions, all employees are "at-will" employees that can be fired "for cause" or "for no reason at all." One exception is if your San Diego business or company has agreed to an employment contract with an employee [...]
Do San Diego Business Contracts Now Need to Conform to the Three Gender Options? In October 2017, California Governor Jerry Brown signed the Gender Recognition Act. This Act adds "non-binary" as a choice for California residents when required or asked to designate a gender for state documents like a [...]
What is "Piercing the Corporate Veil?" If you a shareholder of a San Diego or California corporation, generally speaking, the corporate entity will shield you from personal liability for the business debts and obligations of the corporation. However, under some circumstances, the courts will not allow the corporation to [...]
San Diego Corporate Law: 5% Interest in Restaurant Not a "Security" As we have written here at San Diego Corporate Law, if you are selling and/or offering "securities" in California, you must comply with both federal and California securities laws -- the Corporate Securities Law of 1968 (Corp. Code, [...]
San Diego Employee Non-Disclosure Agreements: What Should They Contain? The purpose of San Diego and California non-disclosure agreements ("NDA") is to protect your business and its commercially valuable trade secrets. Trade secrets and confidential information are often the key to keeping and expanding your company's market share. We have [...]
Medical Corporations: Company Policies May Help Avoid Malpractice Lawsuits Every San Diego and California physician and healthcare provider must carry malpractice insurance. The same is true for any medical corporation under which the physicians and healthcare providers offer services. However, malpractice lawsuits are bad for business even if there [...]
What is a Certificate of Qualification? If you are a San Diego corporation, to become incorporated, you had to file and obtain articles of incorporation from the California Secretary of State. You also have annual filing and tax requirements with the California Franchise Tax Board. By contrast, if you [...]
Shareholder Derivative Actions (Part III): "Demand Futility" Doctrine As we discussed in Part I of this series, shareholders of San Diego corporations can bring lawsuits on behalf of the corporation against other shareholders and against members of the board of directors. These are called shareholder derivative actions. As we [...]
Shareholder Derivative Actions (Part II): What Happens After the Demand Letter? As we discussed in Part I of this series, shareholders of San Diego and California corporations can bring derivative lawsuits against members of the board of directors. Technically, these are lawsuits filed on behalf of the corporation seeking [...]
Shareholder Derivative Actions (Part I): The "Demand" Requirement Under California law, San Diego corporations have a duty to take actions that are in the best interest of the company and the investors. Failure by the board to do this will lead to litigation, in particular, shareholder derivative actions. However, [...]
Non-Solicitation and Non-Acceptance of Business Clauses are Not Enforceable in San Diego As many San Diego and California businesses know, non-compete agreements are not enforceable in California. That is, except for a few limited circumstances, you cannot enforce any agreement by which an employee agrees not to compete against [...]
San Diego Medical Corporations: What is the Doctrine of Fair Procedure? In San Diego and in California generally, there is a judge-created common law legal principle called the "doctrine of fair procedure." In general, the doctrine protects an individual, like a physician, from being fired, excluded, or expelled in [...]
Using San Diego Affiliated Companies to Protect Intellectual Property Under some circumstances, there is value to using or creating an affiliated company to protect intellectual property from risks associated with other parts of an ongoing business. Under California law, the same group of individuals or entities can own more [...]
What is an Integrated or Partially-Integrated Contract? Merger Clauses Part II When dealing with complex San Diego business contracts like business purchase agreements, it is not uncommon for there to be several drafts and re-drafts of the final contract. As we discussed previously on this blog, a well-drafted business [...]
How Insurance Can Make a Buy-Sell Agreement "Easy" for Death or Disability For small San Diego and California businesses, it is important that the owners agree early in the process to a buy-sell agreement. This applies whether you are running your business as a general partnership, a corporation, a [...]
Can I Still be Liable for Rent if I Vacate My San Diego Commercial Space Early? Under California law, a commercial tenant who breaks a commercial lease by vacating the space early can be held liable by the landlord for unpaid rent. Commercial tenants should remember that commercial leases [...]
Confidentiality Clauses in San Diego Business Contracts (Part I) It is not uncommon to find confidentiality clauses in business contracts. Such clauses come in two varieties - confidentiality with respect the agreement itself and/or the contents of the agreement, and confidentiality with respect to commercial information and trade secrets [...]
Non-Compete Agreements in San Diego: When are They Valid? In general, under California law, a current employer cannot restrict an employee from leaving and taking another job, even with a competitor. In many states, employers are allowed use so-called "Restrictive Covenants" or a "Non-Compete Agreements" to prevent an employee [...]
