New Entity Formation
Determining the right entity for a business is a crucial step in establishing the liability and control of any business owner. Depending upon a business owner’s needs, The Law Office of Matthew A. Becker assists with the creation of most business organizations, including General Partnerships, Limited Partnerships, Limited Liability Partnerships, Limited Liability Corporations and Closely-Held Corporations. Moreover, the firm also handles dissolutions of any of the above-mentioned business entities.
Any business with an intent to make a profit consisting of at least two owners, where each owner makes a contribution to the business and possesses the right to co-manage and share profits will be deemed a partnership. Examples of contributions include capital, skills, or labor. Unless there is an agreement, each partner, regardless of the size of his or her ownership interest, has the right to manage the partnership.
The formation of a partnership does not require any formalities. In order to determine whether a partnership exists, the intent of the parties, as well as the way business was conducted, are essential factors. Other scenarios where a partnership may unexpectedly arise include an employee who is compensated with the profits of the business, notwithstanding wages, or a creditor that actively participates in the management of the business.
If a partner no longer wants to be a partner, that partner may sell his or her interest to a non-partner. In order for a partner to sell his or her interest to a non-partner, the selling partner must first give the other partners the “right of first refusal.” Consequently, each partner will need to decline the sale offer in order for the partnership interest to be sold.
Powers of Partners
As a general rule, every partner is an agent of the partnership and may enter into any transaction within the scope of the business. Enforcing a contract entered into a by a partner requires proof that the contract was for the purpose of carrying on the business in the usual manner for that particular partnership. Moreover, the partner must possess the necessary authority to enter into the transaction.
Three Types of Authority
Actual Authority any communication from the partnership to the partner that he or she possesses the power to act on behalf of the partnership.
Apparent Authority ny communications from the partnership to the transacting third party that the partner has the authority to enter into the agreement on behalf of the partnership.
* If the transacting third party knows that the partner lacks actual authority, then the partner does not have authority to enter into the agreement.
Inherent Agency Powers If there is no actual or apparent authority, a partner may have authority to enter into a transaction if the agreement is foreseeable and reasonable.
If a partner possess the power to act on behalf of the partnership, it is essential to be well-acquainted with each partner. As demonstrated above, it is very easy for a partner, with authority, to enter into any transaction, thus binding the partnership.
Liability of Partners
All partners are liable for the wrongdoings of any partner, while acting in the ordinary course of business of the partnership. Consequently, victims of a partner’s wrongdoing may file suit against all partners jointly, or against a partner individually. The injured party does not have to sue all the partners to recover his or her damages. If a partner acquires a debt or other obligation resulting from a particular agreement, then only the entire partnership may be held liable.
Property Rights of Partners
Every partner possesses three types of property rights.
1) Physical Assets
- Absent an agreement, all physical assets belonging to the partnership may use the asset for the good of the partnership. For example, notwithstanding an agreement, a condo owned by a partnership cannot be used by an individual partner for his or her personal use, without the consent of all partners.
- Moreover, partners only have a right to possess the partnership’s assets, as opposed to an ownership interest. As a result, the right to possession can be given away or assigned to any non-partners.
- Additionally, a partner’s right in partnership assets is not subject to attachment, unless it is a partnership debt.
2) Partner’s Interest in the Partnership
- The interest in the partnership constitutes personal property.
- As personal property, the partner’s interest or profits are fully transferable.
- If the partnership interest is transferred, however, the interest recipient cannot then act as a partner.
3) Partner’s Right to Manage the Partnership
- Every partner has an equal right to management, unless there is a contrary agreement.
- The right to manage can be transferred to another party if that other party is accepted by all partners.
Duties of a Partner
- Each partner owes every partner the duty of the finest loyalty.
- Managing partners may have an even higher duty of loyalty, including the duty to disclose business opportunities available as a result of the partnership.
Duty of Loyalty
Without the unanimous consent of all partners, partners are prohibited from any conduct or obtaining profits from a business similar to that of the partnership.
* Any profits derived from such competing activities belong to the partnership.
- Usurping Business Opportunities
A partner may not utilize any opportunity that has come to his or her attention that is in the same line of business as the partnership.
- Using Partnership Property for Personal Gain
Partners may not use partnership property for personal gain.
