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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

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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.

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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.

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AdobeStock_303475806-300x200Though privately held companies cannot offer stock for sale to the general public, they can offer stock and stock options to owners, executives, and key employees. Doing so can incentivize critical personnel to perform at high levels and stay with the organization. That said, it is important to be sure that your company structures these incentive options effectively. An experienced business lawyer can help you protect your corporate interests while also providing incentives to your personnel.

Executive Compensation

In today’s current employment market, most executives have a compensation package that consists of stock or stock options, at least in part. This gives executives an incentive to make the company profitable and produce the best possible results throughout their employment.

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AdobeStock_330926552-300x203We are beginning to see hopeful signs about the ongoing COVID-19 crisis, and the conversation about when and how to reopen the U.S. economy is beginning in earnest.  In the meantime, however, the restrictions remain in effect.  What can businesses do to try to increase their odds of surviving the crisis?

  • Assess all costs and expenses to determine if any costs can be eliminated or delayed. Cut back or cut out expenses that are entirely within your control to adjust.  Where you don’t have the right to cut back, speak with vendors to see if they will agree to temporarily modify terms, perhaps in return for longer terms or other compromises.  Evaluate force majeure provisions to see if the coronavirus pandemic might provide grounds to terminate or renegotiate unfavorable agreements.  Determine if any counterparties are failing to perform under your agreements, and if such nonperformance might allow you to terminate or renegotiate those agreements. Weigh the potential long term costs and potential short term benefits of breaching agreements.  Note renewal and expiration dates of all agreements.  Discuss all of these potential actions with an attorney to make sure that you fully understand the potential risk of taking any of these measures.
  • Review existing lines of credit and other sources of cash, and consider drawing down on those lines in full to increase cash reserves. Speak with existing creditors about potentially delaying payments or other forbearance.
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AdobeStock_92258605-300x181Here in Los Angeles, there are myriad opportunities for creative entrepreneurs – but it is important to protect your and your business’s legal rights before you begin operations. Doing so will allow you to get through the difficult initial startup stages of a business free from legal disputes over equity, management rights, and other legal issues.

Structuring Your Company

One of the first issues you must resolve is what type of business entity you should form. Corporations (including C Corporations and S Corporations), limited liability companies (LLC), general partnerships, limited partnerships, and sole proprietorships each have unique advantages and disadvantages. There are different tax implications and legal protections associated with each type of entity. For example, if you choose to form an LLC, you may enjoy both limited liability protection and pass-through taxation benefit (meaning no tax will be imposed on the LLC level, and all profits or losses will pass through to the members of the LLC on their individual tax returns). However, if you have capital raising needs in the near future, LLC may not be a good choice because many investors may not accept LLCs for many reasons. This is why it is important to consult with a Los Angeles business attorney about the specific needs of your particular business. An attorney can help you select the business entity type that best meets your business goals.

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FFCRA-300x200The Family First Coronavirus Response Act (FFCRA) includes an expansion of both the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (EFMLEA).  The FFCRA is in part designed to combat negative effects of COVID-19 on the workforce.  The Act includes providing qualifying employers (under 500 employees) with certain incentives and tax credits to offset the cost of providing employee paid sick-leave for COVID-19 related reasons.

The US Department of Labor’s Wage and Hour Division is responsible for administering these portions of the FFCRA and is promulgating regulations to implement same to assist working families facing public health emergencies arising out of the pandemic.  The provisions are set to expire on December 31, 2020 and therefore the rules are (currently) effective starting April 1, 2020 through the end of the current year, 2020.

The Department, in addition to issuing rules and providing direction for administration of EPSLA (which requires certain employers provide up to 80 hours of paid sick leave under certain conditions), has stated the following qualifying conditions for assistance:

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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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AdobeStock_333866940-300x200The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020.  It includes provisions that are helpful to individuals who find themselves laid off by their employers during this unprecedented time.

The law adds an additional $600 in weekly unemployment benefits from the federal government on top of whatever benefits one would be entitled under state law.  In California, that means individuals could receive up to $1,050 per week, from the date the CARES Act was signed up until July 31, 2020.

The CARES Act also provides for one-time payments to individuals and families.  Individuals making $75,000 per year or less can expect a payment of $1,200.  Married couples filing jointly earning less than $150,000 can expect $2,400, in addition to a $500 payment for each child.  The amounts paid out decrease depending on how much one earns and completely phase-out for individuals earning more than $99,000 and married couples earning more than $198,000.

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AdobeStock_328389408-300x183In the wake of the COVID-19 pandemic, the U.S. federal government passed the CARES Act, a $2 trillion stimulus package aimed at softening the economic distress suffered by American businesses and individuals.  The massive stimulus package authorizes up to $349 billion in forgivable loans through the Paycheck Protection Program to help small businesses pay their employees during the COVID-19 crisis.

When can you apply?

Starting Friday, April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other specified expenses through Small Business Administration (SBA) lenders.  Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive similar loans.

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