Articles Posted in Business Transactions

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AdobeStock_312736469-300x200There are many ways to capitalize a new business. Angel financing, venture capital, and private equity are popular methods of raising capital, but it is important for business owners to understand the difference. These different methods are appropriate at different stages of your business life cycle. Successful entrepreneurs know when and how to use them effectively. 

Stages of the Business Life Cycle

Before a business starts any operations or has a single customer, it will need startup capital. It is at this beginning when angel financing (or “seed investors”) comes in. These initial investments of “seed money” allow entrepreneurs to take their initial idea and turn it into reality. The earliest phase of the business cycle, however, is also the riskiest. There is a high chance that angel financiers will lose their entire investment. But angel financing typically has the highest returns on investment to compensate for this risk.

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AdobeStock_377846636-300x225Shareholders have important legal rights under California law. These rights protect a shareholder’s ability to make informed financial decisions about their ownership rights in a company. If you do not understand these legal rights, a company can try to get around them and benefit itself at the expense of its own shareholders. The experienced shareholders’ rights attorneys at Structure Law Group can help you protect your legal rights in order to shield your financial interests. Learn more about your shareholder rights – and the limitations placed on these rights.

Statutes

The California Corporations Code provides shareholders with the specific legal right to inspect corporate documents. The statute allows for the inspection of the accounting books, records, and minutes of proceedings of the shareholders and the board and committees of the board (or a true and accurate copy if the original has been lost, destroyed, or is not normally physically located within the State of California). This inspection can be made with a written demand on the corporation by any shareholder (or holder of a voting trust certificate) at any reasonable time during usual business hours. The statute requires that the demand be made for a purpose reasonably related to the holder’s interests as a shareholder.

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AdobeStock_288866301-300x200When real estate is transferred in California, it generally constitutes a change in ownership that triggers a reassessment of the taxable value of that property. There are, however, a few key exclusions that can be used to avoid this trigger and protect your business from added tax liability. If you are considering transferring any property to or from your business, be sure to consult with an attorney about the best way to do this. The investment of attorney’s fees can pay dividends in reduced legal and tax liabilities. Errors, however, can lead to costly reassessments, in addition to tax penalties and interest on the added amount due.

Protecting Property Through the Creation of a Business Entity

There are a few different ways to transfer property to a business entity without triggering a reassessment. One is the legal entity exclusion. This rule allows you to avoid a reassessment if 50 percent or less of the interest in a legal entity is transferred to another legal entity. So if real property is held by a legal entity, up to half of the interest in that legal entity can be transferred without triggering a reassessment. If 51 percent or more of the legal interest is transferred, there will be a reassessment. The strategy is often used by business owners who are creating a new legal entity without changing the ownership of their business.

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AdobeStock_343368495-300x200The coronavirus has created many new legal issues with unclear answers. Courts across the country will spend months – and likely years – sorting through a backlog of civil cases involving legal questions about the financial losses created by COVID-19. While it is not possible to predict the outcome in every case, there is some guidance from prior case law that can help business owners effectively plan to mitigate their liability. The experienced business lawyers at Structure Law Group can help develop a mitigation strategy that is tailored to your business. Learn more about the history of breach of contract case law – and how it can help you make informed decisions about your company’s contracts in the era of coronavirus.

Is COVID-19 a Valid Excuse to Breach a Contract?

Case law involving breach of contract goes back hundreds of years. Many different reasons for breach have been explored by the courts, but, of course, they have never before faced COVID-19. This is a new global phenomenon that has created unique challenges for business owners all over the world. To predict how courts will treat breach of contract related to COVID-19, one must examine the reasons they have excused breach in the past – or not excused it, imposing liability on the breaching party.

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AdobeStock_271469937-300x200In general, shareholders are protected from liability for the debts of the corporation. This is because the corporation is viewed as a separate legal entity with its own assets and liabilities. This “corporate veil” of protection can, however, be pierced in certain situations, and personal liability imposed on the shareholders. Creditors use this legal tactic strategically to be sure they can access funds for what they are owed. The experienced California business attorneys at the Structure Law Group can help advise creditors on how to effectively pierce the corporate veil in order to satisfy the debts they are owed.

Elements of Alter Ego Liability

In order to pierce the corporate veil, the plaintiff must prove “alter ego liability.” Alter ego literally translates to “other self.” In alter ego liability, the corporation has been treated as an extension of shareholders’ personal interests, so the courts find it fair to hold shareholders liable for the corporation’s debts, as well. Plaintiffs in California must establish: (1) that there is a unity of ownership and interest between the owners (or shareholders) and the corporation, and (2) that it would be unfair to only hold the corporation accountable for its debts in order to establish alter ego liability.

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AdobeStock_314925095-300x200The Supreme Court of California recently issued an opinion with significant consequences for any business that enters into contracts. This opinion addresses liability for interfering with an at-will contract, as well as the limits of the few exceptions to the statutory ban on non-compete agreements in our state. It is essential for business owners to understand the implications of this ruling in order to enter into enforceable contracts that will not leave them liable for damages, court costs, and other costly expenses.

