Articles Posted in Business Transactions

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AdobeStock_594857662-300x200We often see business owners ignore corporate formalities after incorporating their businesses. They labor under the misconception that forming a corporation[i], provides them with a full-proof shield from personal liability, despite how they conduct corporate affairs post incorporation. Many are not aware of the doctrines of “piecing the corporate veil” or “alter ego”. In this blogpost, we discuss briefly why corporate formalities are important to follow— owners of incorporated businesses must follow corporate formalities to ensure protection from personal liability.

Why corporate formalities are important to follow? The short answer is because following corporate formalities ensures the separateness of identity between the corporation and its owners is maintained. This is essential to ensure personal liability protection for the owners. Under the corporate statutes of all jurisdictions, after a corporation is formed it is treated as a separate “person” distinct from the owners holding interests in it.  This separateness of legal identity shields the corporation’s shareholders, officers, and directors, from personal liability from the debts and obligations of the business. However, the important caveat is this protection is available only if steps are continuously taken through observing of corporate formalities to maintain the separateness of the corporate entity from its owners.  If owners do not observe corporate formalities and run their business like a sole proprietorship (or partnership in case of more than one owner) and if a creditor or an obligee of the business sues to hold the owners personally liable, a court will likely disregard the corporate shield to hold the owners personally liable. This is the so called “piercing the corporate veil”—a doctrine under which the courts can disregard the corporate entity and hold its owners personally liable for the corporation’s debts and obligations. In California this is done under the “Alter Ego” doctrine. Under this, a court will hold business owners of a corporation personally liable if it finds (a) a unity of interest and ownership between the corporation and its owners (that is these owners have treated the corporation as their “alter ego” rather than as a separate entity); and  (b)  it will be an inequitable result if these acts are treated as those of the corporation alone and failing to hold shareholders accountable would sanction a fraud or promote injustice.  Burden of establishing alter ego liability is on the plaintiff creditor.  Therefore, mere incorporation of a business will not shield its owners from personal liability if they have failed to follow corporate formalities post-incorporation.

So, what are considered corporate formalities? Some of the many examples of corporate formalities that must be observed to ensure owners are shielded from personal liability are:

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AdobeStock_513700263-300x200As consumers increasingly seek eco-friendly products, some companies engage in “greenwashing” — misleading marketing that exaggerates or fabricates environmental benefits of its products or services, to appeal to environmentally conscious buyers. Greenwashing can include vague claims like “all-natural” or “eco-friendly” without providing evidence or proper certifications, undermining genuine sustainability efforts and eroding consumer trust.

While promoting green credentials become a central marketing strategy for many businesses, regulators respond with more rules to eliminate misleading and unsubstantiated green claims and increased enforcement activity against those guilty of such deceptive practices.

U.S. Legal Framework Against Greenwashing

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AdobeStock_883988613-300x200In the construction and property improvement industry, payment disputes frequently arise, creating significant financial stress for contractors, subcontractors, and suppliers. Understanding your rights and the available remedies is essential for navigating these disputes effectively. This blog will explore one of the most powerful tools available to those in the construction industry: mechanic’s liens, along with other remedies to resolve payment disputes.

What is a Mechanic’s Lien?

A mechanic’s lien is a legal claim against a property that has been improved or repaired. It gives contractors, subcontractors, and suppliers the right to seek payment for the work they have performed or materials they have provided. By filing a mechanic’s lien, the lienholder can secure their interest in the property, which can ultimately lead to payment through the sale of the property if necessary.

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AdobeStock_502835611-300x200The gig economy provides flexibility and autonomy, but it also comes with important legal responsibilities. With the rise of gig work, the legal landscape has grown increasingly complex, particularly around worker classification and the application of labor laws. In a tech-forward city like San Jose, these evolving legal challenges have a significant impact.

1. Worker Classification: Employee or Independent Contractor?

One of the primary legal concerns in the gig economy is determining whether a worker is classified as an employee or an independent contractor. This distinction is crucial because it dictates the rights, obligations, and benefits—such as minimum wage, overtime pay, and health insurance—that both the worker and the business must follow. In California, the “ABC test,” introduced under Assembly Bill 5 (AB 5) in 2020, remains a key standard for determining worker status.

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Artificial Intelligence (AI) and generative AI have been revolutionizing various sectors, and the legal industry is no exception. The deployment of these technologies is transforming how legal professionals operate, enhancing efficiency and opening new avenues for creative problem-solving. The use of AI in the legal domain encompasses a diverse range of services:

  1. Legal Research Using Specialized Technology Legal research can be time-consuming. AI-powered legal research platforms like Co-Counsel can analyze and summarize vast amounts of legal data to identify statutes, and regulations. These technologies can sift through databases to find relevant information quickly. By leveraging natural language processing (NLP) and machine learning algorithms, these tools help lawyers build stronger cases faster using fewer resources.
  2. Rewriting Emails and Letters Generative AI excels in tasks involving language generation and rewriting. Lawyers frequently draft, revise, and personalize emails and letters. AI can assist by providing polished drafts, suggesting edits, and ensuring that the tone and language are appropriate for the intended audience. This not only saves time but can enhance the clarity and effectiveness of communication.
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AdobeStock_750357071-300x200The rapid evolution of artificial intelligence (AI) is reshaping the world through new trends, regulations, and shifts in user behavior. While AI offers numerous benefits, it also introduces significant risks, particularly concerning accuracy, accountability, data privacy, and security. By proactively implementing mitigation strategies, businesses can harness AI’s potential while protecting their operations and reputation. Below, we explore key considerations for deploying AI across business processes while minimizing legal and regulatory risks.

