California Injury Attorney Blog

A partnership is a relationship existing between two or more persons who join together to carry on a trade or business. Each partner contributes money, property, labor, and/or skill to the partnership and, in return, expects to share in the profits or losses of the business. A partnership is usually based on a partnership agreement of some type, although the agreement need not be a formal document. It may even simply be an oral understanding between the partners, although this is not recommended.

A simple joint undertaking to share expenses is not considered a partnership, nor is a mere co-ownership of property that is maintained and leased or rented. To be considered a partnership for legal and tax purposes, the following factors are usually considered:

•The partners' conduct in carrying out provisions of the partnership agreement
•The relationship of the parties
•The abilities and contributions of each party to the partnership
•The control each partner has over the partnership income and the purposes for which the income is used

Disadvantages
The disadvantages of the partnership form of business begin with the potential for conflict between partners. Of all forms of business organization, the partnership has spawned more disagreements than any other. This is generally traceable to the lack of a decisive initial partnership agreement that clearly outlines the rights and duties of the partners. This disadvantage can be partially overcome with a comprehensive partnership agreement. However, there is still the seemingly inherent difficulty many people have in working within the framework of a partnership, regardless of the initial agreement between the partners.

A further disadvantage to the partnership structure is that each partner is subject to unlimited personal liability for the debts of the partnership. The potential liability in a partnership is even greater than that encountered in a sole proprietorship. This is due to the fact that in a partnership the personal risk for which one may be liable is partially out of one's direct control and may be accrued due to actions on the part of another person. Each partner is liable for all of the debts of the partnership, regardless of which partner may have been responsible for their accumulation.

Related to the business risks of personal financial liability is the potential personal legal liability for the negligence of another partner. In addition, each partner may even be liable for the negligence of an employee of the partnership if such negligence takes place during the usual course of business of the partnership. Again, the attendant risks are broadened by the potential for liability based on the acts of other persons. Of course, general liability insurance can counteract this drawback to some extent to protect the personal and partnership assets of each partner.

Again, as with the sole proprietorship, the partnership lacks the advantage of continuity. A partnership is usually automatically terminated upon the death of any partner. A final accounting and a division of assets and liabilities is generally necessary in such an instance unless specific methods under which the partnership may be continued have been outlined in the partnership agreement.

Finally, certain benefits of corporate organization are not available to a partnership. Since a partnership cannot obtain financing through public stock offerings, large infusions of capital are more difficult for a partnership to raise than for a corporation. In addition, many of the fringe benefit programs that are available to corporations (such as certain pension and profit-sharing arrangements) are not available to partnerships.

Advantages
A partnership, by virtue of combining the credit potential of the various partners, has an inherently greater opportunity for business credit than is generally available to a sole proprietorship. In addition, the assets which are placed in the name of the partnership may often be used directly as collateral for business loans. The pooling of the personal capital of the partners generally provides the partnership with an advantage over the sole proprietorship in the area of cash availability. However, as noted above, the partnership does not have as great a potential for financing as does a corporation.

As with the sole proprietorship, there may be certain tax advantages to operation of a business as a partnership, as opposed to a corporation. The profits generated by a partnership may be distributed directly to the partners without incurring any "double" tax liability, as is the case with the distribution of corporate profits in the form of dividends to the shareholders. Income from a partnership is taxed at personal income tax rates. Note, however, that depending on the individual tax situation of each partner, this aspect could prove to be a disadvantage.

For a business in which two or more people desire to share in the work and in the profits, a partnership is often the structure chosen. It is, potentially, a much simpler form of business organization than the corporate form. Less start-up costs are necessary and there is limited regulation of partnerships. However, the simplicity of this form of business can be deceiving. A sole proprietor knows that his or her actions will determine how the business will prosper, and that he or she is, ultimately, personally responsible for the success or failure of the enterprise. In a partnership, however, the duties, obligations, and commitments of each partner are often ill-defined. This lack of definition of the status of each partner can lead to serious difficulties and disagreements. In order to clarify the rights and responsibilities of each partner and to be certain of the tax status of the partnership, it is good business procedure to have a written partnership agreement. All states have adopted a version of the Uniform Partnership Act, which provides an outline of partnership law. Although state law will supply the general boundaries of partnerships and even specific partnership agreement terms if they are not addressed by a written partnership agreement, it is better for a clear understanding of the business structure if the partner's agreements are put in writing.

Continue reading "Choosing a Business Entity: The Partnership" »

Michael Chapman, the owner of a building company with 20 employees in Santa Fe, New Mexico, has had trouble getting a bank loan and this month he let Kansas City Federal Reserve Bank President Thomas Hoenig know it.

Tight credit in commercial real estate "has really made it impossible for banks to lend to people like me," the president of Chapman Homes said during a question period after an April 7 speech by Hoenig. Chapman said his company, unable to get a loan to hire 15 workers while big Wall Street firms get record bailouts, is "too small to succeed."

Owners of small businesses across the country are telling Fed officials that they would expand and hire more workers if only they could get financing. Policy makers at the end of a two-day meeting starting tomorrow may cite scant lending as a drag on demand as they affirm a pledge to keep interest rates low for an "extended period."

"It's going to be a slow recovery to the extent it depends on banks opening up their lending," said William Ford, a former Atlanta Fed president now at Middle Tennessee State University in Murfreesboro. "Lenders have gone to the extreme of being very tight, very cautious, as they recover from serious earnings problems."

The Federal Open Market Committee is scheduled to issue a statement on April 28.

Confidence among U.S. small businesses fell in March to the lowest level since July 2009 as executives grew more concerned about earnings and sales, the National Federation of Independent Business reported April 13. More borrowers reported credit hard to get and good borrowers saw little reason to expand borrowing, said William Dunkelberg, the group's chief economist.

Out of Woods

Fed Chairman Ben S. Bernanke said in an April 7 speech that while a U.S. economic recovery is under way, "we are far from being out of the woods," in part because of tight credit.

"Bank lending remains very weak, threatening the ability of small businesses to finance expansion and new hiring," Bernanke told the Dallas Regional Chamber.

