Business Transactions

Is Your Liability Completely Limited When You Form a Limited Liability Company?

August 25, 2017 | Gokalp Gurer

Limited liability companies, or LLCs, are one of the various types of business entities from which you can choose when forming a company. Generally speaking, limited liability companies combine the tax advantages and flexibility of a partnership with the liability protections of a corporation, without subjecting small business owners to the onerous reporting requirements and governance rules associated with corporations. When forming a limited liability company there are many factors to consider and questions to ask. The Silicon Valley business attorneys at Structure Law Group, LLP have the knowledge and experience to advise entrepreneurs to weigh all options and make the best decisions for the limited liability company now and in the future.

How Does an LLC Limit Liability?

Like a corporation, a limited liability company is a separate legal and tax entity, meaning that the LLC is separate from the members who manage and operate the business. And also like a corporation, the LLC, and not the LLC’s owners, will be liable for the LLC’s debts. For example, if one sues the LLC to recover on an outstanding debt, only the LLC’s assets can be reached. In other words, an LLC’s members are not personally liable for the LLC’s debts (just like how a corporation’s shareholders are not personally liable for the corporation’s debts). This is significantly different than a general partnership or sole proprietorship, where the partners or the individual owner, respectively, are personally liable for the debts and obligations of the business.

What Are The Pros And Cons Of Venture Capital Financing?

August 18, 2017 | Katya Mezek

Venture capital (VC) is a form of financing that is provided to early-stage companies that have been deemed to have high-growth potential by venture capital firms or funds. Typically, venture capital financing is attractive to smaller, newer companies that do not have access to traditional forms of funding such as issuing stock or applying for a loan through a bank.

Venture capital firms generally provide capital to companies in return for equity shares, which they then sell back to the company for a profit after a specific event, such as an initial public offering (IPO).

While obtaining venture capital financing has many benefits, it has drawbacks as well. As a result, entrepreneurs should fully explore their options and discuss them with a Silicon Valley venture capital lawyer before entering into any binding agreements. Some of the common pros and cons of venture capital financing are discussed below.

Negotiating The Definitive Agreement When Selling Your Business

August 11, 2017 | Structure Law Group, LLP

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.

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?

What are the Requirements for an Investor to be a Holder in Due Course?

August 4, 2017 | Ryan Penhallegon

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;

Protection of Your Business: Maintaining the Corporate Form

July 28, 2017 | Brett Bunnell

Often, selection and formation of a startup can be stressful and confusing. But it is not the end of the process. In order to protect your startup and its status, many steps must be followed to continue to ensure the startup remains in good standing with local and state laws. The experienced California corporate lawyers at Structure Law Group, LLP can help entrepreneurs and businesses, at any stage of the process, protect and maintain their corporate form.

Why It Matters

Formation of a limited liability company (LLC) or incorporation of a startup takes time and money to gain the protections offered by the corporate form. If a business owner fails to maintain the ongoing requirements, the startup’s status may be put in jeopardy, and as a result, can lose the protection offered by the corporate form. Maintenance of a corporation or an LLC is a continual process, requiring completion of steps to be in compliance with all applicable California state and local laws.

Introduction to Merger & Acquisition Earnouts

July 14, 2017 | Katya Mezek

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.

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.

What is a Teaming Agreement and is it Enforceable?

June 30, 2017 | Jaclyn Ford

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.

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.

What are the Similarities and Differences between LLC and Corporate Formalities?

June 23, 2017 | Gokalp Gurer

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.

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.

Minimum Wage Increase Across the States

June 16, 2017 | Jaclyn Ford

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.

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.

What is Member-managed vs. Manager-managed?

June 9, 2017 | Mark Figueiredo

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.

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.