- Conflict of Interest
Absent the unanimous consent of all partners, a partner cannot enter into any transaction with another party where that partner, arelative of that partner, or any entity involving the partner that has a substantial financial interest.* If the conflict is disclosed from the beginning, then there is no breach of the fiduciary duty.
** Partners may also bypass their fiduciary duty, thus allowing competition.
Depending upon the needs and interests of an entity corporations may be a preferable business organization. Although partnerships afford more ownership control to general partners, corporations provide more protection from liability.
Choosing a State of Incorporation
Delaware is the most common place to incorporate one’s business, such that two-thirds of U.S. corporations are incorporated in Delaware. Delaware is such a popular state to incorporate because Delaware common law (judge- made law) is very expansive. Moreover, much of Delaware corporations law caters toward the needs of managers and directors.
If a business intends to only conduct business in one jurisdiction, or a limited number of jurisdictions, however, it is more desirable to incorporate in that jurisdiction. Notwithstanding the state of incorporation, a corporation must obtain a Aforeign corporation status@ in order to conduct business in a particular state.
- An incorporator must deliver or send the Articles of Incorporation to the Secretary of State for filing.* Usually, a clerical worker for the entity seek status as a corporation is the Aincorporator, i.e. the person who actually files the Articles of Incorporation with the Secretary of State.
** The corporation begins its existence upon the filing date.
- Articles of Incorporation
* There are both mandatory and optional elements.
- Mandatory Elements
- Name of the Corporation,
- Number of Shares that Corp is authorized to issue.
* If the number of shares changes, as is the case with a stock split, the Articles of Incorporation may be amended.
- Street address of the corporation’s initial registered office and the name of the initial registered agent at that office, AND
- Name and address of eachincorporator.
- Optional Elements
- Shareholder Liability – An optional provision may be added to the Articles of Incorporation imposing liability for the corporation’s debts on the shareholders.
* Although lack of shareholder liability for the corporation’s debts is an appealing aspect of a corporation, this optional provision can be useful in attracting additional shareholders because only named shareholders will be liable.
- Director Liability -This optional provision may either limit orcompletely eliminate director liability.
* Although directors are usually personally liable, this provision can be useful in attracting directors to serve on the board.
- Director Indemnification – This optional provision will allow a director to be reimbursed by the corporation for any liabilities.
The Secretary of State’s filing of the Articles of Incorporation is conclusive proof that the incorporators satisfied all mandatory requirements.
Corporation Compliance and Annual Meetings
Regular shareholders and directors meetings and elections of directors and officers are necessary to maintaining your corporation’s legal status as specified in the Bylaws of the corporation. Generally, meetings should be held at least annually. The corporation should maintain records of its meetings by drafting corporate minutes. Failure to comply with certain requirements could cause your corporation to lose its limited liability status (‘pierced veil’). If so, personal liability or exposure to tax agencies, or creditors, could possibly be put on directors and shareholders for failing to document formalities. Minutes are requires regardless of the size of the company or its board of directors. Both S and C corporations must keep corporate minutes appropriately for compliance with applicable laws and regulations. (Cal Corp. Code §§ 9510 (A) and 1500).
A limited liability company (LLC) can combine some of the best aspects of corporations and partnerships. The owners of a LLC (called ‘members’), have protection from personal liability for business debts such that a creditor cannot legally come after their personal property in most cases. There are other advantages such as flow through taxation. This avoids the potential double taxation of paying individual and corporate taxes by having all business losses, profits and expenses ‘flow through’ the company to individual members. An LLC business structure can be easier to operate than a corporation because it requires less in terms of corporate minutes and resolutions and has a flexible profit distribution. However, setting up a LLC is often more complicated than creating a partnership or sole proprietorship. We handle all aspects of LLC formation. We ensure that your new business complies with all of the state’s legal requirements during the formation, dissolution or corporate revival (restoring to good standing) process.
Legal Agreements / Contracts / Licensing
Dealing with business contracts, legal agreements or licensing can be complicated, confusing and unforgiving. The number of laws, regulations and contingencies can best be negotiated with an experienced attorney who has experience with the formation, creation, interpretation, review, performance and enforcement of contracts and legal agreements.