Commercial and industrial loans at U.S. commercial banks declined by $900 million during the week ended April 14 to $1.27 trillion, according to Fed data released on April 23. In March, such loans hit the lowest point in more than two years.

Revolving debt, such as credit cards, which are often used to finance small businesses, fell by $9.4 billion in February, the biggest decline in three months, according to Fed statistics.

'Extremely Weak'

"Currently, there is little evidence that financial institutions are significantly expanding the provision of credit and liquidity," Janet Yellen, president of the San Francisco Fed said in an April 15 speech in San Francisco. "Quite the contrary, even with very low interest rates, credit flows remain extremely weak."

The shortage of credit for small businesses will probably slow a decline in the U.S. unemployment rate, which fell to 9.7 percent in March from 10.1 percent in October.

Small companies generated about two thirds of the new jobs over the past 15 years, Cleveland Fed President Sandra Pianalto said in February. During recoveries from the 1990 and 2001 recessions, firms with fewer than 20 employees expanded their payrolls more than any other firms, she said.

The FOMC this week will probably affirm its view that the recovery may not be strong enough to reduce unemployment rapidly, said former Fed Governor Lyle Gramley, a senior economic adviser at Potomac Research Group in Washington.

Gotten an Earful

While speaking to executives across the U.S., Fed officials have gotten an earful from small business owners hungry for financing.

In Dayton, Ohio, Bernard Jergens, general manager of Breckenridge Financial Supplies, which sells automated teller machine supplies, told Pianalto in February his firm was forced to scramble for funding after its lender declined a refinancing application. Businesses "have to work harder to find a solution" to meager credit, he said to Pianalto.

In Santa Fe, Richard Czoski, 57, Santa Fe Railyard Community Corp's executive director and a developer for 25 years, told Hoenig that "conservative" real estate projects can't obtain financing.

"There is an unwillingness on the part of local banks to lend," he said in an interview. "Even reasonable projects can't get financing."

In Alexandria, Virginia, Diane Palmintera, president of Innovation Associates, told Fed Governor Elizabeth Duke on April 19 that start-up firms -- hurt by "contracting venture capital" and declining home equity -- are pressed for loans. "They are increasingly challenged even more than existing small businesses," she said.

Never Defaulted

Chapman, 57, who's never defaulted on a loan, says that with financing he'd add 15 or more jobs and build five or six more houses. "Anything called a commercial real estate loan is virtually unavailable," he said in an interview.

His concern was echoed last week by New Mexico Governor Bill Richardson, who wrote Bernanke and other banking regulators that the "overzealous" application of rules may be choking off lending. Community banks didn't cause the financial crisis but they "are feeling increased pressure to restrict lending by federal financial regulators in the field," he said.

Some banks may be reluctant to lend because of the large numbers of problem loans, Hoenig said in response to Chapman. "The banks are going to be more cautious," he said.

'Problem' Banks

U.S. banks reported profits of $914 million in the fourth quarter, compared with a $38 billion loss in the year-earlier period, the Federal Deposit Insurance Corp. reported. Still, the number of "problem" banks climbed to 702 with $402.8 billion in assets, the highest level in 17 years.

The policy makers' statement will probably affirm their March 16 description of inflation as "subdued," Fed watchers said. The central bank's preferred gauge of inflation rose at a 1.3 percent annual rate in February, below the Fed's longer-run goal of 1.7 percent to 2 percent.

In assessing the economy, the FOMC may be "heartened" by strength in the housing market and a firming in financial markets, said Gregory Hess, a former Fed economist who's now dean of the faculty at Claremont McKenna College in Claremont, California. He is a member of the Shadow Open Market Committee, a group that critiques Fed policy.

"Credit demand has been pretty soft and that means the economy is not going to grow rapidly or very much," said Sung Won Sohn, former chief economist at Wells Fargo & Co. and now an economics professor at California State University-Channel Islands in Camarillo, California.

"Sluggish growth, low inflation and weak credit demand all translate into what Bernanke has talked about: low interest rates for an extended period," he said.

Taken From Bloomberg News

Fair collections law in the state of California is regulated by California's Fair Debt Collection Practices Act, also known as the Rosenthal Act. The law provides consumers with protections similar to those found in the federal Fair Debt Collections Practices Act. California law does differ slightly in the areas of regulating and defining collection agencies. California law also applies to the original owner of the debt, unlike its federal counterpart.

Debt collectors often sell outstanding debts to collection agencies. In California, debt collectors, with the exception of health clubs, are not required to inform debtors that the debt has been sold. California has no special laws requiring the licensing of collection agencies. Collection agencies operating in the state are not required to post a bond as they are in many other states. The state requires collection agencies to operate within the boundaries of the California's Fair Debt Collection Practices Act, also known as the Rosenthal Act. The law regulates debt collection practices not only of collection agencies, but also the original owner of a debt.

The Rosenthal Act was passed in 1977. It regulates debt collection not only of collection agencies, but also the original owner of a debt. The law defines what constitutes harassing behavior by debt collectors and also details what collection methods are acceptable. For instance, when first contacting a consumer by phone, a debt collector must state the purpose of the contact and clearly state that any information obtained from the consumer will be used toward that end. The collection agency must follow up the telephone contact in writing. An agency may contact your employer only under specific conditions. Phone calls are limited to between 8 a.m. and 9 p.m.

The Rosenthal Act provides procedures for disputing debts and also for filing unlawful collection complaints against collection agencies. After receiving written notice of a debt, the debtor has an opportunity to dispute the debt. From there, the dispute can move to mediation, although this is not required. A collection agency may sue the debtor in Superior Court but not Small Claims Court. If a creditor violates the terms of the Rosenthal act, a debtor may file a civil lawsuit against the collection agency. For every proven violation, the debtor is entitled to financial compensation between $100 and $1,000.

Under California Law, collection agencies are allowed to continue adding interest to your outstanding debt, depending on the type of debt. The consumer may ask the agency to detail how interest is being applied and at what rate. This should be done in writing. Any application of interest must be specified in the contract for the original debt.