Franchise Provisions to Avoid in San Diego Are you thinking of buying a franchise? We here at San Diego Corporate Law have noticed a strong uptick in franchise companies advertising for new franchisees. Starting up a new business can be exciting and we certainly encourage the entrepreneurial spirit. We [...]
Common Places to Find a Buyer for Your San Diego Business Are you in the market to sell your San Diego business? Finding a buyer can be one of the more complicated challenges. You are definitely going to need a trusted and experienced corporate lawyer to help you with [...]
San Diego Corporate Formalities: Proper Notice of Meetings of Shareholders and Directors Under California law, corporations are required to have an annual meeting of shareholders and to hold regular meetings of the board of directors. In this article, we discuss the importance of proper notice of the respective meetings. [...]
What are "Liquidated Damages" in San Diego? A provision for liquidated damages is a way to specify damages in the absence or inability of actually calculating damages, or when such damages would be difficult to calculate. The advice and counsel of a good corporate lawyer is needed if you [...]
When is the Right Time to Convert From Sole Proprietorship to a Corporation? Research and observation shows that, when they succeed, businesses have certain natural stages of growth. Many a San Diego business might start off as a sole proprietorship. That is, the business is/was just you (with the [...]
San Diego General Partnerships: What Happens if a Partner Leaves? In San Diego, a general partnership can be formal or informal. Under California law, in simplest terms, a partnership exists if two or more persons or entities jointly own a business for the purpose of making money. If the [...]
Top Five Mistakes to Avoid When Starting Your New San Diego Business Congratulations! You have made the decision to finally start your own San Diego business - maybe on your own or with some good friends or trusted colleagues. This is exciting, but of course, risky. We here at [...]
San Diego Corporate Formalities: Annual Shareholders' Meetings In San Diego and elsewhere in California, corporations are required to have an annual meeting of shareholders. For small companies, it may seem pointless and a waste of time. However, complying with corporate formalities is important. Remember that one of the main [...]
Closing a San Diego LLC Sometimes when you set up a new San Diego Limited Liability Company ("LLC") with the expectation of going into business, something goes wrong. Maybe the deal falls through, or during due diligence, something is discovered that makes the deal unworkable or shows that the [...]
Tips for Picking a Good Company Name: Lessons From Trademark Law One of the trickier aspects of starting a new San Diego business is picking a good company name. As we discuss below, it is generally a bad idea to pick YOUR personal or family name as the name [...]
What is a Voidable Conveyance? (Part I) In general, your San Diego business must honor its payment obligations to its creditors. Creditors are, of course, lenders and financial institutions, but also can be your landlord, suppliers, and others to whom payment is due. In general, if your business fails [...]
Should Your San Diego LLC be Member-Managed or Manager-Managed? Under the California Corp. Code, § 17701 et seq., when you form a Limited Liability Company (“LLC”) to run your San Diego business, you choose how the LLC is managed. The three choices are: Single-member LLC Member-managed -- managed by [...]
What is a UCC Lien Filing? If your San Diego business is contemplating a small business loan or a business line of credit or some similar form of general financing, then your lender will require some sort of collateral. In a residential housing example, when you take out a [...]
San Diego Businesses: Tips for Avoiding Litigation Litigation is expensive and time-consuming. It is costly in terms of legal bills, litigation costs, and lost productivity. Furthermore, if there is an adverse result, then there are the costs of paying the judgment. Litigation can kill a startup and seriously undermine [...]
Five Advantages of Using Trade Secret Law to Protect Your Intellectual Property Your San Diego business owns a lot of intellectual property ("IP") even if you do not really think of some of your assets as IP. As we have discussed before, many aspects of businesses can be legally [...]
What is a "501(c)(3) Corporation?" Being a "501(c)3 corporation" means your corporation/organization has been designated as a tax exempt charitable organization by the federal Internal Revenue Service ("IRS"). In general, saying that a corporation is a "501(c)(3)" is equivalent to calling the organization a "non-profit" organization ("Non-Profit") with the [...]
San Diego Businesses: Using Stock Options as Employee Compensation If you run your San Diego business as a non-public corporation, one method of compensating your employees for their hard work - particularly upper management employees - is by issuing shares of stock as part of their compensation package. This [...]
New IRS Audit Regime in Effect: Reviewing Your Partnership/LLC Agreement Effective January 1, 2018, new guidelines went into effect with respect to partnership audits by the Internal Revenue Service. See Forbes article here. While no partnership or LLC that has chosen to be taxed as a partnership wants to [...]
