What is a Joint Venture?

According to California law, a joint venture exists when two or more entities or individuals combine their property, skill, or knowledge to carry out a single business undertaking and agree to share the control, profits, and losses. Joint ventures are common in business dealings when two or more entities, individuals, or established businesses decide to partake in a particular enterprise together, and is often used to facilitate a new project and pooling of resources while also dividing potential risks.

The process of establishing a joint venture is much like that of a general partnership.  Specifically, like a general partnership, a joint venture does not have any filing requirements with the California Secretary of State in order to be formed.  All that is necessary to form a joint venture is a written or oral agreement, or an agreement implied by the parties’ conduct. However, though a joint venture may be formed like a general partnership, a partnership relationship is usually for an ongoing, continuous business, whereas it is not unusual for a joint venture to last only as long as the project or collaboration lasts.

A joint venture is typically considered an attractive means to operate because it does not require formation documents and they are generally not subject to securities laws or franchise taxes. However, unlike a corporation or limited liability corporation (LLC), a joint venture and each of its members are responsible for the debts of the venture as well as liability arising from wrongful conduct of any venture member acting within the scope of his, her, or its authority. Each member of the joint venture may be found jointly and severally liable for any such liability. In other words, each person or business will be responsible for the entire amount of the debts until the debt is satisfied.

Because of the potential risk of liability associated with a joint venture, it is best to form an entity as the vehicle through which the joint venture will operate, such as a corporation or LLC to protect the individual members and businesses from liability.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with your real estate, business, or contract law needs.

House of Representatives Proposes Corporate Tax Breaks

In the U.S. Congress, members of both parties are working together to reduce the corporate tax rate and simultaneously limit business tax breaks. The plan to cut business tax rates is getting strong opposition from U.S. businesses.

Reducing corporate tax cuts and the corporate tax rate is a complicated issue because millions of U.S. businesses do not pay taxes through the corporate system. These businesses are often referred to as “pass-throughs” because the income they receive is not taxed at the corporate level but rather passes through to their owners’ tax returns.

According to the Tax Policy Center in Washington, approximately a third of all U.S. business activity is currently conducted through pass-throughs.  Pass-throughs account for almost 10% of adjusted gross income on individual tax returns.

A common misconception is that pass-throughs are mostly small businesses. In reality, some of the largest law and accounting firms, hedge funds, private-equity firms, and even some large manufacturers are pass-throughs. This means that tax breaks given to small businesses or pass-throughs amounts to a large amount of money, making it tougher to reduce the corporate tax rate.

The current approach to reducing tax rates and cuts focuses on the size of the business, potentially offering new tax breaks to only small businesses, and eliminating tax breaks for larger businesses in order to afford a lower corporate tax rate. While discussions regarding corporate tax cuts continue, lawmakers in both parties agree that they are too far apart on the issue of individual tax rates to reach any deal there. Therefore, individual taxes are likely to be left alone.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your real estate, business, or contract law needs.

What is a B Corporation?

A “B” Corporation is an unofficial designation for socially responsible businesses.  It can also be referred to as a B Corp, Benefit Corp, or B Corp Certification. The 501(c)3 nonprofit, B Lab, determines and designates B Corporations. There are over 1,000 Certified B Corps in more than 60 industries.  Companies that have obtained B Corp designation include Etsy, Method, Seventh Generation, Ben & Jerry’s, and Patagonia.

There are many benefits associated with B Corporation status. Designation as a B Corporation can make your business more attractive to the growing number of socially conscious consumers, and consumers generally who already largely align their purchases with their values. Also, some companies offer discounted products and services to B Corp Certified businesses. For example, Intuit offers B Corporations QuickBooks for free.