Credit agencies cannot threaten to report your debt to a credit bureau unless the agency is already a customer of the bureau and it actually does report you to the bureau. If you have disputed the debt, the agency must report that information to the credit bureau as well. Agencies must also update your credit report after you have paid an outstanding debt. Agencies are not legally required to remove any negative information from your report, although that issue is always negotiable.

Continue reading "Collection Laws Attributable to The State of California" »

In the United States, corporate veil piercing is the most litigated issue in corporate law. Although courts are reluctant to hold a director or active shareholder liable for actions that are legally the responsibility of the corporation, even if the corporation has a single shareholder, they will often do so if the corporation was markedly noncompliant, or if holding only the corporation liable would be singularly unfair to the plaintiff. In most jurisdictions, no bright-line rule exists and the ruling is based on common law precedents. In the US, different theories, most important "alter ego" or "instrumentality rule", attempted to create a piercing standard. Mostly, they rest upon three basic prongs - namely "unity of interest and ownership", "wrongful conduct" and "proximate cause". However, the theories failed to articulate a real-world approach which courts could directly apply to their cases. Thus, courts struggle with the proof of each prong and rather analyze all given factors. This is known as "totality of circumstances".

There is also the matter of what jurisdiction the corporation is incorporated in if the corporation is authorized to do business in more than one state. All corporations have one specific state (their "home" state) to which they are incorporated as a "domestic" corporation, and if they operate in other states, they would apply for authority to do business in those other states as a "foreign" corporation. In determining whether or not the corporate veil may be pierced, the courts are required to use the laws of the corporation's home state. This issue can be significant, for example, the rules for allowing a corporate veil to be pierced are much more liberal in California than they are in Nevada, thus, the owner(s) of a corporation operating in California would be subject to different potential for the corporation's veil to be pierced if the corporation was to be sued, depending on whether the corporation was a California domestic corporation or was a Nevada foreign corporation operating in California.

Generally, the plaintiff has to prove that the incorporation was merely a formality and that the corporation neglected corporate formalities and protocols, such as voting to approve major corporate actions in the context of a duly authorized corporate meeting. This is quite often the case when a corporation facing legal liability transfers its assets and business to another corporation with the same management and shareholders. It also happens with single person corporations that are managed in a haphazard manner. As such, the veil can be pierced in both civil cases and where regulatory proceedings are taken against a shell corporation.

Factors for courts to consider:
Absence or inaccuracy of corporate records;
Concealment or misrepresentation of members;
Failure to maintain arm's length relationships with related entities;
Failure to observe corporate formalities in terms of behavior and documentation;
Failure to pay dividends;
Intermingling of assets of the corporation and of the shareholder;
Manipulation of assets or liabilities to concentrate the assets or liabilities;
Non-functioning corporate officers and/or directors;
Other factors the court finds relevant;
Significant undercapitalization of the business entity (capitalization requirements vary based on industry, location, and specific company circumstances);
Siphoning of corporate funds by the dominant shareholder(s);
Treatment by an individual of the assets of corporation as his/her own;
Was the corporation being used as a "façade" for dominant shareholder(s) personal dealings; alter ego theory;

Continue reading "Factors To Be Considered In Any Attempt to Pierce The Corporate Veil" »

Piercing the corporate veil describes a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders or directors. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed. Common law countries usually uphold this principle of separate personhood, but in exceptional situations may "pierce" or "lift" the corporate veil. A simple example would be where a businessman has left his job as a director and has signed a contract to not compete with the company he has just left for a period of time. If he set up a company which competed with his former company, technically it would be the company and not the person competing. But it is likely a court would say that the new company was just a "sham", a "fraud" or some other phrase, and would still allow the old company to sue the man for breach of contract. A court would look beyond the "legal fiction" to the reality of the situation.

Piercing the corporate veil is not the only means by which a director or officer of a corporation can be held liable for the actions of the corporation. Liability can be established through conventional theories of contract, agency, or tort law. For example, in situations where a director or officer acting on behalf of a corporation personally commits a tort, he and the corporation are jointly liable and it is unnecessary to discuss the issue of piercing the corporate veil. The doctrine is often used in cases where liability is found, but the corporation is insolvent.

Continue reading "The Business of Piercing the Corporate Veil" »

The death of a shareholder, is the event most likely to trigger a buyout. Usually, the business buy-sell agreement provides for the mandatory purchase of the decedent's shares, first by the corporation, then, if it is legally unable to do so, by the other shareholders.

Determing whether to provide for mandatory or optional purchases on a shareholder's death is one of the most important decisions to be made when the business buy-sell agreement is drafted. If the corporation is expected to purchase the shares, the necessary source of funding must be available.

If the State you live in is a community property state, those issues must be reviewed and factored into the mandatory purchase in the buy-sell agreement. You should also retain competent tax counsel as it regards the tax implications if the shares are redeemed, as the redemtion distributions will be taxed to the remaining shareholders as dividends.

Continue reading "Death of a Shareholder The Event Most Likely To Trigger A Business Buy-Out" »

All counsel should identify the client for whom he or she is drafting the buy-sell agreement and , if appropriate, advise other parties involved to seek independent legal representation. Most attorneys are often asked to represent the corporation and all of its shareholders, and due care must be taken to identify and avoid possible conflicts of interest states California Business Attorney Steven C. Peck.

The following factors should be considered before beginning to draft the buy-sell agreement:
1) What events could trigger a buyout?
2) For each event triggering a buyout (e.g. death, retirement) will the corporation or the remaining shareholders, or both, be the purchaser?
3) Will the buyout be mandatory on each such event, or will the selling shareholder have the option to sell and the purchasers the option to buy?
4) How will the purchase price be established? Will it vary depending on the particular reason for the buyout?

These are just a few of the questions that should be answered by an attorney preparing a buy-sell agreement. There are many many more.

Continue reading "Check List: Business Buy-Sell Agreements" »

One of the worst things that may happen to a fledgling company is making the mistake of not keeping properly documented records about all relationships involved in the business from day one. This observation also applies to the early start-up stages as well.