The Latest Supreme Court Ruling

On August 3, 2020, the Supreme Court of California issued an opinion that answered critical questions about how California law on tortious interference with business relations applies to an at-will contract. The Court ruled that companies are not liable for encouraging others to end an at-will contract unless there is “independent wrongfulness.” This analysis relied heavily on the uncertain nature of an at-will contract. While parties to a binding contract are negotiating for certainty in their future business relationship, there is no such certainty in an at-will contract. For this reason, legitimate business competition takes precedence over the terminable relationship in such a contract.

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AdobeStock_327744070-300x200Force majeure is an important protection for businesses entering into any contract. Especially during the dramatic and unpredictable consequences of the coronavirus pandemic, business owners are wise to use and enforce force majeure clauses whenever possible. An experienced business lawyer can help you draft and use this protection properly. An attorney can also help you deal with a vendor or client who is attempting to improperly use a force majeure clause to get out of fulfilling contractual obligations.

What is a Force Majeure Clause?

Force majeure is a French term that translates to “superior force.” In contracts, it is used to address what will happen in the event of unforeseen circumstances that are not caused by either party. A force majeure clause can address specific events (like wars, strikes, and riots) or general categories (such as “acts of god”). When such a clause is written and enforced properly, it can excuse both parties’ obligations under the contract.

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AdobeStock_284509904-300x203Crowdfunding has become a popular means of funding new projects. Especially here in Silicon Valley, crowdfunding is an important driver of innovation. Yet increased use of crowdfunding has led to increased regulations. Companies can now offer and sell securities through crowdfunding platforms, and as with any security, these transactions are regulated by the Securities and Exchange Commission. It is important for any business offering securities through a crowdfunding platform to understand all legal obligations before using this medium.

What is Regulation Crowdfunding?

Crowdfunding refers to a financing method in which fund is raised through soliciting relatively small individual investments or contributions from a large number of persons. Crowdfunding is a way to use a social media platform to fund work initiatives, charitable causes, and almost any other project you can imagine. Crowdfunding can even be used to buy and sell stock in a company. That said, stock is a security that is regulated by the SEC. As with any other transaction involving a security, buyers and sellers must adhere to SEC regulations throughout the transaction. The SEC has recognized the increased use of crowdfunding in secured transactions. In response, it has issued specific rules for the offer and sale of securities through crowdfunding.

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AdobeStock_192681233-300x188Force majeure is a French term that means “superior force.” A force majeure clause is a negotiated contract provision that addresses what will happen if circumstances beyond the parties’ control affect their ability to complete their contractual obligations. This provision can be applied to manmade circumstances (such as war, riots, and strikes) or acts of god (such as droughts and natural disasters. However: we are currently facing circumstances never before seen in our lifetimes. It is difficult to know whether a force majeure clause will apply to circumstances caused by the COVID-19 pandemic.

Will Force Majeure Clauses Excuse Contractual Obligations During the Coronavirus Pandemic?

A force majeure clause usually applies when the circumstances have made a party’s performance under the contract either inadvisable, impractical, impossible, or illegal. The coronavirus may indeed render it inadvisable or even illegal to perform your contractual obligations. Executive orders have prevented businesses from fully opening, and some businesses remain closed altogether. If a contract required these business owners to fully open, that would be illegal. A force majeure clause would excuse contractual obligations under these circumstances.

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AdobeStock_327922973-300x200Don’t let a data security issue become a public relations nightmare for your enterprise.  Huge gains in efficiency and productivity are in the cards for any enterprise that can keep pace with technology.  However, with any technological advance, risks and pitfalls are abound.  Especially when it comes to Data Security.  Indeed, many have already succumbed to these pitfalls; think healthcare agencies, credit reporting agencies, and even the US Government (remember Edward Snowden?).  Considering most businesses and industries are currently in some form of lock-down, Data Security and Data Security Practices are crucial.  If your enterprise is fortunate enough to have remote work capability and your current Data Security practices are somewhat lacking, consider these basic tips for our current COVID-19 Era.

  • Learn from your prior mistakes. It is said we can learn much more form our failures compared to our successes.  If your organization has already been the victim of a Data Security issue, hopefully you have already implemented practices to prevent the same occurrence in the future.  Continually revisiting your Data Security practices is important in many respects, to name just a few:  1) It serves to minimize future occurrences, 2) It serves to reinforce your polices, 3) It demonstrates the importance of the issue to your workforce, and 4) It could serve to cut-off (or at least limit) liability/damages in the event of a failure.  Make regular review of your practices a priority.
  • Limit who has access. Does everyone in your organization need access to all your critical systems and information?  Probably not.  Considering who needs access, and what information they need access to, is an important consideration.
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