Corporate formalities…they are really fairly simple
There are many advantages to forming a corporation for your business such as limiting liability for the owners, potential tax savings, and the ability to raise capital for your business. In order to receive the advantages of a corporation, you must follow the “corporate formalities” required by law. This may seem like a daunting task, but it is quite simple. Below is a list of the corporate formalities that must be adhered to by California corporations.
- Bylaws. Every corporation must have bylaws which are a set of rules designated by the corporation which govern how the corporation will be run. There are many templates that can be used as a starting point, but a word of warning, read the template and decide whether you want to make any changes to the template. Remember, these are the rules that will govern how your corporation will be run.
- Stock ledger and stock certificates. You must issue stock certificates to all shareholders, even if that is just you. Stock certificates can be purchased online and in many office supply stores. Additionally, you must have a completed stock ledger for your corporation. This is merely a list of the names, addresses, and ownership interest of each shareholder that has been issued stock or that has purchased stock from a prior shareholder.
- Corporate Bank Account. The corporation must have a bank account in its own name that is separate from the accounts of its owners/shareholders. Do not commingle personal money and expenses with that of the corporation. The corporation will need to apply for a tax id number (EIN) from the IRS in order to open the account. This can be done online at www.irs.gov.
- Shareholder meetings. The shareholders must meet at least once a year to elect/re-elect the directors and officers of the corporation. A person designated by the corporation (usually the secretary of the corporation) should record the minutes of the meeting in writing. The minutes should be signed by the secretary and placed into the corporate records book.
- Board of Director meetings. The board of directors must meet on a regular basis. A person designated by the corporation (usually the secretary of the corporation) should record the minutes of each meeting in writing, including resolutions and discussions of the board. The minutes should be signed by the secretary and placed into the corporate records book. Note that the director, officers and shareholders can all be one person in the event the corporation was formed and is owned by one person.
Divorce proofing your small business
When people get married, it is not always “happily ever after.” Approximately 52% of first time marriages end in divorce, and 70% of second marriages do not last.
Divorce is never easy. Emotions run high with couples battling over the division of property, custody of children and support payments. When one or both spouses own a small business, the entire process becomes more complicated. Business owners are extremely attached to the business they started, grew and built. This belief is justified considering the countless hours of work and considerable resources it likely took to get the business to succeed. But the one item most business owners forget or neglect is the planning for the possibility of the end of their marriage.
In California, a community property state, your spouse could be entitled to up to 50% of your business if you divorce. Assuming you do not want your ex-spouse as your business partner, take steps now to protect your business interests. Below are descriptions of the most common methods of protecting your small business interest.
Prenuptial Agreements
A prenuptial agreement is a written contract signed by both parties at least seven days before the wedding that details the expected division of property and spousal support in the event of a divorce. Each party should be represented by their own separate attorney. Through the use of a prenuptial agreement, the parties can agree what assets will be considered separate property and what will be considered community property. A business can be designated as the separate property of one spouse so that the new spouse would be excluded from any ownership rights to the business in the event of divorce.
Postnuptial Agreements
A postnuptial agreement is similar to a prenuptial agreement except the agreement is signed after the wedding. A word of caution, postnuptial agreements are challenged more frequently than prenuptial agreements and are held to a higher standard of “fairness” because it is presumed the parties have less bargaining power once married.
Buy-Sell Agreements
Every business with two or more owners should have a buy sell agreement in place. A buy-sell agreement defines how and under what terms a transfer in ownership of the business will occur upon a “triggering event.” A triggering event can include the divorce, death, disability, or retirement of one of the owners.
The above methods of protecting your business in the event of a divorce involve complicated laws and have very strict requirements, which is why it is best to consult with an experienced business attorney when deciding which course of action is best for you and your small business.
Expecting a baby? Did you add estate planning to your to-do list yet?
As part of Facebook founder Mark Zuckerberg’s tax planning for his eventual sale of Facebook stock when it went public was to create a trust which passed some of his assets to his unborn children, thus saving him millions in gift tax. His wife was not even pregnant when Mr. Zuckerberg set up this key estate planning tool.
The birth of a child is such a momentous event in a person’s life. Parents start planning the design of a nursery, the selection of a pediatrician, planning the baby shower, selecting a name, and scheduling birthing classes. The list can go on forever. But how many parents think about adding estate planning to their to-do list to protect and provide for their children if something were to happen to the parents.
Here are a few important practical estate planning items that soon-to-be parents should consider implementing now to ensure their children will be taken care of in the event something happens to them:
- Guardianship. This is one of the most crucial estate planning tools for new parents or soon-to-be parents. Estate planning allows parents to legally name a guardian for their children. If you do not put your selection in writing, the state will name the guardian for your children. A guardian is the person that will raise your children in the event of your death. This is one of the most important decisions a parent can make to look after their children.
- Life insurance. Even a basic term life insurance policy can provide support for a new child if a parent should pass away unexpectedly. If the child is older, it can provide much-needed money for college tuition or for basic living expenses that may have been covered by the parent.
