I’ve Filed an LLC. I’m Personally Protected from Lawsuits, Right?

Filed LLCHow useful is a condom that is never taken out of its box and wrapper?

If you were the kind of person with enough forethought to buy a condom, you would probably want it to protect you from several things.

But it would not be very useful to go through the trouble of buying the condom and not taking the additional necessary steps to get its benefit.

Lawyers call certain legal services “prophylactic.” That’s because their purpose is to prevent problems and unwanted consequences.

Completing your necessary corporate compliance and regulatory paperwork is prophylactic. Buying an LLC and not taking it out of the box will not give you the desired results.

Video Transcript:

Say you filed an LLC using Legal Zoom. Are you personally protected from lawsuits?

Maybe a few, but mostly, no.

Because they don’t give legal advice, budget legal sites don’t tell you there are numerous things to do after you file the LLC to legitimately and legally set up your business.

After years of starting businesses, we have developed a list that is several pages long made up of single spaced bullet points.

If you don’t do all the things on this list for your LLC, then the “corporate veil” can be pierced.

But more likely, if you don’t do all of the things you are supposed to do to start up your business legally, you will violate one of several laws that carry personal liability even if you are incorporated.

There are legal traps in the areas of taxes, wage laws and even corporate laws and torts.

You may also be liable for some contracts and debts.

There are ways to limit your liabilities and protect your assets. While nothing is foolproof, a business-minded lawyer can help you significantly.

Do you know where your legal land mines are? To find out, call us for a Business Risk Review at 800-449-8992 or email us at [email protected].

I’m Going Into Business With My Best Friend. Do We Really Need a Partnership Agreement?

Business and FriendshipI had a law partner for 3 months. She and I were not friends before we partnered, actually, but we became fast friends once we decided to do business together. About a month later, she joined my law firm.

It was temporary, though. Within a couple months, we disagreed on how to build and manage the business.

We parted ways shortly after that. It seemed amicable at first… until it came to the money. Then it got a little ugly (although we worked it out pretty quickly).

Now she won’t speak to me. Needless to say, we are not friends now.

Even though I did not know her long, I felt hurt and betrayed by several of her actions. I felt also some loss and grief.

I can only imagine how much worse this would have been had we been friends for a while beforehand. I do not think that a friendship beforehand would have prevented the problems — we simply clashed over business strategy and who was responsible for making certain decisions.

So here’s the lesson: if you want to keep your friend after going into business together, you better have all the boundaries and duties worked out and in an agreement.

Video Transcript:

I’m going into business with my best friend. Do we really have to sign a big, long, complicated, legal partnership agreement?
YES.

Relationships need boundaries — especially ones that involve money.

You may be longtime friends but business is not the same as friendship.

The fastest way to kill your friendship is by going into a business partnership without clear boundaries and responsibilities.

No matter how close you are, you will have different ideas and different expectations from one another and the business.

Contracts are not about trust. You must trust someone to do business with them, whether you have a contract or not. Contracts are about defining expectations so that no one is disappointed.

They are essential in outlining the rights and responsibilities of every person or company with whom you do any business. A contract will make your business and relationships smoother.

Do you know where your legal land mines are? To find out, call us for a Business Risk Review at 800-449-8992 or email us at [email protected].

General Business Disputes Attorney

General Business Disputes

No one ever begins a professional relationship anticipating that relationship will later turn sour. Unfortunately, contentious business disputes can still arise for any number of reasons.  When commercial litigation arises from alleged breach of contract, unfair competition, improper use or disclosure of trade secrets, or other violations, it is critical to protect your company’s legal and financial interests by working with an experienced team of business defense attorneys.

ripped contract from a business dispute

At Bellatrix PC, we understand the economic impact commercial litigation can have on a business, and our legal team will sit down with you to discuss your goals and concerns in detail with a cost-benefit analysis.  We are dedicated to finding practical and cost-effective solutions to even the most complex of conflicts, including mediation and arbitration where appropriate, and have obtained favorable outcomes for numerous clients across a wide spectrum of industries.

We defend businesses against claims involving, but not limited to, the following matters:

To arrange for a private legal consultation with our experienced commercial litigation attorneys, call the law offices of Bellatrix PC at (800) 889-8376.  Don’t wait for your dispute to escalate – call today to start discussing how Bellatrix PC can assist.

What Are the Elements of Breach of Contract?

Most business disputes arise because two or more parties disagree about their rights and responsibilities under a contract or agreement, such as a stock purchase agreement or a franchise agreement.  However, not all contractual disputes provide a strong basis for claiming breach of contract.  In order for a breach of contract claim to be successful, all of the following elements must be in place:

  • A formal contract must have existed between the parties.  Be advised this can extend to oral contracts and verbal agreements.
  • The plaintiff company must have either fulfilled or been excused from its contractual obligations.
  • The defendant company must have either:
    • Failed to fulfill its contractual obligations.
    • Engaged in conduct which was prohibited by the contract.
  • The plaintiff company must have been harmed by the defendant company’s failure to satisfy its end of the contract.