"While it's natural to be rather informal at the beginning, who knows what value the company will really have later. The value of the company later is the crucial key here and means that hiring a lawyer at the beginning of the start-up process for a company is a wise investment move for all concerned," states Los Angeles Business Attorney Steven C. Peck.

Often investors feel it's not necessary to hire legal advice that early in the process. Unfortunately, it's this very time when the business is making crucial decisions that will affect their future that they "need" legal advice. They also need to be keeping good records of everything that happens during their start-up. No one knows when these records will come in handy.

Even though it's statistically likely that most company founders will do just fine during their start-up by not documenting everything they do, the chances are high that those who don't take this precaution will have serious problems later. "The facts are that without any documentation on the company start-up, the founders assume legal risk," Peck says.

For these reasons, it's a good idea to discuss the founding of the company with a competent Los Angeles business lawyer, setup the correct entity, review and edit agreements, properly explain to the clients' the possible worst case scenarios and plan for them accordingly, and make sure that the new entity has been properly advised of the legal ramifications pertinent to their particular start up company. Many of these same issues will appear upon the purchase or sale of a company, too. Document any and all transactions in writing, and when in doubt call your attorney immediately.

There are many other pitfalls that a good business lawyer will be able to outline to founders of a new business and steer them in the right direction to success. Hiring a lawyer early is one smart business investment.

Continue reading "The Hiring of a Lawyer During the Start Up Process of a New Company Is A Wise Investment" »

Most entrepreneurs start their new businesses with the dream of building a successful business. Many of you who started your new business recently opened up the business because you couldn't find a new job. You weren't prepared with a business plan, or market research, or entrepreneurial skills. Yet, none of these deficiencies will necessary mean that your business won't succeed. If you create a team of advisors, you should be able to find professionals and businesspeople who can help you build a thriving business.

Who should be on your team? You should have a business lawyer, an accountant who can advise you on taxes and on how to grow your profits, an insurance broker, and a person who has already created a successful business.

Why do you need these advisors and how do you find them? A business lawyer has the knowledge to advise you about how to avoid lawsuits (which are always more expensive than the costs of acting proactively). If you are moving from your home to an office or renting a storefront, you want a business lawyer to help you negotiate with the landlord to get you the best lease terms. A business lawyer will draft your contracts for you to work with clients (which can state that you get paid upfront in full or in part - that's good for cash flow), with vendors, and with independent contractors (so you don't get into trouble with the IRS or the labor department). You may have a logo to trademark or a creative idea or process that needs a copyright or a patent. Your business lawyer will help you with all of these problems or can refer you to another lawyer who has more expertise with these types of law.

Your accountant will help you set up a chart of accounts, prepare your business tax returns and advise you (together with your lawyer) on issues where taxes are involved (whether sales, income, or payroll taxes). Your accountant should also be able to advise you on how to maximize business deductions so that you pay the least amount of taxes that are required.

An accountant or profitability consultant will advise you on how to grow your revenues, help you to focus on your core business and then add new products or services, advise you on setting your pricing strategy, implement inventory controls, and help you with cash flow problems.

Many businesses carry a wide variety of insurance - or should. These range from liability insurance to business interruption insurance to professional malpractice (or errors and omissions) insurance to auto insurance to commercial property insurance. Do you have an independent insurance broker who will shop your business to several insurance companies? Who will find you the best coverages for the right prices? Who will advise you about risk management so you can keep your premiums as low as possible? That's why you need an insurance broker on your trusted advisor team.

You should also try to find a business mentor, someone who has created a business that is successful. This person should be available, who will listen to you, who has the knowledge and skills that you want to acquire, and should be willing to give you constructive criticism and feedback.

Your team of trusted advisors lets you look at your business through fresh eyes. It gives you a group of professionals who have been what you're going through and have shepherded clients through your challenges. They have expertise that you do not have and should have contacts in other businesses that will help your business (such as technology, marketing, pricing strategies, inventory control). They will ask you questions that you haven't even thought of yet. But, you must be willing to take the advice of your trusted advisors because they will help you build the business of your dreams.

How do you find these trusted advisors? Start with one advisor who you trust and ask them for referrals to the other types of advisors that you want to have. Interview them about their experience and ask yourself whether you would be willing to work with these individuals over an extended period of time. You must be comfortable with your team because they will know you and your business intimately. Only by being open and honest with your advisors can they really help you.

Continue reading "TipsThat May Help You Develop a Profitable Small Business" »

Equitable remedies are judicial remedies developed and granted by courts of equity, as opposed to courts of law. Equitable remedies were granted by the Court of Chancery in England, and remain available today in most common law jurisdictions. In many jurisdictions, legal and equitable remedies have been merged and a single court can issue either-or both remedies. Despite widespread judicial merger, the distinction between equitable and legal remedies remains relevant in a number of significant instances. Notably, the United States Constitution's Seventh Amendment preserves the right to a jury trial rights in civil cases over $20 to cases "at common law".

The distinction between types of relief granted by the courts is due to the courts of equity, such as the Court of Chancery in England, and still available today in common law jurisdictions. Equity is said to operate on the conscience of the defendant, so an equitable remedy is always directed at a particular person, and his knowledge, state of mind and motives may be relevant to whether a remedy should be granted or not.

Equitable remedies are distinguished from "legal" remedies (which are available to a successful claimant as of right) by the discretion of the court to grant them. In common law jurisdictions, there are a variety of equitable remedies, but the principal remedies are:

injunction
specific performance
Account of profits
rescission
declaratory relief
rectification
equitable estoppel
certain proprietary remedies, such as constructive trusts or tracing[3]
subrogation
in very specific circumstances, an equitable lien

The two main equitable remedies are injunctions and specific performance, and in casual legal parlance references to equitable remedies are often expressed as referring to those two remedies alone. Injunctions may be mandatory (requiring a person to do something) or prohibitory (stopping them doing something). Specific performance requires a party to perform a contract, for example by transferring a piece of land to the claimant.

