Legal Issues For Start Up Businesses: Students To Startups: Be Your Own Boss

Students to Startups: Be Your Own Boss
Legal Issues For Start Up Businesses

Kring & Chung, LLP 38 Corporate Park Irvine, California 92606 (949) 261-7700
Irvine Ontario Chino San Diego Sacramento Las Vegas www.kringandchung.com
Overview of Presentation
Entity Formation Contract Basics Dispute Resolution Choosing an Attorney How to Handle a Legal Claim
Choosing a Business Entity

Choosing a Business Entity Factors for Consideration: Liability Formalities Control Transferability
Types of Entities
Types of Entities Sole Proprietorship General Partnership Limited Partnership Corporation Limited Liability Company Limited Liability Partnership
Sole Proprietorships
Sole Proprietorships
Unlimited personal liability for losses Management No formalities Net profits taxable to owner Fictitious Business Name filing
General Partnerships
General Partnerships
Form of co-ownership by several persons Can be sued in partnerships name Partnership Agreement outlines operation (can be oral or written) Unlimited personal liability Each partner has management and control Consent required to transfer interest Partnership is not a taxpaying entity (profit and loss passed through to partners)
Limited Partnerships
Limited Partnerships
At least one general partner and limited partner Governed by California Revised Limited Partnership Act Purpose to encourage passive investors (limited partner) Joint and several liability to general partner Limited role of Limited Partner Formalities required (must file LP1 Certificate of Limited Partnership with Sec. Of State) Written Partnership Agreement optional (can be oral or written)
Corporations
Corporations
Separate and distinct legal entity from owners Continuity of existence despite death (Buy/Sell Agreement) No personal shareholder liability (only corporation will be liable for debts) Formalities (must be formed with Sec. Of State by filing Articles of Incorporation, preparation of Bylaws and Minutes) Limitations (cannot appear in pro per in court except Small Claims actions) Alter Ego/Piercing Corporate Veil Issues
Structure of Corporations
Structure of Corporations
Shareholders owners of corporation voting rights Board of Directors elected by Shareholders on annual basis management and control policy and major decisions Officers (President, Secretary, Treasurer) elected by Board of Directors on annual basis responsible for daily operations
Types of Corporations
Corporations are separate taxable entities C Corporation
Every corporation starts out as C corporation No limit on number of shareholders No limitations on residency requirements of shareholders Taxed at corporate level and shareholder level (no pass-thru taxation = double taxation) No limit on classes of stock (common/preferred) future services not adequate capitalization
Types of Corporations
S Corporation Starts out as C corporation must file S election with IRS and FTB 100 maximum shareholders Shareholders limited to individuals, estate and certain trusts (ie. cannot be other entities) No non-resident aliens as shareholders (must be resident aliens or U.S. citizens) Only one class of stock Professional Corporations Law, medicine, dentistry and accountants Shares can only be issued to licensed
Limited Liability Company

Hybrid between corporation and partnership Combines pass through tax treatment of partnership with limited liability of a corporation Structure: centralized management is optional and may be by managers and/or members Liability: alter ego liability Lack of formalities not a factor for alter ego Each member can bind LLC Creation: Must file Articles of Organization with Sec. Of State; parties enter into Operating Agreement Taxes: Not a separate taxable entity but must pay annual minimum franchise tax fee of $800.00
Limited Liability Partnership

Lawyers and accountants only Pass through tax treatment with corporate liability shield Registered with Sec. Of State General Partnership with shield from liability No vicarious personal liability for partnership acts Annual franchise tax fee (same as LLC)
Corporation vs. LLC

Formation: costs about the same Structure: LLC is more flexible Corporation requires Board of Directors, Officers, Shareholders and Minutes Taxes: must be S corporation to get pass through tax treatment; however, there are restrictions imposed on S corps No annual franchise tax fee ($800) imposed on corporations for first year LLCs more limited in ability to use ownership as employee incentive
(ie. stock options in a corporation)
Government Requirements for Businesses

Business Licenses - Cities Fictitious Business Name - County Resale Number - Board of Equalization Workers Comp - Insurance Agent Taxpayer ID Number - IRS State Payroll Taxes - EDD
Intellectual Property Protections

Guidance on selecting a name/brand (infringement investigation) DBA Corporate Name Trade Name/Trademark Licensing Pre-meeting confidentiality
Non-Disclosure Agreement
Insurance Coverage for Businesses

Directors & Officers Liability Workers Compensation Credit Insurance Bad Debt Insurance Other Insurance
Why A Written Contract?

Almost always advisable
Complexity of Transaction and Contract
Allows you to clearly document terms Helps ensure you address relevant issues
Damage Limitation Provisions Binding Arbitration Liquidated Damages
Lease Agreements Ability to bring suit

Contracts Between Companies Business Partnerships
Important Contract Terms

Liability Limitations Product Warranties Indemnity Provisions Intellectual Property Protections Venue Attorneys Fees
Human Resources
Employee Handbook At-Will Acknowledgments NDA/Non-Disclosure Agreements/Confidentiality Harassment Compliance Seminar Hiring Procedures Termination Checklist Wage & Hour Issues
- Independent Contractor vs. Employee - Exempt vs. Non-Exempt Issues - Overtime, Rest and Meal Break Claims
Selecting an Attorney
Referrals Phone Books, Radio and TV Proper Expertise Fees Charged by Attorney Personal Fit Check the California Bar Website
How to Handle a Legal Claim

Comply Promptly with Imposed Deadlines Consult with an Attorney Determine Whether to Tender to Carrier Prepare Chronology of Events While Memory is Fresh Identify Evidence and Witnesses Exercise Caution When Communicating With Adverse Party Attorney-Work Product Privilege Organize and Index Files
Q&A
Thank you for your time!
Legal Issues For Start Up Businesses

Legal Issues For Start Up Businesses: Students To Startups: Be Your Own Boss

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Students to Startups: Be Your Own Boss

Legal Issues For Start Up Businesses

Irvine Ontario Chino San Diego Sacramento Las Vegas www.kringandchung.com

Irvine Ontario Chino San Diego Sacramento Las Vegas www.kringandchung.com

Choosing a Business Entity

Irvine Ontario Chino San Diego Sacramento Las Vegas www.kringandchung.com

Irvine Ontario Chino San Diego Sacramento Las Vegas www.kringandchung.com

Irvine Ontario Chino San Diego Sacramento Las Vegas www.kringandchung.com

Limited Liability Company

Limited Liability Partnership

Corporation vs. LLC

Government Requirements for Businesses

Intellectual Property Protections

Insurance Coverage for Businesses

Irvine Ontario Chino San Diego Sacramento Las Vegas www.kringandchung.com

Why A Written Contract?

Lease Agreements Ability to bring suit

Important Contract Terms

Irvine Ontario Chino San Diego Sacramento Las Vegas www.kringandchung.com

Irvine Ontario Chino San Diego Sacramento Las Vegas www.kringandchung.com

How to Handle a Legal Claim

Legal Issues For Start Up Businesses

Irvine Ontario Chino San Diego Sacramento Las Vegas www.kringandchung.com

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