AI Accuracy and Accountability

A major obstacle to fully realizing AI’s capabilities is concerns about its accuracy and accountability. The core of this issue lies in the quality and quantity of the data used to train AI models. The accuracy of AI models directly reflects the data sets they are trained on. If these data sets are biased or inaccurate, the resulting algorithms can perpetuate hidden discrimination against certain groups. This lack of transparency raises questions about the reliability of the output data, which can be misleading, biased, or incorrect.

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AdobeStock_533470666-300x200Chapter 134A of the Texas Civil Practices and Remedies Code is known as the Texas Uniform Trade Secrets Act, and Texas Civil Practices and Remedies Code § 134A.002(6) establishes that a trade secret is defined as “all forms and types of information, including business, technical, scientific, economic, or engineering information as well as any design, formula, pattern, prototype, compilation, plan, program, code, program device, device, technique, method, process, procedure, financial data, or list of actual or potential customers or suppliers, whether it is tangible or intangible and whether or how compiled, stored, or memorialized physically, electronically, graphically, photographically, or in writing when an owner of a trade secret takes reasonable measures under the circumstances to keep the information secret, and the information derives actual or potential independent economic value from not being generally known to and not being readily ascertainable through proper means by another person who can obtain economic value from the disclosure or use of such information.” Trade secrets are valuable because there are considerable efforts to protect the information, and people will need to work with a Texas business attorney for help protecting their trade secrets.

A legal cause of action for exposed trade secret information is known as misappropriation of trade secrets. This occurs if a trade secret is improperly acquired or is otherwise disclosed or used without consent.

Reasonable Measures to Maintain Trade Secrets

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AdobeStock_527614812-300x200Enacted in 2022, the Inflation Reduction Act (IRA), enacted in 2022, stands as a pivotal United States federal law with a multifaceted approach addressing inflation, climate change, and healthcare costs. Representing the largest investment in climate action in U.S. history, the IRA is poised to achieve a substantial 40% reduction in greenhouse gas emissions by 2030.

This groundbreaking legislation incorporates diverse provisions strategically designed to curtail greenhouse gas emissions, foster renewable energy initiatives, and catalyze job creation within the burgeoning clean energy sector. Notably, the IRA allocates a substantial $369 billion investment in clean energy and climate change mitigation. This encompasses tax incentives for renewable energy projects, capital infusion into clean energy manufacturing, and financial support for climate research endeavors.

Emphasizing its commitment to advancing technologies that actively contribute to carbon neutrality, the IRA prioritizes Negative Carbon Use (NCU) technologies. These innovative solutions play a pivotal role in offsetting greenhouse gas emissions, offering companies a spectrum of benefits, including tax credits, government funding, and heightened market demand. Consequently, the IRA presents a momentous opportunity for corporations specializing in NCU technologies.

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AdobeStock_561003317-300x169Many startups in the San Jose area look to Delaware when establishing their corporate structure. You have probably heard that many top companies are incorporated in Delaware. Delaware is a popular state to form a corporation.  But what are the advantages to a Silicon Valley company operating in Delaware?  And how can you create your own Delaware company? The San Jose corporations lawyers at Structure Law Group, LLP can help answer these and other questions about the startup process.

What Are the Advantages of Incorporating in Delaware?

Despite being one of the smallest states, Delaware plays a significant role in corporate formation and law, offering numerous advantages. The state’s appealing tax laws are a primary factor for companies choosing to incorporate there. Corporations not conducting business in Delaware are exempt from the state’s corporate income tax, even if incorporated there. Instead, they are subject to a ‘franchise tax,’ which is typically much lower than corporate taxes in other states. Furthermore, Delaware offers considerable privacy for incorporators, requiring only the registered agent’s name on filings. Additionally, the state allows a single individual to establish a corporation and hold multiple corporate roles simultaneously.

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AdobeStock_287591012-300x200Starting a new business venture is an exhilarating journey, but also involves significant financial risks. Seasoned entrepreneurs understand the importance of safeguarding their personal assets from undue exposure. If you’re an aspiring entrepreneur in the Bay Area embarking on your first startup, the experienced San Jose startup and financing lawyers at Structure Law Group can provide valuable guidance on developing a comprehensive asset protection strategy.

Although every situation is distinct, here are a few essential considerations to keep in mind when safeguarding your personal assets from potential business liabilities:

Create a Limited Liability Business Entity

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