california law

What is a Preference in Bankruptcy?

February 10, 2023 | Ryan Penhallegon

Preference related to creditor’s rights issues. If a company files for bankruptcy, the matter is turned over to a bankruptcy trustee who takes control of the debtor’s estate. In the case of the company, they have powers over the company. Preference specifically deals with voiding transactions within the last 90 days of a bankruptcy filing (sometimes longer) if it benefits one creditor to the detriment of another creditor. Such a transfer is referred to as a preference.

Let’s use a simple example commonly found in consumer bankruptcies. The debtor has maxed their credit cards with no hope of repayment, so they file for bankruptcy. Before doing so, however, they repay their grandmother the $100 they borrowed in 2015. The bankruptcy trustee can demand the $100 back from the grandmother as she has been given preferential treatment to the corporations that own the majority of the debtor’s debt.

This benefits both the creditor and the debtor. For the creditor, it prevents the debtor from moving assets out of their estate for the purpose of hiding them from the trustee. For the debtor, it prevents the creditor from using aggressive tactics that would drive them into bankruptcy since it isn’t just their debt that’s going to be repaid. In these cases, the trustee sends a demand letter to the debtor demanding the repayment of the transaction.

Alter Ego Liability in California

January 29, 2021 | Mark Figueiredo

In 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.

California Voters Approve California Privacy Rights Act: What You Need to Know

December 18, 2020 | Mark Figueiredo

In November 2020, California voters approved what is arguably the most comprehensive privacy rights law in the nation. The California Privacy Rights Act does not take effect until January 1, 2023. But its requirements are far-reaching, and California business owners have a lot of work to do to prepare their businesses for compliance with the law before that date. Moreover, violations of the new Act prior to 2023 can cause bad public relations and potential liability in other areas. Business owners should meet with a California lawyer now to determine how the new law will affect their business, what steps must be taken, and the most efficient process for implementing these measures as soon as possible. The sooner these changes are integrated into a company’s practices and culture, the less likely it is the business will face liability under the Act.

Corporate Responsibilities Under the California Privacy Rights Act

The CPRA requires businesses to track an entirely new category of user data: “sensitive personal information.” This includes government-issued identifiers, finance information, biometric data, health status, precise geolocation, contents of emails or texts, and race or ethnic origin. Sensitive personal information is a subcategory of personal information that is protected under existing privacy laws. This means that it, too, must be de-identified or subject to an aggregation exception. The CPRA adds an additional requirement for businesses to implement “reasonable security measures” to protect personal information. What measures are “reasonable” will be determined by the type of information that is collected. Detailed financial or medical records will likely require higher levels of security than basic demographic information. Retention periods must also be updated to meet only what is reasonably necessary to perform the purposes for which the data was collected. This means that sensitive personal information might have a shorter retention policy than more general personal information.

Is Your Out of State Formed Corporation Subject to California’s Pseudo-Foreign Corporation Statute?

June 19, 2020 | Mark Figueiredo

A 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.

How Do I Write The Bylaws Of A Company?

September 29, 2017 | Brett Bunnell

Of the many challenges faced when starting a business, creation of a company’s bylaws can be one of the more complex, technical, and overwhelming challenges of them all. While daunting, such agreements can protect startup companies from liability in business transactions. A Silicon Valley corporate lawyer can help your business create the bylaws which will best meet your legal needs.

Identify the needs of your business

Before crafting any corporate policy, it is important to determine your goals. Does the policy need to protect the company from legal liability? Reduce operating expenses? Provide clarity for executing important business discussions? Identifying clear goals will allow for bylaws to effectively address such needs. Owners should also be sure to consider both the short and long-term needs of the business. Business, financial, and legal concerns can change over time. Effective bylaws will allow the business to adapt to the dynamic reality of the marketplace.

What Happens When An Acquisition Fails?

September 1, 2017 | Katya Mezek

Mergers and acquisitions (M&A) are complex business transactions with much on the line. If a merger or acquisition is not successful, a business can lose substantial assets. Of course, no one would intentionally enter into an acquisition transaction knowing it would fail; however, reports have indicated that more than half of acquisitions do fail at some point.

It is important to understand how acquisitions fail, steps to take to prevent failure, and how your business can recover from a failed merger and acquisition. An experienced California merger and acquisition lawyer from Structure Law Group, LLP can help you understand all aspects of a merger and acquisition and help you prepare for any outcome.

Common Reasons For Failed Acquisitions

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 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.

Can My Business Partner Sue Me?

July 21, 2017 | Gokalp Gurer

When multiple individuals begin conducting business together, they may have effectively created a partnership, even if they didn’t intend to do so. Thus, even though partnerships can be formed without the partners actually signing a partnership agreement, the partnership and its partners become subject to state laws governing partnerships. The California business attorneys at Structure Law Group, LLP understand the laws and mechanics required to build a strong foundation for a partnership. Being careful and meticulous about the partnership formation process can also help to prevent litigation if and when a dispute arises between and among business partners.

Partnership Agreements

Although not required under California law, as discussed above, entering into a partnership agreement when forming a partnership is highly recommended. A partnership agreement is a legally binding contract that, among other things, dictates the roles of the partners and establishes guidelines for management of the partnership. In addition, partnership agreements set out how potential legal disputes will be resolved.