An account of profits is usually ordered where payment of damages would still leave the wrongdoer unjustly enriched at the expense of the wronged party. However, orders for an account are not normally available as of right, and only arise in certain circumstances.

Rescission and rectification are remedies in relation to contracts (or, exceptionally, deeds) which may become available.

Constructive trusts and tracing remedies are usually used where the claimant asserts that property has been wrongly appropriated from them, and then either (i) the property has increased in value, and thus they should have an interest in the increase in value which occurred at their expense, or (ii) the property has been transferred by the wrongdoer to an innocent third party, and the original owner should be able to claim a right to the property as against the innocent third party.

Equitable liens normally only arise in very specific factual circumstances, such as unpaid vendor's lien.

Equitable principles can also limit the granting of equitable remedies. This includes "he who comes to equity must come with clean hands" (ie the court will not assist a claimant who is himself in the wrong or acting for improper motives), laches (equitable remedies will not be granted if the claimant has delayed unduly in seeking them), "equity will not assist a volunteer" (meaning that a person cannot litigate against a settlor without providing the appropriate consideration e.g. Money) and that equitable remedies will not normally be granted where damages would be an adequate remedy. The most important limitation relating to equitable remedies is that an equitable remedy will not lie against a bona fide purchaser for value without notice.

Interestingly, damages can also be awarded in "equity" as opposed to "at law", and in some legal systems, by historical accident, interest on damages can be awarded on a compound basis only on equitable damages, but not on damages awarded at law. However, most jurisdictions either have ended this anachronism, or evinced an intention to do so, by modernising legislation.

Continue reading "Equitable Remedies Can Be a Very Strong Court Ordered Relief" »

Conduct by a fiduciary may be deemed constructive fraud when it is based on acts, omissions or concealments considered fraudulent and that gives one an advantage against the other because such conduct--though not actually fraudulent, dishonest or deceitful--demands redress for reasons of public policy. Breach of fiduciary duty may occur in insider trading, when an insider or a related party makes trades in a corporation's securities based on material non-public information obtained during the performance of the insider's duties at the corporation. Breach of fiduciary duty by a lawyer with regard to a client, if negligent, may be a form of legal malpractice; if intentional, it may be remedied in equity says California Business Lawyer Steven C. Peck.

Where a principal can establish both a fiduciary duty and a breach of that duty, through violation of the above rules, the court will find that the benefit gained by the fiduciary should be returned to the principal because it would be unconscionable to allow the fiduciary to retain the benefit by employing his strict common law legal rights. This will be the case, unless the fiduciary can show there was full disclosure of the conflict of interest or profit and that the principal fully accepted and freely consented to the fiduciary's course of action.

Remedies will differ according to the type of damage or benefit. They are usually distinguished between proprietary remedies, dealing with property, and personal remedies, dealing with pecuniary (monetary) compensation.

Constructive trusts
Where the unconscionable gain by the fiduciary is in an easily identifiable form, such as the recording contract discussed above, the usual remedy will be the already discussed constructive trust.

Constructive trusts pop up in many aspects of equity, not just in a remedial sense, but, in this sense, what is meant by a constructive trust is that the court has created and imposed a duty on the fiduciary to hold the money in safekeeping until it can be rightfully transferred to the principal.

Account of profits
An account of profits is another potential remedy.It is usually used where the breach of duty was ongoing or when the gain is hard to identify. The idea of an account of profits is that the fiduciary profited unconscionably by virtue of the fiduciary position, so any profit made should be transferred to the principal. It may sound like a constructive trust at first, but it is not.

An account for profits is the appropriate remedy when, for example, a senior employee has taken advantage of his fiduciary position by conducting his own company on the side and has run up quite a lot of profits over a period of time, profits which he wouldn't have been able to make without his fiduciary position in the original company. The calculation of profits in this sense can be extremely difficult, because profit due to fiduciary position must be separated from profit due to the fiduciary's own effort and ingenuity.

Compensatory damages
Compensatory damages are also available. Accounts of profits can be hard remedies to establish, therefore, a plaintiff will often seek compensation (damages) instead. Courts of equity initially had no power to award compensatory damages, which traditionally were a remedy at common law, but legislation and case law has changed the situation so compensatory damages may now be awarded for a purely equitable action.

Contact Steven Peck's Premier Legal toll free at 1.866.999.9085 to talk to an experienced California Business Attorney and visit us on-line at www.premierlegal.org.

A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties, most commonly a fiduciary and a principal. One party, for example a corporate trust company or the trust department of a bank, holds a fiduciary relation or acts in a fiduciary capacity to another, such as one whose funds are entrusted to it for investment. In a fiduciary relation one person, in a position of vulnerability, justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests.

" A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. " says California Business Lawyer Steven C. Peck.

A fiduciary duty is the highest standard of care at either equity or law. A fiduciary (abbreviation fid) is expected to be extremely loyal to the person to whom he owes the duty (the "principal"): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents. The word itself comes originally from the Latin fides, meaning faith, and fiducia, trust.

In English common law the fiduciary relation is arguably the most important concept within the portion of the legal system known as equity. In the United Kingdom, the Judicature Acts merged the courts of equity (historically based in England's Court of Chancery) with the courts of common law, and as a result the concept of fiduciary duty also became usable in common law courts.

When a fiduciary duty is imposed, equity requires a stricter standard of behavior than the comparable tortious duty of care at common law. It is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where his fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from his fiduciary position without express knowledge and consent. A fiduciary cannot have a conflict of interest. It has been said that fiduciaries must conduct themselves "at a level higher than that trodden by the crowd"[ and that "[t]he distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty."

Continue reading "The Fiduciary Duty of Legal Confidence and Trust" »

When it comes to employment laws, California is among the most employee friendly jurisdictions anywhere. A recent landmark ruling by the state's Supreme Court involving non-compete agreements has served to reinforce that reputation.

In a widely watched decision involving the now defunct accountancy practice of Arthur Andersen, the Supreme Court invalidated any agreement that seeks to restrict the right of an employee to go to work for a competitor or solicit a former employer's customers using non trade secret information.

