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.

Constructive Eviction in Commercial Leases

California law provides tenants with a right of quiet enjoyment of the property they are renting. This right requires a landlord to ensure that tenants’ use and enjoyment of the property will not be disturbed. The right to quiet enjoyment is heavily protected in residential lease agreements and cannot be waived.  However, the right to quiet enjoyment may be waived in commercial lease agreements, and therefore  showing constructive eviction in commercial leases is often more difficult.

It is understandable why the right of quiet enjoyment is more protected for residential tenants than commercial tenants. Obviously, residential tenants are inhabiting the rented space, whereas commercial tenants are merely using rented space for business purposes. If a residential tenant’s right to quiet enjoyment is interfered with, the tenant has the option to either stay in the rented space and sue for damages or vacate the premises and claim constructive eviction. Constructive eviction is essentially a claim that the tenant could no longer live in the property because of the interferences with use and enjoyment of the property, justifying abandonment of the space.

However, showing constructive eviction commercial leases can be more difficult.  In 1994, the appellate court in Lee v. Placer Title Company held that a lease provision prohibited a commercials tenant’s claim for constructive eviction, restricting his rights to a claim for damages or injunctive relief.  In that case, the tenant claimed that cleaning fumes from a neighboring laundromat made his rental space unusable, and on that basis the tenant stopped paying rent and vacated the premises on the claim that there had been a constructive eviction. The commercial landlord sued the tenant for the balance of the rent owed on the lease as damages, arguing that the lease agreement contained a provision prohibiting constructive eviction. The court agreed with the commercial landlord, and held that the covenant of quiet enjoyment was  waived by the tenant. Lee v. Placer Title Company, 28 Cal.App.4th 503 (1994).

In the case of Lee v. Placer, the tenant may have been more successful in seeking a reduction of rent for the duration of the interference, rather than vacating the premises. If the tenant could prove that the fumes were making it impossible to use the space, they may also have been able to sue for damages to cover a temporary office location somewhere else.

Before ever vacating  premises for which rent is still owed and the lease term is still running, it is highly advised that you 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 business or real estate law concerns.

California Coastal Access and Property Law

A common issue that arises in California property law surrounds public coastal access. In September 2014, a California Superior Court judge ruled in favor of coastal access advocates by holding that a property cannot block the only public access route to Martins Beach (located less than an hour outside of San Francisco, California), without permission from the Coastal Commission, and demanding the property owner to open the gate blocking access to the beach.

The case, Surfrider Foundation v. Martins Beach 1, LLC, et al., was a bitter dispute over private property rights and public access to California’s coast filed in the San Mateo County Superior Court, Case No. CIV520336, before Judge Barbara Mallach.  The court held that blocking access to the road constituted “development” under the California Coastal Act, and the owner, venture capitalist Vinod Khosla, must apply for a permit if he wants to block the public from accessing the road.

Khosla was sued by the nonprofit Surfrider Foundation after his property manager blocked off Martins Beach Road, the only access to Martins Beach.  His property manager previously allowed the public to occasionally visit a stretch of sand off the property where locals went surfing and smelt-fishing for decades, but Khosla had the gate permanently closed after his property manager received a letter from the county in 2010 demanding that the gate stay open every day.

The issue is complicated because, under the public trust doctrine, beaches are widely considered public property and access to them is protected. However, there is no legal requirement that private property owners allow the public to cross their land to get to the beach.

The court sided with the Surfrider Foundation’s position that under the 1976 Coastal Act, which gave a statewide Coastal Commission jurisdiction over beachfront land and coastal access. Khosla needed to apply for a development permit in order to close the gate. The commission usually only grants development permits, typically to build a home or another structure, if the public gets an established right of way in return. However, the Commission cannot ask a property owner to dedicate an easement for public access.

The Judge’s ruling and recent injunctive relief order require public access to be restored to Martins beach. Khosla’s lawyers are considering appealing the verdict and pushing the issue of private property rights. Even if he does, a bill has been proposed that would require the State Lands Commission to consider purchasing the road if negotiations with Khosla for public access fail.

This case is important because the final determination will set a property law precedent that will impact all 840 miles of California’s coastline.

If you have any questions about easements or real estate transactions, contact 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 business law or real estate concerns.

What is a Clawback Suit?

Ponzi schemes endanger investors and securities professionals, but these victims are not without recourse. Investors who fell victim to such schemes may pursue compensation from the brokers and other entities that perpetrated the fraud. They may also bring a clawback suit.  A Clawback suit allows them to seek compensation from the early investors who either knowingly or unknowingly benefited from their early involvement.

A common type of clawback suit is brought through federal equity receivers or bankruptcy trustees. These cases are based on several sections of the United Stated Bankruptcy Code, allowing investors to recover false profits that were paid to investors in order to redistribute these funds to investors that lost the principal on their investment.  They are not unique to just Ponzi scheme cases, but rather, can be used in instances where large partnerships dissolve and leave large outstanding debts.