In order to obtain B Corporation designation, a business has to pass rigorous standards of environmental and social performance, as well as committing to fostering open communication and transparency.  The first step is completing a “B Impact Assessment.”  A passing score on this assessment is 80 out of 200 points. The assessment examines the overall impact  a company has on its stakeholders, and will vary depending on the company’s size, sector, and location. Afterwards, a company will have to submit supporting documentation and complete a disclosure questionnaire.  Additionally, every year, ten percent of Certified B Corporations are randomly selected for an on-site review.  The purpose of these random audits is to verify the accuracy of all affirmative responses in the company’s B Impact Assessment.

Once a business has met all of these requirements,  it will be able to sign the B Corp Declaration of Interdependence and Term Sheet, making its status as a B Corp official.

If you have any questions about having your business designated as a B Corporation, consult with an experienced attorney. Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your real estate, business, or contract law needs.

California Sues BP for Violations of False Claims Act

The state of California has joined in a lawsuit against BP, the British energy giant, in a whistleblower action that was originally brought by a former BP employee, Christopher A Schroen, and alleged violations under the False Claims Act.  Since Schroen’s suit, Los Angeles County, the University of California Board of Regents, and the Trustees of California State University have also joined the suit alleging that between 2004 and 2012, BP defrauded the state of California of up to $300 million.

BP is the exclusive supplier of natural gas to California state buildings, including university and state government agency buildings. California entered into a long-term, $250 million annual contract with BP for natural gas, intending to leverage its immense buying power to secure favorable prices and protect itself from unexpected spikes in the cost of natural gas.

However, allegedly, the oil company did not buy gas for the state at competitive prices, and then knowingly sold it at inflated prices, padded its billing by exceeding the agreed-upon maximum profit margin of 15%, and hid these excess charges “in an intentionally convoluted fashion so the state could not unwind the transactions.”

The California Attorney General’s Office is alleging that these actions are violations of the False Claims Act, which  can impose hefty liability on persons and entities who defraud governmental programs. Indeed, because it was allegedly overcharged, the state of California is looking to recoup between $150 million and $300 million, and is also hoping to win treble damages which are available in False Claims Act cases.

According to the lawsuit, BP management “had actual knowledge” that the company was overcharging California state agencies, and that BP management also knew that the company was billing California for more than it charged similar bulk clients. A spokesman for BP states that the allegations are “meritless.”

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your real estate, business, or contract law needs.

California Senator Proposes New Tax on Professional Services

Recently, California State Senator Bob Hertzberg proposed a new tax on professional services. Although the bill, known as Senate Bill 8 or the Upward Mobility Act, would replace Proposition 30, which was passed by California voters in 2012 and is set to expire in 2018.  If passed, Senate Bill 8 will take effect in 2019.

While the Upward Mobility Act is currently a work in progress, it is being touted as a means of starting a conversation in the California Capitol about adopting a more progressive tax structure.

Several other states, including Texas and New York, already impose taxes on certain services. California, however, does not have a tax on professional services. Hertzberg hopes to change that, and in the process raise revenue and change the California corporate tax structure. There are scarce details about how a new corporate tax structure will look, but Hertzberg’s office has said the new legislation will not only raise taxes but also create new incentives for business investment.

Senate Bill 8 also proposes a reduction to the personal income tax, with families earning $100,000.00 or less per year paying only 1% in income tax. Individuals who are top earners could also see a drop in their personal income tax.

According to a representative from Hertzberg’s office, a tax on professional services would be directed to public schools and universities, local governments, and a new $2 billion earned income tax credit for low-income workers. It is estimated that a tax on services could bring in a projected $10 billion each year.

  • Senate Bill 8 includes an exception to the professional service tax for the health care and education industries, as well as small businesses with annual sales under $100,000.00.  Those businesses that would be effected include:  Professional services (i.e., accounting, law, architecture, etc.)
  • Financial services (i.e., insurance services, investment counseling, property sales agents, etc.)
  • Construction services (i.e., carpentry, plumbing, painting)
  • Agricultural services (i.e., landscaping)

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with your real estate, business, or contract law needs.