A well planned licensing strategy is essential for managing your intellectual property assets. We assist companies and other clients to maximize their revenue through effective licensing agreements. We advise clients regarding their legal options in all licensing matters. We also negotiate on behalf of businesses to obtain vital agreements from other patent, trademark and copyright owners. We review, draft and negotiate licensing agreements involving brand names, logos and trademarks and advance the business goals of our clients throughout the world. When license disputes arise, our attorneys aggressively pursue the rights of our clients in litigation.
Practical, straightforward resolutions of business disputes are always preferable to long, drawn-out legal battles. Should litigation become necessary, we are prepared to represent businesses in support of their long-term goals. We share our clients’ concerns for the bottom line and the ongoing health of their enterprise and operation. In addition to business litigation, our firm provides a broad range of legal services designed to assist companies in the areas of contracts, employee relations, hiring and firing decisions, general business operations and successful business transactions.
Mediation & Arbitration
Many contracts today contain provisions that require arbitration of potential disputes. In fact, in negotiating any contract, parties may agree in advance to arbitrate almost any potential dispute. Arbitration is a proceeding in which two or more parties present competing evidence and arguments before a neutral third party who then makes a decision about the dispute much like a judge would in a trial. An arbitrator can be a judge, but is more often an attorney or non-attorney expert, depending on the subject matter of the conflict. In binding arbitration, the parties can agree in advance that the arbitrator’s decision will be final. This is a substitute for a court proceeding and cannot be reviewed or overturned, except under very limited circumstances. In nonbinding (advisory) arbitration, the arbitrator’s decision is not final, but rather intended to help guide the parties towards settlement of their dispute. Where appropriate, we will work to resolve your case in a way that minimizes the time and expense often consumed by formal court proceedings. We can thoroughly advise you and help you evaluate the potential benefits of private settlement negotiations with the opposing parties and any insurance companies, third-party mediation, binding or non-binding arbitration, and the pros and cons of each method for resolving disputes outside of court.
There are many confusing legal procedures involved with getting a debtor to pay back a debt. An experienced attorney can help you limit your own liability and increase your chances of collecting the debt. If you take a debtor to court, our attorneys will help you secure a judgment against the debtor, thereby increasing your chances of collecting the debt. Whether we are working with contractors with lien collections, real estate landlords, helping to resolve a land use dispute or enforcing a judgment for an out-of-state creditor, our firm strives to be personal, professional and aggressive in resolving legal issues.
With growing international trade opportunities and foreign investment in the United States, we work closely with clients to determine the appropriate form of business and prepare relevant documents such as corporate papers, stock purchase agreements, partnership and employment agreements, LLC operating agreements and more for international, inter-state, California and local businesses. We can assist with and coordinate such critical issues such as California registration of foreign corporations, contracts for the rental or purchase of real estate, approvals from municipal authorities, general construction and marketing your product overseas. Although much of the legal knowledge and qualifications are similar to those required to solve domestic legal problems, businesses that are committed to international transactions often encounter issues that do not arise in domestic affairs. It is in these areas that our experienced and knowledgeable legal staff can be especially valuable.
Intellectual property (IP) rights can be the most valuable assets of a company or individual. Trademarks, service marks, trade names, trade secrets, copyrights and trade dress must be carefully protected to maximize the commercial value they represent. Our skilled lawyers help clients acquire, protect and defend your intellectual property rights worldwide with a full range of legal services including: preparation, filing and prosecution of trademark and copyright applications in the United States and in foreign countries. We advise our business clients on how best to protect their brand identities such as trade dress, logos and symbols associated with product names. We also assist our clients to protect proprietary information to avoid loss through employee departures, industrial espionage or other means. Our expertise is in preparing and negotiating licenses and other contracts for protection of intellectual property assets here and abroad and litigation of patent, trademark, copyright, antitrust, trade name, trade secret, right of publicity and unfair competition issues in state and federal courts of the United States of America.
Internet & Computer
Marketing ones business through the internet is as vital to long term and continued success. Our experienced legal team can advise our clients on any infringement of a company’s trademark whether its by ‘cybersquatters’ who interfere with a domain name registration or infringers who can use trademarks and service marks in ghost text and meta tags or a colored font on a similarly colored background, or software pirates who unlawfully trade on another’s property. We enforce our client’s rights through proactive internet protection of intellectual property and the aggressive identification and location of infringement. Our computer law expertise extends to website development and hosting agreements, software development and licensing agreements, domain name registrations and transfers and a wide variety of computer related agreements. We are at your service and invite you to consult with us.
Back to top