Santa Ana Business Law Blog

Your partnership deserves a written agreement

Don't set up business with a partner, even if you also consider them a friend, without a written partnership agreement. This is a step that a lot of business professionals, young and old alike, tend to skip. That's very problematic and can make things much more difficult than they should be.

The issue is that you tend to assume things will go well. You're optimistic. You want to start the company, and you can't imagine disagreeing on anything. A written contract sounds excessive.

What to know about operating an LLC

California law generally allows individuals to form limited liability companies, or LLCs. An LLC can be taxed as a partnership, a corporation or a disregarded entity. If the company is taxed as a disregarded entity, profits or losses will be included on the owner's personal tax return. If an LLC has two members, it will automatically be labeled as a partnership unless the members specifically elect to be treated as a corporate entity.

In the event that the LLC has only a single member, it will be a disregarded entity by default. However, for employment or excise tax purposes, the LLC would still be a separate entity from that member. To change that status, the single member would need to file Form 8832. Any LLC that wants to deviate from its default tax status must file the proper paperwork within one year of its formation date.

Corporate culture may contribute to sexual harassment

Employees in California and across the country continue to suffer from sexual harassment on the job, despite the attention drawn to the issue by the #MeToo movement. One 2018 report found that a greater number of CEOs lost their jobs due to unethical behavior than to financial underperformance. In particular, the #MeToo movement highlighted instances of sexual harassment and workplace discrimination in entertainment, politics and technology, among other industries. Nonetheless, workers continue to deal with unwanted sexual advances and various forms of discrimination, despite high-profile cases and media highlights focusing on the issue.

In many cases, sexual harassment does not simply reflect one person's bad behavior that goes unchecked. There are corporate structures that are designed to protect companies from lawsuits in employment disputes that also serve to suppress complaints about harassment and discrimination. Nondisclosure agreements may be used to keep employees from disclosing their experiences on the job, even after their cases have been resolved. In other cases, companies may try to meet their responsibilities by offering standardized training on sexual harassment. However, these frameworks may do little to resemble the actual problems that continue to affect workplace culture and performance.

Judge rules against law banning forced arbitration

A California law that would have effectively put an end to forced arbitration was set to take effect on the first day of 2020. However, a judge in Sacramento enjoined authorities from enforcing it. Companies that were found to be in violation of the statute could have faced both civil and criminal penalties. The state's attorney general acknowledged that arbitration agreements can be enforced, and he said that the law took pains not to infringe on an employer's right to engage in arbitration.

The attorney general said that the goal was to regulate employer conduct as opposed to trying to invalidate arbitration agreements in general. Groups representing business interests in the state claim that the law should be struck down because it is in conflict with the Federal Arbitration Act. In 2017, the Supreme Court ruled that the FAA allowed for forced arbitration agreements.

Bar owners face California rules for server training

The fast-changing employment laws of California have employers forever on the move, keeping their businesses compliant. Of course, as of January 1, Assembly Bill 5 now requires businesses to use the so-called ABC test to classify workers as employees or contractors

A different ABC, the Department of Alcoholic Beverage Control, has new rules for all California businesses serving alcoholic beverages. All servers will soon need to have training in recognizing patrons who are OK for another round and those in need of a ride home. Here is a quick overview of the regulations bar owners will need to know while overseeing alcohol servers.

How nondisclosure agreements are critical to a business

Operating a business in California can be complicated. People who are unfamiliar with the requirements can face unanticipated problems. One common issue is protecting their ideas with nondisclosure agreements. It is important to understand when an NDA is needed.

The NDA and what it does can be essential. An NDA is meant to prevent a company's ideas and innovations from being revealed to competitors. With the agreement, anyone who is aware of the product or idea is legally prevented from sharing it. It can be signed by a supplier, a client, an employee, an investor, a creditor or anyone else who has knowledge about the company's product. The NDA will detail the amount of time for which the information cannot be shared.

California enacts new employer training laws

Beginning on the first day of 2020, companies that operate hotels or motels must provide at least 20 minutes of training related to human trafficking. The training must be given to any employee who is likely to be around human trafficking victims, and it can be provided in a classroom setting or any other method deemed effective. By Jan. 1, 2021, companies that have five or more employees will be required to provide two hours of sexual harassment training to all supervisors.

Furthermore, all other workers must be given at least one hour of sexual harassment training by this date. Once the law takes effect, similar levels of training must be provided every two years. The new training rules apply to all workers whether they work for a company throughout the year or on a seasonal basis. California's new requirements were inspired partially by the #Metoo and #TimesUp campaigns aimed at raising awareness of the issue.

The different ways to structure a business

Those who want to start a business in California will need to consider how to structure their companies. A company is deemed to be a sole proprietorship unless its owner files paperwork to make it a partnership or corporation. Sole proprietors can be held personally liable for any damages that their organizations cause. While they retain total control over their companies, sole proprietors may struggle to raise funds, and it may not be possible to sell shares of stock.

Business owners who are looking to minimize their liability may want to consider forming a limited liability company. While members of an LLC may need to pay self-employment taxes, their personal assets are usually considered separate from a company's assets. Corporations are business entities that are completely separate from their owners. One potential drawback is that profits are taxed at the corporate level and then again when distributed to shareholders as dividends.

Fashon Nova the target of DOL investigation

Fashion Nova is a clothing company based in California that markets itself as a brand that any woman can wear. Most of the items that the company produces are advertised by influencers on social media. The brand has 17 million followers on Instagram, and those followers include celebrities such as Kylie Jenner and Iggy Azalea. However, a New York Times report provided details into a Department of Labor investigation of Fashion Nova.

The investigation reportedly found that the company paid workers as little as $2.77 per hour. One woman claimed that she had been paid just $270 after working for 60 hours in a Los Angeles factory. It has also been alleged that the company uses undocumented workers, which makes it harder for those people to defend themselves. A legal representative for Fashion Nova said that the company has been in discussions with the DOL about the issues raised during its investigation.

Potential liability is a consideration in business formation

Entrepreneurship is alive and well in California with many new businesses cropping up every day. Some are large, well-planned and well-funded operations that are years in the making; some are one-person gigs that open for business on a shoestring. One thing these and all businesses have in common, whether the owners realize it or not, is that the type of business formation the enterprise operates as will have a major impact on its future. There are four major types of business entities: sole proprietorships, partnerships, limited liability companies and corporations.

The four types are different, and all have their own pluses and minuses, but in one important respect, sole proprietorships and partnerships are more similar to each other as opposed to a commonality shared by LLCs and corporations. This issue is the potential personal liability of the business owner. Sooner or later, every business is likely to experience a situation where some mistake was made or something did not go as planned, and the business owes money to rectify the matter. Small business advisors caution that in some circumstances, if the liability is greater than the ability of the business to pay, the personal assets of the owner may be at risk to satisfy the debt.

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Blake & Ayaz, A Law Corporation

Blake & Ayaz, A Law Corporation
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Santa Ana, CA 92706

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