- Trust. A trust allows you to control the amount of money that is distributed to your children when he or she reaches the age of majority. You can also dictate at what age your children should receive all or portions of the estate. Additionally a trust can create asset protection for your children by shielding the assets in the trust from your children’s creditors, spouses, and bankruptcy trustees.
- Power of Attorney. A power of attorney designates a trusted person to handle your financial affairs if you become incapacitated. For example, if you were in a car accident and as a result, slid into a coma, a power of attorney would allow a trusted family member or friend to pay your mortgage and other expenses from your account so that your children would be take care of during your incapacity.
If you should have any questions about these estate planning tools, please contact our Orange County estate planning law firm. We would be happy to answer your questions and help you protect your family for the future.
6 things to consider when naming your business
Just like with a newborn child, one of the first decisions new business owners make is the name of their business. Practically speaking, an entrepreneur’s decision for a business name is primarily based on marketing, business values, products/services provided, and goals for each business. However, when selecting a business name, new business owners should also take into consideration legal aspects such as trademarks and other applicable laws.
Here are 6 legal and practical things to consider when selecting a name for your business:
- Trade Names and Trademarks. A trade name is the name by which a business is known to the public. For example, Kodak is the trade name, but the legal name of the company is Eastman Kodak Company. Alternatively, a trademark is any word, phrase, design, or symbol that a business uses to distinguish its goods and services from someone else’s. In short, a trademark is a brand name. A business has a legal right to use a name as a trademark only to the extent that it does not infringe upon existing trademarks. Always check to make sure your desired business name is not already trademarked. Start with some free resources such as www.trademarkia.com or www.uspto.gov to do an initial search. Then a hire local business attorney to do a more thorough screening.
- Business Type. If you are a sole proprietorship engaging in business locally, make sure that your desired business name is available by doing a search in your county clerk’s office fictitious business name database. In Los Angeles County, this can be done online at http://lavote.net/Clerk/FBN_Search.cfm. In Orange County, this can be done online at https://efbn.ocgov.com/eFBNweb. Alternatively, if your business is going to be a corporation or limited liability company, conduct a search with the Secretary of State to ensure the availability of your desired business name. In California, you can search online at http://kepler.sos.ca.gov. Additionally, if you plan on conducting business worldwide, you name decision will require a multi-jurisdictional analysis of applicable laws to obtain legal protection in each location you intend to do business.
- Explain your product of service. For most companies, it is best to have a name that provides some information about the products or services they offer.
- Does your business name communicate your mission statement? A business name can exemplify your company’s image. Therefore, you should clearly define your brand positioning before choosing a name. Try writing down your business’ values and mission statement to get the ideas flowing. Stay away from business names that only mean something to you because that hidden meaning evokes nothing about your brand.
- Easy to Remember, Easy to Pronounce and Spelled Correctly. Simple and straightforward names are easier to remember and cost less to brand. Skip acronyms because to most people, these acronyms mean nothing. Additionally, a business name that is not spelled correctly will have to be spelled out for people on a continuous basis.
- Domain Name Availability. Always check whether your desired business name is available as a domain name. If your business name is not available as a domain name, are you willing to use a slightly different domain name or would it be better to change your desired business name in order to have your domain name and business name match. If the domain name you want is already registered, consider hiring a broker to negotiate a domain name acquisition.
Three new laws for California businesses in 2016
With every new year, there comes changes in the law, many of which affect California businesses and their owners. This year, there are three laws that are going to heavily impact companies in California.
Minimum Wage Increase
As of January 1, 2016, the minimum wage in California increased to $10 per hour, which is the highest state-wide minimum wage in America. There are some employees who are exempt from the minimum wage law, such as outside salespersons and individuals who are the parent, spouse, or child of the employer. There are also exceptions for employees who are mentally and/or physically disabled.
In some cities such as San Francisco, the minimum wage is scheduled to increase to $13.50 per hour on July 1, 2016. In Los Angeles, the minimum wage will increase to $10.50 per hour in July 2016 and eventually increase to $15 per hour in 2020. A person may not agree to accept less than the California minimum wage.
Employee Protected Time-Off
As of January 1, 2016, SB 579 expanded the ability of employees of business of 25 or one employees to take protected time off from work to find a school or licensed child care provider and to enroll or re-enroll a child and time off to address school emergencies.
Additionally, pursuant to SB 579, employees may use up to one half of their paid time off or sick leave for the care of a parent, child, spouse, domestic partner, parent-in-law, grandchild, grandparent, or sibling of the employee.
California Fair Pay Act
SB 358, also known as the California Fair Pay Act, revises and expands the prohibition provided for in Labor Code 1197.50. Prior to January 1, 2016, an employee had to prove that other workers “within the same establishment” were being paid an unequal amount for the same work. Under the new law, employees can compare wages of employees that work at different locations of the same employer that perform “substantially similar” work.
Additionally, employers cannot prohibit employees from discussing or disclosing their wages to other employees.
If you would like to know more about the new laws affecting California businesses, please contact an experienced business law attorney.
