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.

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.

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.

What Constitutes a Trade Secret?

Unlike patents and trademarks, trade secrets are protected without any procedural formalities associated with the benefits of registration with a government agency. The benefit to this is that a trade secret can be protected for an unlimited period of time and requires no public disclosure. The downside is that defining and protecting a trade secret can be trickier.

There are different definitions of what constitutes a “trade secret.” California law has adopted the Uniform Trade Secrets Act definition, qualifying a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique, or process” that meets two qualifications. The first qualification is that the information must derive “independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use.”  The second qualification is that the trade secret owner must take reasonable steps to maintain the secrecy of the information.

The Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, an international agreement administered by the World Trade Organization, similarly defines a trade secret.  According to the TRIPS Agreement, trade secret information cannot be generally known among, or readily accessible to, circles that normally deal with the kind of information in question.  It must also have commercial value because it is a secret, and it must have been subject to reasonable steps by the rightful holder of the information to keep it secret.

Thus, if a company deals with third parties who are privy to a company’s trade secret, it is important to always have them sign confidentiality agreements to make sure they understand that the information is a secret.  Taking those steps not only gives the company a cause of action for breach, but also evidences reasonable steps to maintain the secrecy of the trade secret.  Information that constitutes a trade secret can include processes that make production more efficient, a formula (like the Coca-Cola soft drink formula), customer lists, and proprietary business plans.

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 needs.

Cancelling or Dissolving Your Business Entity

Parties often wait until a dispute arises to exercise or learn about their rights.  However, it is often more prudent to know and exercise rights before a dispute arises.  The main shareholder or partnership rights include limited “economic” rights, voting rights, inspection rights, the right to bring a derivative action, and, in certain circumstances, the right to start the dissolution process.

Business entities can dissolve or cancel their businesses at almost any time. In particular, California corporations  “dissolve,” while limited liability companies and partnerships “cancel.”  Dissolution or cancellation are options for businesses that wish to cease operations in California and need to terminate their legal existence in the state. In some instances of partner withdrawal from a partnership, cancellation or dissolution will be automatic.

The process for cancelling or dissolving a business entity will depend on the applicable state laws and the terms of the corporate or partnership agreement. For example, some partnership agreements may contain a provision stating that the death of a partner, or the withdrawal of a partner, will lead to automatic cancellation of the partnership.  This is merely a term that parties agree to at formation and not one that is required by the state.

More specifically, in a limited partnership, a general partner may withdraw at any time by giving written notice to the other partners. The general partner’s withdrawal from a limited partnership will terminate his or her or its status as a general partner, and the certificate of limited partnership (filed with the Secretary of State) must be amended. The same is true if a new general partner is admitted.

A limited partner, on the other hand, must give at least six months written notice to each general partner of his or her desire to withdraw. A partnership agreement can change this requirement, permitting for less or more notice.

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 commercial claims. Contact us at (310) 277-7747 to see how we can help you with your business  needs.

California Shareholder Rights

“Economic” Shareholder Rights

Shareholders invest in corporations primarily for economic gain or profit.  The two main ways shareholders can profit from a corporation are by receiving distributions of the company’s profits and by selling all or part of their interest in the corporation. These correspond with the two main “economic” shareholder rights: the right to receive dividends and the right to sell shares. Notably, shareholders only have the right to receive dividends as they are declared by the corporation’s board of directors, and directors are not obligated to declare dividends.  In addition, some investments and receipt of shares may come with limitations on transferability of the shares.

Shareholder Voting Rights

A company’s board of directors has the right to manage the company’s business. However, shareholders have the right to vote on important matters relating to the business, which gives them some control over the corporation as well. Most importantly, shareholders have the right to elect directors.

Shareholder Inspection Rights

Under California Corporations Code Section 1601, shareholders also have right to inspect the corporate documents, such as the incorporation record, accounting books, and meeting minutes.

Derivative Actions and Shareholder Rights

Derivative actions are brought by a shareholder on behalf of a corporation. Officers, directors, and majority shareholders owe a corporation a fiduciary duty. Someone who owes a fiduciary duty and who breaches that duty can be held liable to the corporation for damages.  Thus, in a derivative action a shareholder seeks judicial enforcement of, and redress for breach of, management’s fiduciary duties to the corporation and its shareholders by means of derivative litigation.

Involuntary Dissolution of the Corporation

Under California law, one-half of the directors or one-third of company shareholders can sue for involuntary dissolution of a corporation. A corporate dissolution may consist of a court approved liquidation or sale of corporate assets. However, the involuntary dissolution of a corporation may be avoided if at least 50% of its shareholders elect to purchase, for cash, the shares owned by the shareholders initiating the dissolution proceeding.

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 business needs, or visit our Shareholder Rights page for more information.