How to Modify a Contract

Varying circumstances may require parties to a contract to modify their original agreement.  For example, contract modification may be necessary if parties want to extend a contract, change its duration, alter the quantity of goods to be sold or delivered, change a delivery time or place, or change a payment amount or type.

Parties typically can modify a contract at any time, as long as all the parties agree to the changes.  Minor changes in a contract can often be handwritten into the original document, and then signed or initialed by the parties. For example, a purchase order may be modified to provide for additional items and initialed and signed by the seller and buyer evidencing an agreement to the modification.

Major changes to a contract will often have to be re-negotiated and added to the agreement as an addendum.  Oftentimes, a well drafted contract will outline terms explaining how a modification may be effected. Typical terms include that the contract may only be modified in a writing that is signed and executed by all parties. Valid contract modifications will be enforced and are binding on the parties.

It is always best to ensure that all contract terms are accurate before the agreement is signed. Sometimes, modifying a contract after it has been signed can be complicated or impractical, particularly if one or both parties have already begun performing their contractual duties.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and  businesses. We have successfully prosecuted and defended various types of business, contract, and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law needs.

Dissolving a Sole Proprietorship

A sole proprietorship is the most common business form because it is simple to establish and easy to maintain.  For the same reasons that it is easy to start a sole proprietorship, and dissolving a sole proprietorship is relatively simple as well.  If you own your own business and run it as a sole proprietorship, you can close your business in a few simple steps.

Because only one person can own a sole proprietorship, dissolving one is relatively simple.  For example, there is no need to consult other partners or obtain a majority vote to dissolve the sole proprietorship.  A sole proprietor, however, will have to notify any individuals with whom he or she has outstanding contracts, including rental and vendor agreements. It is also a best practice to notify all clients of your plans to close your business.

Because there is no separate legal entity with a sole proprietorship, entity organization documents do not have to be filed with the Secretary of State, and therefore the State does not have to be notified upon dissolving a sole proprietorship.  However, depending on the business of the sole proprietorship, a business license may have been required.  If that is the case, the business owner will want to cancel the license and notify the proper issuing authority.

The same is true for any permit associated with a “doing business as” (DBA) or fictitious business name.  If the sole proprietorship did business using a name different from that of the sole proprietor, a Fictitious Business Name Statement should have been filed.  It would be prudent for the owner to contact the local or state office where the statement was filed and inform them that you are dissolving a sole proprietorship.

The finals steps to dissolving a sole proprietorship will be to close any business bank accounts. Bank and credit card accounts in the business’ name are the last thing that evidence the existence of a sole proprietorship, and continued use may suggest the business is still in operation.

If you have any questions about closing your business, including dissolving a sole proprietorship, consult with an experienced attorney. Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, contract, and property claims. Contact us  to see how we can help you with your business law needs.

Corporate Officer Compensation

The procedures for compensating a corporate officer and setting corporate officer compensation will depend on the type of business entity in operation, the industry, the entity’s profitability, and the corporate bylaws and/or operating agreement.  In general, corporate officer compensation is permitted so long as it is “reasonable” for their efforts in carrying on a trade or business.  In such cases, a corporate officer is often considered an employee of a corporation, and is paid as such.  For corporate officers who are not employees, they will have a different compensation structure, or none at all.

Employees must be paid, and usually an officer is an employee of the corporation.  If a case concerning corporate officer compensation goes before a court, it will usually concern whether a corporate officer’s pay was “reasonable.”

Courts consider the following factors in determining if the corporate officer compensation is reasonable:

  • Training and experience
  • Duties and responsibilities
  • Time and effort devoted to the business
  • Dividend history
  • Payments to non-officer employees
  • Timing and manner of paying bonuses to key people
  • What comparable businesses pay for similar services
  • Compensation agreements
  • The use of a formula to determine compensation

A corporate officer’s base salary is usually dependent on the growth and profitability of the company. In many modern corporate pay structures, there is a set base salary and an additional year-end bonus based on profits.  The base salary is generally a figure based on the competitive rate of pay for people in similar jobs in the same industry and in similar sales-volume companies, and the year-end bonus is based on the productivity and success of the corporation in any given year.