The burden of proof falls upon the plaintiff, who must be able to demonstrate that the aforementioned criteria have been satisfied.  Moreover, the plaintiff must prove the defendant’s breach was material, or significant enough to actually result in damages to the plaintiff.  Immaterial or non-material breach generally does not excuse the plaintiff from fulfilling its end of the contractual agreement.

Resolving Investor and Partnership Disputes: Mediation or Commercial Litigation?

Sometimes disputes arise within a single entity, such as a dispute between partners or investors.  Internal disputes can be just as if not more debilitating than external disputes, impairing efficiency, demoralizing personnel, and bringing the affected company to a stand-still for as long as the disagreement persists.  It is imperative to resolve internal disputes as rapidly as possible so that the business can continue to flourish.

In these types of cases, it may be appropriate to seek conflict resolution through mediation before resorting to the more aggressive measure of litigation.  While litigation sometimes proves necessary to achieve a favorable outcome, mediation carries several advantages of its own.  For example:

  • Litigation pits opposing parties against one another, which can create feelings of bitterness and mistrust.  Mediation offers a more cooperative and mutually-determined means of conflict resolution, which is ideal for preserving professional relationships.  Mediation can help keep a business together, instead of resulting in a schism between partners.
  • Mediation is simpler and less time-consuming than litigation.  The sooner you can resolve your dispute, the sooner you can resume normal operations.
  • Protracted litigation can deplete a company’s assets, which ultimately serves no one.  In addition to protecting your professional relationships, mediation can also help to protect your company’s bottom line.

If your company is trapped in gridlock, or if your business has been served with a summons, try not to panic.  While it’s perfectly normal to feel anxiety, anger, and frustration, it is critical that you assess and approach the situation calmly. It is of the utmost importance that you resist the temptation to lash out, whether in person or on social media, as any statements you make could potentially have a negative impact on the outcome of the case.

The better way to respond to an internal dispute or a legal claim against your company is to immediately contact an attorney for assistance.  The business defense lawyers of Bellatrix PC have extensive experience helping partnerships, limited liability companies, and corporations efficiently resolve their internal and external disputes.

To schedule a private legal consultation, call our law offices right away at (800) 889-8376.  Let’s start discussing how our team can help yours.

Operating Agreements

OPERATING AGREEMENTS

All new companies should utilize written agreements outlining key matters such as personal liability, distribution of profits and managerial responsibilities, and how breach of contract will be handled in the event of a future dispute or lawsuit.  However, these documents have different names and functions depending on the legal structure of the underlying business.

start-up company new business paperwork

For example, only limited liability companies (LLCs) utilize operating agreements.  Partnerships use partnership agreements, while S-Corporations and C-Corporations use articles of incorporation.  While all of these documents share some basic similarities, operating agreements are designed for a different purpose than partnership agreements or articles of corporation.  A well-crafted operating agreement should supply detailed provisions for matters like voting rights and management plans.

Because the operating agreement builds the foundation upon which virtually every aspect of the LLC will rest, it is absolutely critical for entrepreneurs and LLC managers and members to utilize clear and detailed documents which simultaneously comply with state and federal laws while protecting the financial interests of the business.  The limited liability company lawyers of Bellatrix PC have extensive experience drafting tailored operating agreements on behalf of LLCs in a wide variety of industries.  To arrange for a confidential legal consultation, call the law offices of Bellatrix PC today at (800) 889-8376.

RULLCA Update: New Laws for California Limited Liability Companies

All LLCs operating in California are required to establish formal operating agreements.  This requirement is provided by Cal. Corp. Code § 17050(a), which states, “In order to form a limited liability company, one or more persons shall execute and file articles of organization with, and on a form prescribed by, the Secretary of State and, either before or after the filing of articles of organization, the members shall have entered into an operating agreement.”  However, there have been some important legal updates to the process in recent years.

On January 1, 2014, California’s former Beverly-Killea LLC Act was replaced by the California Revised Uniform Limited Liability Company Act, more commonly known as RULLCA.  RULLCA makes significant changes to the previous rules governing operating agreements in California, with which new and existing LLC managers and members must familiarize themselves.  Note that existing LLCs may need to amend or modify operating agreements which were created prior to January 1, 2014 in order to be compliant with the new laws.