Ridesharing Hit with More Business Lawsuits

California prohibits unlawful, unfair, and fraudulent business practices, as well as unfair, deceptive, untrue or misleading advertising. Recently, the district attorney offices for Los Angeles and San Francisco claimed that Uber, one of the the most popular ridesharing companies, violated these California business laws in recently filed actions against the company.

Uber (recently valued at $41 Billion and has backers from Wall Street to Silicon Valley), is no stranger to lawsuits, which are coming from all over the world. In California, the district attorneys’ offices are alleging that Uber misleads consumers about the service’s safety and overcharges them with unnecessary tolls in violation of California consumer protection laws.

According to the lawsuit, Uber claims to be an industry-leader in conducting background checks, but fails to fingerprint its drivers. The district attorneys’ offices claim that without fingerprinting, the company’s criminal checks are “completely worthless.”

The San Francisco district attorneys’ offices also accuse Uber of fraud for charging certain tolls. Uber charges a $4 “airport fee toll,” which is automatically added to rides to and from San Francisco International Airport, even when drivers do not pay a toll themselves. Uber also automatically adds a $1 “safe rides fee” to every ride, claiming that this fee goes to funding the company’s background checks.

The district attorneys’ offices have asked the court for an injunction that will force Uber to stop these practices immediately. They also seek restitution and civil penalties for riders who suffered economic harm from the unnecessary fees.

California law allows a $2,500 penalty to be issued for each violation of the business code. The district attorneys’ offices claim that that are “tens of thousands of violations,” meaning that Uber may be facing a very expensive lawsuit.

Lyft, a competing ridesharing company, who recently raised $700 million, chose to settle a similar lawsuit, agreeing to stop picking up passengers at airports until it obtains the necessary permits and approvals. Lyft will also submit its application to a California testing agency to measure its accuracy in calculating fares.

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

 

What is a Sole Proprietorship?

Establishing a sole proprietorship is the most common and basic way to start a new business.  In most cases, a sole proprietorship is established by an individual by simply starting a business.  At most a sole proprietorship will need a few simple filings to get going.

Sole Proprietorship

Only one owner is involved in a sole proprietorship. There is an exception for spouses, as California law allows a husband and wife venture to be classified as a sole proprietorship. The owner of a sole proprietorship controls every aspect of the business, and receives all profits from it.

There is no separate legal entity with a sole proprietorship. This is very important to note for liability purposes. For example, if a corporation, which is a separate legal entity, is sued, the corporation owners – its shareholders – are generally protected from individual liability, that is, their liability is limited by their investment in the company in the form of the amount they paid for their shares. However, because there is no distinction between the business and the business owner in a sole proprietorship, the owner can and will be held liable for all business liabilities. In other words, the sole proprietor is personally liable for all debts and actions of the company.

A sole proprietorship exists as long as the proprietor (business owner) is alive. The sole proprietorship will cease to exist once its owner dies.

Filing Requirements

A sole proprietorship in California does not need to file any organization documents with the Secretary of State. However, if the sole proprietorship is going to do business using a name different from the sole proprietor’s, a Fictitious Business Name Statement must be filed.

The sole proprietor will also have to report all business income and expenses on his or her taxes. There is a specific form for this that is part of the California personal income tax return. As with personal income, the sole proprietorship’s tax rate will depend on the proprietor’s total taxable income.

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.

Intellectual Property Basics for Businesses

Intellectual Property Basics

It is important to protect the intellectual property and proprietary aspects of any businesses’ goods and/or services.  There are a variety of different ways to go about protecting your intellectual property, and it is important to determine what method will accomplish your goals effectively. It is therefore important to develop an understanding of the different intellectual property protection options. Depending on your company’s needs, you may want to consider either a patent, trademark, trade secret, or copyrights.

What is a Patent?

patent is a property right. Upon successful application, a patent is granted by the federal government to an inventor. The purpose is “to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States.” This protection is given to an inventor for a limited time in exchange for the public disclosure of the invention when the patent is granted.

What is a Trademark?

A patent is very different from a trademark.  A trademark is a word, phrase, symbol, or design (or a combination of these), that identifies and distinguishes the source of one’s goods from others.  A “service mark” is like a trademark, but it identifies and distinguishes the source of a service instead of goods.  Like a patent, a trademark is also granted by the government and entitles the holder of the mark to protect their marks from other competitors.

What is a Trade Secret?

When determining whether a patent is feasible for you, you should also take timing into consideration. For example, if your idea is for something that would be part of fast-moving industries, a patent might not be viable. Technology often moves faster than the patent application process, so it might be better to keep your idea a trade secret, i.e., information that companies keep secret to give them an advantage over their competitors.  Protecting trade secrets often involves contractual protections and state unfair competition laws, among others.

What is a Copyright?

A copyright is a form of protection offered to authors of “original works of authorship,” such as music, books, and plays. Copyrights are available for published and unpublished works and are given copyright protection after the copyright is registered through the Federal Government.

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 law needs.