The case, called Edwards v. Arthur Andersen, LLC , is welcome news for employees and the competitor businesses that hire them away.

From the employee's perspective, the Court confirmed that agreements which prevent employees from going to work for a competitor violate California law.

From the new employer's perspective, the case allows the company to ignore any such contractual restrictions that the new employee may have signed.

Although the Court invalidated agreements which restrict employee movement, it left intact another provision of California law that permits non-compete agreements in certain non-employment settings such as between the buyer and seller of a business, among partners dissolving their partnership or when obtained in connection with the acquisition of a company's stock.

Notably, the decision also did not disturb longstanding laws that permit a business owner to protect its valuable trade secrets.

Agreements which seek to protect a company's trade secrets are not affected by the Court's ruling at all. Thus, employees who misappropriate the company's trade secrets when they go to work for a competitor still may be sued for damages and injunctive relief.

Background: Section 16000 of the State's Business and Professions Code provides that "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void."

Some courts had held that this means any post employment restriction whatsoever would be illegal. Others ruled that such agreements would pass muster under state law so long as they were narrowly tailored (i.e., limited as to duration, scope or geography). The Supreme Court accepted the Edwards case to resolve which view was correct.

Raymond Edwards went to work for Arthur Andersen as a tax manager in its Los Angeles office. Arthur Andersen required him to sign their standard non-compete agreement which stated:

"If you leave the Firm, for 18 months after release or resignation, you agree not to perform professional services of the type you provided for any client on which you worked during the 18 month period prior to release or resignation "

After Mr. Edwards left Arthur Andersen, he sued to invalidate the non-compete agreement. Arthur Andersen argued that the agreement was fine because it was narrowly tailored and only prevented Edwards from servicing certain clients. He could still be an accountant, they argued. Edwards argued that even a narrowly tailored agreement such as this ran afoul of the Business and Professions code.

The Supreme Court took this opportunity to emphatically state that all non-compete agreements in the employment setting are invalid, no matter how narrowly tailored says California Attorney Steven C. Peck who may be contacted toll free at 1.866.999.9085.

The only exceptions to the court's ruling are set forth in the companion statute governing the purchase of a business, dissolution of a partnership or the acquisition of significant percentage of a company's stock.

An express warranty is a guarantee from the seller of a product that specifies the extent to which the quality or performance of the product is assured and states the conditions under which the product can be returned, replaced, or repaired states Los Angeles, California Business Attorney Steven C. Peck.

It is often given in the form of a specific, written "Warranty" document. However, a warranty may also arise by operation of law based upon the seller's description of the goods, and perhaps their source and quality, and any material deviation from that specification would violate the guarantee. For example, an advertisement describing a product is often full of express warranties; the product must substantially conform to what is advertised. Many advertisers insert disclaimers for this purpose (e.g., "actual color/mileage/results may vary", or "not shown actual size"). Commonly, written warranties will assure the buyer that an article is of good quality and against defects in "materials and workmanship." A warranty may also apply to services that are sold. For example, an automobile repair shop may guarantee its repair for a period of 90 days.

An express warranty can be made orally, in writing and without the intent of the seller to actually create the warranty. In the United States, a seller is allowed to assert statements of opinion of value, known as puffery, that the buyer cannot justly rely on as part of the basis for the bargain. For instance, "This hunting knife is the best knife in the world" is mere puffery, whereas a statement such as "This hunting knife will never need to be sharpened" can be construed to be an express warranty as long as the knife is only used for its intended purpose. In certain other countries (e.g. the UK, Canada, and Taiwan), consumer protection laws exist to prevent advertisers making untrue or unprovable statements.

The misuse of a famous trademark may also create an express warranty, the violation of which is called "passing off"; the source and quality of the goods is misrepresented.

Continue reading "The Express Warranty Should Specify The Extent to Which Quality and Performance is Assured" »

In commercial and consumer transactions, a warranty is a collateral assurance or guarantee that certain facets of an article or service sold is as factually stated or legally implied by the seller, and that often provides for a specific remedy such as repair or replacement in the event the article or service fails to meet the warranty. A breach of warranty occurs when the promise is broken, i.e., a product is defective or not as should be expected by a reasonable buyer.

In business and legal transactions, a warranty is an assurance by one party to the other party that certain facts or conditions are true or will happen; the other party is permitted to rely on that assurance and seek some type of remedy if it is not true or followed.

In real estate transactions, a warranty deed is a promise that the buyer's title to a parcel of land will be defended.

A warranty may be express or implied.

Continue reading "Warranty: Assurances of Satisfaction and Specific Remedy for Repair" »

Contracts come up often during the course of business. Common types of business contracts include employment, land/lease/rental contracts, contracts with suppliers and contracts with customers.

Employment contracts. Contracts with staff for either professional or nonprofessional services appear frequently. Employment contracts range from salary stipulations through right-to-work arrangements. They state how the employee will be compensated and what actions they must perform. Any oral agreements concerning compensation for overtime or benefits should be included in these contracts. Any performance-based incentives or bonuses should be included as well. Employers should include termination clauses befitting the position. For example, morality clauses are less common, but in some instances should be included if the employee is a direct representative of the company.

Land/Lease/rental contracts. These contracts are between business owners and landowners over usage of a building or parcel of land for business purposes. Rental contracts identify the rights and requirements of tenants and landlords. They address such instances like when a landlord sells or loses the title to a building (due to bankruptcy, etc). Commercial leases should provide an adequate time allotment to avoid constant renegotiation that can impede on owner's ability to conduct business.

Supplier contracts. Contracts with good suppliers add a sense of stability to a business. These allow a business owner to know what they are getting and whom they are getting it from and at what price. The contract benefits suppliers by binding the business to always purchase from them instead of their competitors.

Customer contracts. Contracts with customers provide both parties written assurance of what oral agreements the other has made (if any). Although oral contracts can be binding, having a signed copy allows either party to revisit the agreement in the case where the other did not perform as agreed upon (either the services rendered were not as advertised or the compensation for services was not adequately made). An example of a contract between a business and customer is a tire store warranty stating that a replacement tire will be issued without cost if the purchased tire explodes within 30 days of installation.