Some of the changes resulting from RULLCA are described below:

  • Default Member Management – RULLCA makes all LLCs member-managed by default.  If you wish to avoid automatically defaulting to management by members, then both your operating agreement and your articles of organization must include a clause explicitly restricting management by managers.  This clause must be carefully worded in order for the LLC to avoid defaulting to a member management system.  If your LLC is currently manager-managed, but your operating agreement and articles of organization do not include these clauses, prompt review by an experienced business lawyer is absolutely crucial.
  • Modification of Fiduciary Duties – Under Beverly-Killea, LLC managers had the same fiduciary duties to their members as partners did to their partnerships.  Under RULLCA, a manager’s fiduciary duties are further clarified, being categorized into three groups: good faith and fair dealing, the duty of care, and the duty of loyalty.  In turn, the duty of loyalty is subdivided into three additional duties: the duty to avoid competition, the duty to avoid self-dealing, and the duty to account.
  • Unanimous Member Consent – Under RULLCA, LLC managers are not permitted to take any actions which fall “outside the ordinary course of business” unless there is unanimous consent from all members of the LLC.  These actions might include selling assets, proceeding with mergers and acquisitions or entity conversions, or making material changes to the operating agreement itself.

The above examples are by no means exhaustive or representative of all changes enacted by RULLCA.  Regardless of whether you plan to start an LLC, or are already a member or manager of an existing entity, RULLCA compliance is always a must.  Our business law attorneys will assess your current documentation for vulnerable points with our comprehensive business risk review, so that you can feel confident and secure.

What Should Be Included in an LLC Operating Agreement?

While all operating agreements inevitably share some core features, it’s important to emphasize that template-based, boilerplate operating agreements should be avoided at all costs.  Prefabricated operating agreements will never provide the same degree of forethought as custom-made agreements, and usually cause more harm than they prevent – particularly in light of the recent changes under RULLCA. Bellatrix PC will listen to your goals, questions, plans, and concerns, and will help you prepare a unique agreement that aligns with your company’s practical needs.

With that in mind, any operating agreement should make sure to address the following points:

  • Voting rights among LLC members.
  • A management plan clearly establishing whether the LLC will be member-managed or manager-managed.
  • Capital contributions from individual members.
  • Procedures to be followed should a new member be admitted to the LLC, or in the event that a member decides to step down.
  • How the company’s profits and losses will be distributed.
  • What will happen to the LLC if a manager passes away or becomes severely disabled.
  • How dissolution and going out of business will be handled.

If you’re thinking about starting an LLC in California, or if it’s time for a review of your LLC’s existing agreement, articles of organization, or other documents or policies, Bellatrix PC is here to help.  To set up a private consultation, call our business attorneys today at (800) 889-8376.

 

Disgruntled Workforce Means Problems

If you have a morale problem with your workforce, you better do something about it… fast.

When you have a disgruntled worker, it always leads to problems.

As a business owner, here are the problems I see when a person turns bad apple:

  • They “poison the well” and create negativity amongst your other staff
  • People lose their drive and initiative, so work quality suffers
  • People start scrutinizing the employer or developing “grievances”
  • The bad person (or several) have to be replaced, costing money

In addition to the practical aspect of having to spend more money replacing employees (not a small consideration in itself), leaving employees always carry risk. People tend to treat a break in an employment relationship with the same emotions as leaving a personal relationship.matches burning

In other words, unhappy ex-employees sue. Even when you are squeaky clean, unhappy ex-employees will threaten it.

Sometimes they will sue frivolously, and you end up with a problem, regardless. There will always be a percentage of litigious ex-employees, which means that if more employees are leaving, then there will be a proportionate increase in the number of lawsuits.

Here’s another legal issue: demoralized employees take more stress-related medical leaves. This actually happens a lot and is the leading cause for medical leaves. It’s really easy to violate the leave and disability laws (thus inviting lawsuits). It’s also disruptive to your workforce. And an unhappy, stressed employee doesn’t always recover and return to employment smoothly.

Finally, whenever employees leave, employers must immediately pay all earned compensation (including vacation pay, non-discretionary bonuses and earned commissions). If you do not have a bunch of cash on hand to deal with terminating and replacing employees, you may find yourself in the middle of a wage and labor crisis.

What can an employer do to avoid employee morale problems bankrupting them?  Here are four strategies that could save you thousands of dollars.

