|

Fotolia_172702870_Subscription_Monthly_M-1-300x187COVID-19 has changed business completely, across the world, and throughout every industry. As the country slowly reopens, business is resuming again. Mergers and acquisitions will slowly begin again as business owners feel more comfortable moving forward. It is important, however, to understand the additional risks a business can face while completing a merger or acquisition during the coronavirus pandemic.

The Increased Focus on Due Diligence

Business owners always have a legal obligation to perform adequate due diligence investigations prior to completing a merger or acquisition. With the added risks of coronavirus, these investigations must be even more thorough and extensive. Purchasers must investigate and supply chain issues and potential production delays. The target company might have contractual liabilities for unfulfilled performance obligations or liability for coronavirus cases that occurred on its premises. All of these additional issues must be investigated along with the normal investigations conducted during due diligence. Business owners who fail to complete adequate due diligence investigations can be liable to shareholders for the losses a company sustains as a result.

Continue reading ›

|

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.

Continue reading ›

|

AdobeStock_74836089-300x200A corporation can be formed under the laws of any state, so long as the business and its owners qualify for business entity status. Many business owners use these laws to find a state that offers the most tax and legal advantages. (This is why so many businesses incorporate in the state of Delaware.) But it is important to understand that California law can still apply to your business even if it was formed out of state. Be sure to consult with a California business lawyer about the implications of California law upon your business entity.

What is the Pseudo-Foreign California Corporation Statute?

Section 2115 of the California Corporation Code applies to foreign corporations that have connections to California and satisfy the applicable statutory tests. If both of the following tests are met, the corporation is considered “pseudo foreign,” and it is treated as if it had been incorporated in California in the first place.

Continue reading ›

|

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.

Continue reading ›

|

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.

Continue reading ›

|

AdobeStock_170886507-300x200Corporate bylaws are an important tool for ensuring the efficient operation of any business and helping to avoid internal conflicts, such as those relating to founder, director, officer and shareholder conflicts. Not all businesses are required to have corporate bylaws, but it is always a good idea to commit your business plans to writing and take advantage of California corporate law. Bylaws can reduce the opportunities for disputes between owners, shareholders, and corporate officers, which can cost time and money that most startup businesses do not have to spare.

Corporate Officers

Most corporate bylaws establish corporate officer positions. These are usually “c-suite” titles, such as Chief Executive Officer, Chief Operating Officer, Chief Technology Officer, Chief Financial Officer, and similar roles. Your corporate bylaws should clearly state what roles will be created, how they will be filled, and what the scope of responsibility is for each officer. You should also provide a process for arbitrating disputes between officers and replacing officers as needed.

Continue reading ›

|

eb5-300x200The EB-5 program is a citizenship program that was established in 1990. It was designed to stimulate the American economy by attracting foreign nationals to work and invest in the United States. The EB-5 program can benefit employees and investors by creating a path to obtain citizenship. It can also benefit businesses by allowing them to act as “regional centers” that offer investment opportunities in new commercial areas.

Qualifying Employees for the EB-5 Program

The path to citizenship for individuals is usually based on either (1) a family relationship with a U.S. citizen or lawful permanent residence, (2) humanitarian grounds such as asylum, or (3) employment status with a company engaging in business within the United States. Within the employment category, there are many different options for visas and citizenship. The EB-5 program is designed for investors, not employees, but there are many other options for obtaining lawful immigration status for your employees. Visit the USCIS website to learn more about employment visas for your workers.

Continue reading ›

|

AdobeStock_201973585-300x200The right of first refusal is an important legal protection that allows business owners to protect their financial and ownership interests in a company. It allows a business to purchase stock from an employee or owner before that stock is sold to an external purchaser or outside party. This, in turn, allows the business owners to retain their control of the company by preventing an outside purchaser from obtaining voting rights or an equity stake in the business.

The right of first refusal can be exercised after the seller has already solicited an offer from an outside purchaser. It can also be exercised as a “right of first offer,” in which the company has the right to make a purchase offer before the seller solicits an offer from an outside purchaser. The specific terms and conditions of a company’s right of first refusal should be clearly stated in writing in official company ownership documents between the company and its shareholders, employees, or founders.

LLC and Operating Agreements

Continue reading ›

|

AdobeStock_271540240-scaled-e1588957114666-300x198Data privacy has become one of the biggest concerns in the technology sector today. It is not just a matter of good customer service – today, technology companies are subject to a wide array of state, federal, and international laws. These laws govern the use of customer data and require safeguards to protect the privacy of user data. Companies that fail to meet their obligations under these laws can face large fines, administrative sanctions, and irreparable damage to their public image.  It is important for companies to work with an experienced business lawyer to protect user data at every stage of business operations.

The GDPR

The General Data Protection Regulation was adopted by the European Parliament on April 14, 2016. The GDPR is notable for being the most far-reaching data privacy law to be enacted. It protects data that is collected from any individual in the European Economic Area. The GDPR also applies to any business that collects data from any residents of the European Union. Because of this, your company can still be bound by its provisions, even if you conduct business here in California. The other reason California business owners should be familiar with the GDPR is that it served as a model for the California Consumer Privacy Act. The two regulations have many similar provisions.

Continue reading ›

|

AdobeStock_314925095-300x200For businesses in financial distress, the right path forward may mean choosing between a reorganization or a liquidation.  Businesses have a number of options available to them, each of which include their own benefits and drawbacks.  You should speak with a bankruptcy attorney before deciding which approach makes the most sense for your business.

If a reorganization is not feasible, one of the available options is an Assignment for the Benefit of Creditors — commonly referred to as an “ABC.”

In an ABC, the business assigns all of its assets and debts to an assignee.  The assignee — which is generally a company that specializes in such transactions — then liquidates the assets and distributes the proceeds to the business’s creditors.  The assignee has a fiduciary duty to the creditors to maximize the value of the business’s assets, and often may seek to sell the entire business as a going concern, or even continue to operate the business after the ABC has commenced.

Continue reading ›