Lawyer can draw up an effective, template-style contract for each situation. This allows business owners to employ contracts in a timely manner instead of having a new one drawn up for each instance. For example, having a standardized agreement for customers only requiring a name, date, description of services rendered and a signature saves lots of time and ensures there are no questions over the contracts validity should a dispute arise. This works well for general employment contracts as well.

Continue reading "Different Types of Business Contracts" »

Contracts come up often during the course of business. Common types of business contracts include employment, land/lease/rental contracts, contracts with suppliers and contracts with customers.

Employment contracts. Contracts with staff for either professional or nonprofessional services appear frequently. Employment contracts range from salary stipulations through right-to-work arrangements. They state how the employee will be compensated and what actions they must perform. Any oral agreements concerning compensation for overtime or benefits should be included in these contracts. Any performance-based incentives or bonuses should be included as well. Employers should include termination clauses befitting the position. For example, morality clauses are less common, but in some instances should be included if the employee is a direct representative of the company.

Land/Lease/rental contracts. These contracts are between business owners and landowners over usage of a building or parcel of land for business purposes. Rental contracts identify the rights and requirements of tenants and landlords. They address such instances like when a landlord sells or loses the title to a building (due to bankruptcy, etc). Commercial leases should provide an adequate time allotment to avoid constant renegotiation that can impede on owner's ability to conduct business.

Supplier contracts. Contracts with good suppliers add a sense of stability to a business. These allow a business owner to know what they are getting and whom they are getting it from and at what price. The contract benefits suppliers by binding the business to always purchase from them instead of their competitors.

Customer contracts. Contracts with customers provide both parties written assurance of what oral agreements the other has made (if any). Although oral contracts can be binding, having a signed copy allows either party to revisit the agreement in the case where the other did not perform as agreed upon (either the services rendered were not as advertised or the compensation for services was not adequately made). An example of a contract between a business and customer is a tire store warranty stating that a replacement tire will be issued without cost if the purchased tire explodes within 30 days of installation.

Lawyer can draw up an effective, template-style contract for each situation. This allows business owners to employ contracts in a timely manner instead of having a new one drawn up for each instance. For example, having a standardized agreement for customers only requiring a name, date, description of services rendered and a signature saves lots of time and ensures there are no questions over the contracts validity should a dispute arise. This works well for general employment contracts as well.

It should be a little bit easier to get a free credit report.

For five years, Oklahomans have been able to obtain their credit reports free of charge online at annualcreditreport.com. However, the credit reporting bureaus -- Equifax, Experian, and TransUnion -- have been allowed to market their wares on the annualcreditreport.com site, which has led some consumers astray into fee-based services.

Worse, Experian created a massive marketing campaign and Web site -- the deceptively named freecreditreport.com -- that have snared the unwary into signing up for a "free" credit report that also includes a $14.95 month charge for "credit monitoring" if the consumer doesn't cancel their membership within seven days says California Business Lawyer Steven C. Peck who may be contacted toll free at 1.866.999.9085.

Other companies set up similar bait-and-switch Web sites that ensnare consumers
looking for a free credit report.

Such commercial Web sites on now must insert the following statement at the top of each page that mentions free credit reports:

"THIS NOTICE IS REQUIRED BY LAW. Read more at FTC.GOV. You have the right to a free credit report from AnnualCreditReport.com or (877) 322-8228, the ONLY
authorized source under federal law." The sites also must insert a link to ftc.gov and annualcreditreport.com.

At freecreditreport.com, Experian has posted a note reading: "Free credit reports are available under Federal law at: AnnualCreditReport.com."

The new rules, part of the Credit CARD Act of 2009, also require the credit bureaus to stop marketing to consumers on annualcreditreport.com until after they have received their free report.

In September, 2010, Experian and other marketers will be required to insert similar disclaimers (the truth) into their inescapable TV and radio ads.

As someone who has fielded calls from confused consumers were granted access to annualcreditreport.com, I say bravo.

Read more: http://newsok.com/credit-reports-soon-to-be-easier-to-obtain/article/3450276#ixzz0jlX30qmi

If your phone keeps ringing off the hook from creditors clamoring to be paid and ads screaming "Get out of debt today!" begin to sound good, you might be pondering debt settlement and debt consolidation as possible solutions to your troubles.

In debt settlement and debt consolidation, you combine your debts and pay only a portion of the total. But before you sign up, consider these promises that debt settlement companies can't keep.

1. 'Satisfy your debt for cents on the dollar.'
It's difficult to make and keep that promise without knowing the details of how much money you owe, how long you've owed that money and to which creditors, says California Business Lawyer Steven C. Peck
"They don't know your past payment history. They don't know which issuer you owe," she says. "Each person has different assets that can be used to satisfy the debt. ... You can't make a blanket statement."

2. 'We guarantee you'll be debt-free in three months.'
Again, the company does not know who or how much you owe. Some obligations, such as back taxes, student loans and child support can't be covered in a debt settlement plan, Peck says.
3. 'You can't get help without paying an upfront deposit or fee.'
Some debt settlement companies may accept an upfront fee of as little as $50.
But typically, the debtor pays the debt settlement company a percentage of the debt owed -- often 15 percent -- for negotiating the debt, Peck says.

The firm negotiates a payment between you and creditors and accumulates enough money to make that payment. "The debt settlement company will hold the money until you reach the settlement amount," "Meantime, your creditors aren't being paid."

While you're accumulating that payment, "you're not paying your bills and you're getting further and further into debt."

Instead, go to a nonprofit credit counseling firm that might charge you only $20, if anything, Instead of billing the debtor, these counselors often get what's called a fair-share percentage payment from your creditors after you've paid.

4. 'We'll handle everything. You should cease communication with your creditors.'
Although the idea of not talking to or opening mail from creditors sounds like a load off your mind, it's your debt and your credit score, Don't send in a change-of-address form directing all creditor mail to a debt settlement company.
"Remember the creditor is the one with whom you have a contractual agreement," states ZLos Angeles Business Attorney Steven C. Peck. "When all of your statements are going to the debt settlement company, you don't know how much in interest and late fees are being added on. You also don't know if your debt has been moved into collection."