Smaller enterprises may have different methods of determining corporate officer compensation, and what is “reasonable” to them will vary from larger C-Corporations. For example, small S-Corporations and LLCs may pay out all of the company profits to the owners, whereas larger operation may only pay out corporate revenue.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, contract, and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law needs.

Misrepresentation in a Contract

If a party was dishonest about a material fact during the drafting process of a contract, the other party may be able to take the contract to court and argue that it should be rescinded, or cancelled, due to misrepresentation.  Moreover, if the honest party performed the contract because he, she, or it justifiably relied on the misrepresentation in a contract of material fact, he, she, or it may be able to collect damages if a court finds that the non-breaching party was damaged by the misrepresentation, or that the misrepresentation was intentional.

Misrepresentation in a contract circumstance occurs when a party to a contract makes a representation, using either words or conduct that communicates a false or misleading understanding, thereby inducing another party to sign a contract.  For example, if a seller of goods makes false statements or promises about the quality or nature of a product to get a consumer to agree to purchase it, that could constitute misrepresentation.

There are different types of misrepresentation in a contract, including fraudulent misrepresentation and negligent misrepresentation.

Fraudulent misrepresentation may be found where a knowingly false representation was made with the intent to deceive.  As mentioned earlier, if an individual justifiably relies on an intentionally made fraudulent misrepresentation and is harmed as a result of this reliance, they may recover damages to be compensated for their harm, which may include punitive damages.

Negligent misrepresentation occurs when a representation is made carelessly. Damages are generally available for negligent misrepresentation, however punitive damages will not be awarded in a negligent misrepresentation case.   Additionally, in the event that misrepresentation can be proven, rescission may be granted, which would release the parties from their contractual obligations.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, contract, and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law needs.

Examples of Unconscionable Contract Terms

A court may find that a contract, or some of its terms, should not be enforced if the contract as a whole or certain contract terms are unconscionable.  Regardless of whether you are drafting a contract or signing one, it is important to understand what types of contract terms may be found unconscionable. Below are a few examples and specific considerations.

Courts commonly describe unconscionable  contracts or contract terms as those that  “shock the conscience.” This means that it is so remarkably unfair that it would be wrong to uphold it.  Types of contracts or terms a court may invalidate for unconscionability will probably evidence severe unfairness, unequal bargaining power, and lack of notice.

California’s Consumer Legal Remedies Act explicitly prohibits “inserting an unconscionable provision in the contract.” Cal. Civ. Code § 1770(a)(19).  Likewise, California law also prohibits businesses from using certain early termination fees that are, in reality, unlawful penalties.

Certain contracts, by their very nature, are closely scrutinized for unconscionability.  For example, adhesion contracts, also referred to as standard form contracts, usually evidence mismatched drafting power, so a court will examine their terms more closely.  If it looks like the consumer was at a disadvantage when he or she signed, or if the consumer had zero negotiation power, a court may invalidate the contract or the particular unconscionable term. This scenario is often present in agreements associated with gym memberships, rental cars, cell phone services, cable/satellite TV services, and mortgages.

Other contract terms that could indicate unfair one-sidedness include:

  • Damage limitations against the seller;
  • Limitations on a consumer’s right to seek court relief against the seller;
  • Imposition of punitive penalties or fees on the consumer; and
  • Open-ended provisions that give the seller unilateral discretion to set or change price or other terms.

Keep in mind that a court will not free a party from its contractual obligations just because he or she did not read or understand a contract. As a general rule, the parties are bound to the agreements they make, even if the bargain made is to the detriment of one of the parties.

If you are questioning the fairness of a contract term, an experienced attorney will be able to help you determine whether it is unconscionable. Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with your business or contract law needs.