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Flatten-Curve-COVID-300x115Is your business in compliance? The guidelines for operating your business while preventing the spread of COVID-19 are constantly changing. As your trusted business advisors, we would like to keep you updated with the most relevant information. It is imperative that you update your business’s Social Distancing Protocol to stay in compliance or your business could be fined by the County or forced to close.

Per the July 13th Statewide Public Health Officer Order, all bars, pubs, breweries and brewhouses whether indoors or outdoors must close. Indoor operations for the following businesses have also been restricted:

  • Dine-in restaurants must close indoor seating, but may continue operating outdoor dining, takeout and delivery.
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AdobeStock_263358883-300x200Mergers and acquisitions are an important tool for expanding your business in the competitive field of technology. Unfortunately, hidden debts and liabilities can impose serious financial burdens on an unassuming buyer. Some buyers try to avoid this situation by purchasing assets rather than an entire company. This approach can still leave a buyer assuming debts that are secured by the assets being purchased.  When structuring a transaction as an asset purchase instead of a stock purchase, it is important to understand what debts or other liabilities exist that can become obligations of the asset buyer.

The Benefits of Structuring a Deal as an Asset Purchase Agreement

When one company acquires or merges with another company, the buyer is not only receiving the assets of the target company but also its debts and liabilities if they are not discharged prior to the sale.  The assumed debts and liabilities can even include ones that are unknown to the buyer.  If a buyer does not conduct proper due diligence prior to an acquisition, a buyer may assume liabilities that it is not aware of and courts can deem the buyer to have had “constructive knowledge” of those debts and liabilities.   Constructive knowledge is when one is presumed by law to have knowledge of a fact, regardless of whether or not one has actual knowledge of the fact, since that knowledge can be obtained by the exercise of reasonable care.

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AdobeStock_279822215-300x200You might be surprised to learn that an ownership interest in an LLC can be governed by securities law. There are certain circumstances in which an ownership interest is a security subject to federal and state securities laws. Even if an exception applies, you still might be required to file an exemption notice with the government. Be sure to consult with a Silicon Valley business lawyer about which securities regulations apply before buying or selling any ownership interest in an LLC.

What is a Security?

A security is a negotiable financial interest with monetary value. Equity securities represent an ownership interest in a business entity (whether it is a corporation, partnership, trust, or LLC). Debt securities are financial instruments that represent money owed, along with repayment terms such as interest and due dates. A debt security can be either secured by collateral or unsecured. If it is secured, it may be subject to various securities regulations.

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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.

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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_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.

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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_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.

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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.

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