  1. Focus on improving employee morale and retaining skilled workers. Take some time to improve relationships with those employees and foster loyalty and contentedness. This is not just a hippie-dippy people idea. Research shows that people work based on “purpose” (which includes a strong sense of community, being valued, loyalty and other social factors), not based on money. Yes, people need money. But an employer who fosters the right social conditions can get away with lower pay or other hardships without loss of morale. And definitely get rid of the bad apples because their drama is unfair to the rest of your team.
  2. Clean up your HR act by reviewing employees. Employees actually want to be reviewed if they care about their jobs (see point above regarding purpose). You can use reviews to praise (important) and address frustrations and failures that cause low morale. You should also use this as an opportunity to document issues with problem employees so that you can defend yourself later.
  3. Audit your wage and pay practices with the help of your employment lawyer.  Wage and pay class actions are the most common type of class action litigation filed in California, constituting roughly two-thirds of all new class actions being filed and hundreds of new cases each year.  You are vulnerable to these types of lawsuits if your pay practices aren’t pretty close to perfect (and there are many laws out there that are traps for the unwary employer, so do not trust an HR service or a do-it-yourself). Not only do audits give you an opportunity to find and fix liabilities before they become lawsuits, but you can use it as an opportunity to show your workforce positive change and encourage their loyalty.
  4. Encourage — or even require — your employees to take their accumulated vacation during slow times.  This is a good way to get vacation time off the books of an employee who has thousands of dollars worth stocked up, which will have to be paid in total at the time of quitting. Plus, employees who take regular vacations are less stressed and happier.

If you have any business or workforce concerns, spend 30 minutes with us on a free Business and Employment Planning Session or schedule a consultation with one of our business law attorneys or our real estate attorneys at (800) 449-8992.

5 Must-Read Business Books That Might Change Your Life

Reading the top 5 Must-Read Business Books

I have a college degree in English Literature. So you would think that I read a lot of novels. You’d be wrong. Since I graduated, I have mostly read must-read business books and law books.

It’s not that I’m boring. (Although I may be that.) Rather, I’m extremely focused on growing Bellatrix PC into the greatest law firm ever. (I may also be a tad bit competitive.)

Running a successful business requires more than vision, dedication and an entrepreneurial spirit. It requires being a lifelong learner.

Business books can inspire, motivate and help you get past operational, management or financial blocks. Here are my favorites:

  • How to Win Friends and Influence People by Dale Carnegie

Published in 1936, this book is still relevant and insightful. This book teaches three fundamental techniques for dealing with people, both in business and everyday life. It also teaches six unique ways to make people like you, twelve ways to turn people to your way of thinking, and how to influence change in people without making them resent you.

This is perhaps one of the most important must-read business books for small business owners and decision makers to read. Understanding people is one of the keys to success in business and sales.

  • The 4 Hour Workweek by Tim Ferris

I didn’t I was an entrepreneur until I read this book in 2007. I started my first business almost immediately after read this book. So Tim Ferris literally changed my life.

This book promises to teach you how to “escape 9-5, live anywhere, and join the new rich.” Working only 4 hours a week is not immediately feasible for an entrepreneur, though, so it’s promise is initially elusive. But the ideas in this book form the cornerstone of a new school of thought in the business world.

Pen-ultimately, The 4 Hour Workweek teaches the art of leverage, which is the key to finding freedom as an entrepreneur. It also teaches you how to eliminate 50% of your work in 48 hours using proven principles. A lot of the work you do does not move the needle enough. Ferris teaches you to ruthlessly slash those things so you can make more money and take back your life.

This Must-read business book is not for the faint of heart.

  • The E-Myth Revisited by Michael Gerber

Truer words have never been put on paper about why small businesses fail than what is in this book. Most small business owners have bought themselves a job and are not flourishing as entrepreneurs. This book explains why through examples and by contrasting how most small businesses operate to successful models, such as franchises.

If you are struggling as a business owner, doing it all, and barely making ends — read this book right now. It could save your business and your sanity.

  • The Hard Thing about Hard Things: Building a Business When There Are No Easy Answers by Ben Horowitz

Building a successful business is hard! I wish more “gurus” would acknowledge this fact.

What is useful about this book is that Horowitz goes there. Ben discusses how difficult it can be to run a successful business. Where other books focus on inspiration, founding a company and getting started, this one focuses on the myriad challenges that can derail a business after it’s up and running.

Throughout the book, the author shares insights on managing, buying, investing in and developing a business (with a focus on tech companies, but applicable to all industries).

  • Dotcom Secrets: The Underground Playbook For Growing Your Company Online by Russell Brunson

When I got this book, I devoured it…. And then I promptly read it again. The only other business book that I’ve read more than once is The 4-Hour Workweek. Now Dotcom Secrets sits dog-eared on my desk and I refer to it regularly.

Dotcom Secrets is a hardcore marketing and sales book. I already knew a lot about marketing and sales when I read it. But this dense book filled in some gaps for me. It’s made easier to digest with a lot of stick figure diagrams.

This book generously doles out evidence-based advice on how to sell to your audience (in any context — not just online). There is applied psychological theory in masterful sales. Don’t just emulate — understand.

Optimizing your sales processes could change your business and change your life.