Finally, if you think you need debt settlement, try debt management first, Contact your creditors and ask for reduced interest, suspended payment or more favorable payment terms.

"It's real important just to call and say, 'Hey I can't make this payment. I'd like to work something out."

Continue reading "Beware of Debt Settlement and Debt Consolidation Promises" »

A marketer who falsely advertised auto loans as pre-approved to low-income, "credit-challenged" consumers has reached an agreement with the Federal Trade Commission.

The FTC alleged that Direct Marketing Associates Corp. and its president and owner, John M. Rainey, Jr. also improperly obtained names of consumers from a credit reporting agency.

Rainey's company prepared sales solicitations for automobile dealers "telling consumers that a specific finance company would lend them money to buy a car," but firms in the ads lacked business licenses and didn't actually make any loans, the FTC alleged.

"The marketing company obtained lists of consumers from a credit reporting agency by falsely representing that the lists would be used to make prescreened firm offers of credit to consumers," the FTC said.

The settlement order bars Direct Marketing Associates and Rainey from marketing pre-approved offers, an extension of credit or a financing deal "unless the defendants know that a lender can make good on the offer for all eligible customers." says California Business Lawyer Steven C. Peck who may be contacted toll free at 1.866.999.9085 and on-line at www.premierlegal.org.

The order also prohibits Rainey from obtaining credit reports from consumer reporting agencies without following specific rules under Fair Credit Reporting Act.

The order imposes a $157,000 civil penalty that is suspended, unless Rainey is found to have misrepresented his inability to pay the fine.

In terms of business structure, there are several forms to choose from: a sole proprietorship, a partnership, a corporation, and a Limited Liability Company (LLC). When deciding which legal structure is best for a particular business, a business owner should be familiar with the main characteristics of each structure and be able to do a comparison.says California Business Law Attorney Steven C. Peck.

Sole Proprietorship
The sole proprietorship is the simplest business structure and the least expensive to form. It is generally owned by either one person acting alone or a married couple. All the assets of the sole proprietorship belong to the owner as well as any profits that the business generates. When it comes to paying taxes, the sole proprietor is only required to file an individual tax return and on it list the business' profits and losses.

One of the biggest disadvantages to the sole proprietorship is that the sole proprietor has unlimited liability and is held legally responsible for all debts against the business. This means that both the business and personal assets of the sole proprietor are at risk.

General Partnership
A general partnership made up of at least two people. Like the sole proprietorship, partnerships are inexpensive to form, but they require an agreement between all the partners involved that outlines how they will own and operate the business. In most cases, the profit and loss as well as the management responsibilities are shared among the partners, and each partner is held personally liable for partnership debts. Unlike the sole-proprietorship, a partnership files a separate tax return. The individual partners also report their share of profits and losses on their personal returns.

C Corporation

The C corporation is the most common business structure among mid-sized and big companies. Of all the business structures, the process of incorporating a business requires the most time and money. A corporation is also subject to more licensing fees and government regulation.

The owners of a corporation are its shareholders. The shareholders in turn elect a board of directors to oversee the business. With a corporation, the net business income is subject to corporate income tax. When funds are distributed as dividends to its stockholders, the money is again taxed (a process called double taxation). Unlike the sole proprietorship and the partnership, a corporation is a legal entity separate from its owners. This means that shareholders have limited liability for the corporation's debts.

S Corporation
The S corporation is a subcategory of the corporate business structure. Like the C Corporation, the business is owned by its shareholders, but in this case the number of shareholders is limited. The S corporation also provides a limited liability situation for its owners. The major difference between the S corporation and the C corporation is that in the former case, the business is taxed much like a partnership. This means that the income passes through to shareholders who then report it on their individual returns.

Limited Liability Company
A LLC is a relatively new business structure that combines the limited liability of a corporation with the tax advantages and flexibility of a partnership. It is generally considered a good choice for small businesses. LLCs do not have stock, and owners are considered to be in a self-employed status. Income can either pass directly through to the owners, or the members of the LLC can elect to be taxed like a corporation.

In closing, every business structure has its own set of pros and cons. Business owners should enlist the help of a professional accountant or attorney to make the comparison and choose the structure most suitable for their situation indicates California Business Attorney Steven C. Peck.

Continue reading "A Comparison of the Characteristics of Business Structures" »

When forming a new business, it's important to make the right decision for personal liability as well as minimizing the company's tax liability. A limited liability company is a relatively new option and designed to give entrepreneurs another option for a business entity. There are some advantages to forming an LLC as opposed to other options. This article looks at some of those advantages and disadvantages of filing for a limited liability status.

What is a Limited Liability Company?
An LLC is a business entity that is formed under state law. Some regulations can differ by state but the basic rules are similar from state to state. An LLC is similar to a corporation when it comes to personal liability of the company's owner(s). Where income tax liability is concerned, an LLC can be treated more like a sole proprietorship or partnership.

Personal Debt Liability of an LLC
One of the biggest advantages of a limited liability company is it allows limited personal debt liability to the business owner(s). If the business has formed an LLC and the company has difficulty paying its debt, generally the company that has a debt claim can go after business assets, not personal assets. A business that has not elected to form an LLC or another type corporation could risk personal assets to satisfy a business debt.

Many companies that are offering open credit terms may request a member of the LLC to sign a personal liability wavier. By having a member sign a waiver, they reduce their risk of uncollectable accounts. Signing a personal liability wavier could result in holding an LLC member personally liable for business debt. This action could negate one the biggest advantages of forming a limited liability company.

Tax Advantage of a Limited Liability Company
When it comes to personal debt liability, an LLC is treated more like a corporation. When it comes to income tax liability, an LLC is treated more like a sole proprietor ship or partner ship. Most corporations' tax liability is based on net profits from the business. The officers of the corporation are also taxed separately for their own personal income that's derived from the business.

Continue reading "Advantages and Disadvantages of Forming a Limited Liability Company (LLC)" »