An example of a clawback suit is the recent case against former law firm partners at Dewey & LeBoeuf LLP. Last month, a bankruptcy judge did not dismiss lawsuits against former partners of the firm. The defunct firm’s creditors are seeking nearly $16 million, hoping to obtain, or “clawback,” any money the partners were paid while the firm was insolvent

The judge hearing the arguments found that the partners cannot argue that the value of the work they did offsets the money they were paid, a defense that is sometimes successful in such clawback suits. For example, if a partner who brought in $2 million in fees and received $1 million in payment during the same period could argue that he or she would not owe the bankrupt firm anything.

Following the court’s decision that creditors can clawback funds, the next decision will consider when the firm became unable to pay its debts as they came due.

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 law concerns.

Managing Risk Through Corporate Compliance

A recent survey by AlixPartners found that corporations are directing their attention to finding ways to proactively manage potential risks. In the face of rising litigation and regulatory enforcement actions, corporate compliance and legal departments throughout the country reported that their efforts are going towards implementing education and training programs to reduce litigation risk.

AlixPartners’ 2014 Litigation and Corporate Compliance Survey polled general counsel and compliance officers from more than twenty major industries including insurance, financial services, health care, information technology, and energy. The survey found that 71% percent have already implemented risk management education and training programs, and 56% reviewed existing compliance programs to identify gaps.

The survey illustrates that corporate priorities include risk management, in fact 45% of respondents said that proactive risk management was the most critical issue for their legal departments during the past 12 months. The next most-critical issue for them was controlling costs.

Nearly half of all the survey respondents stated that proactive risk management will add the most value to their companies during the next 18 to 24 months. The next value-adding action is ensuring their companies are complying with regulations.

The survey tried to get an idea of whether companies are facing increased litigation. A large number of survey respondents suggested they are, in fact, facing increased litigation. For example:

  • 32% said their companies faced an upsurge in legal disputes
  • 56% said the volume of legal disputes they faced stayed the same
  • 12% said they experienced a decline in the number of their legal disputes

Respondents were requested to categorize the legal disputes they met during the last year.  The top disputes identified involved contracts, employment, intellectual property or patent infringement, accounting/ financial reporting/disclosure, and insurance.

These results show that companies are placing a lot of emphasis and resources into avoiding and mitigating risks. The compliance function is increasingly important not just because of increased regulations, but also because of the growing cost associated with litigation.  Also, in many cases, should a company be brought into court, if they can show they have implemented a compliance plan, they could mitigate their possible damages. If your company has questions or concerns about implementing a compliance plan, consult an experienced business law 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 business law concerns.

Specific Performance in Real Estate Transactions

Specific performance is a type of remedy available in some contract disputes where a plaintiff requests that a court enforce the contract in question and force the defendant to perform the agreed upon terms instead of or in addition to paying the plaintiff money damages. It is most commonly used when there is a dispute over the purchase and sale of real estate.

Specific performance is an important remedy because real estate projects often involve large amounts of capital, builders frequently rely on a specific location, and a particular piece of property could be essential to a project.

To bring a lawsuit for specific performance a plaintiff has to establish the following elements:

  • That an enforceable contract exists between the parties;
  • Adequate consideration (i.e., payment);
  • The plaintiff’ performed his/her/its part under the contract, or has a valid excuse for nonperformance;
  • The defendant breached the contract; and
  • Proof that damages or another remedy at law are insufficient.

The court must be able to make out the essential terms of the contract, which include the identities of the buyer, seller, and property, the price to be paid (consideration), and the time and manner of payment. If certain terms are missing, the court might be able to insert reasonable ones.
The law presumes that real property is unique, Therefore, an action to enforce the sale of a particular piece of property can typically be enforced by specific performance. If the plaintiff is successful the court will order the sale of the property at the price and terms agreed upon.

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 law concerns.

What is Dual Agency?

Previously on our blog, we discussed the importance of understanding the relationship between an agent and a principal.  Knowing the law that applies to principal-agent relationships is particularly important for business owners, so that they can prepare for and mitigate against potential legal liabilities that can arise from an agent’s actions. Agency laws also establish what fiduciary duties can arise from an agent-principal relationship.  It is particularly important to be familiar with fiduciary duties in a “dual-agency” situation.

What is a Dual Agency?

Dual agency exists when an agent represents both parties to a transaction. This relationship commonly arises in real estate transactions, where a real estate agent represents both the buyer and the seller, often to reduce each party’s commission. Because a real estate broker owes fiduciary duties to their other clients, there is potential conflict of interest and breach of fiduciary duty when one agent represents both parties to a transaction.  However, in many states, including California, dual representation that would otherwise constitute a conflict of interest is permitted when both principals knowingly consent to the dual representation. Where such transactions involve residential real estate comprising of one to four dwelling units, a written statutory disclosure form is required (California Civil Code § 2079.16).  In other situations, such as commercial or industrial real estate transactions, an agent must also disclose all facts which reasonably affect the judgment of each party in permitting the dual representation.  The information required to be disclosed alerts the parties to the potentially harmful consequences of dual representation, enabling them to make an informed judgment.  A dual agency relationship, can be advantageous, but it is often in the best interest of the real estate brokers and sales agents and may not be suited for the parties to a real estate transaction.

Case Example

A recent California case suggests that courts are looking at the dual agency relationship more closely. In Horiike v. Coldwell Banker, 225 Cal. App. 4th 427 (2014), a real estate broker served as a dual agent for a buyer and a seller. This case did not involve one real estate agent representing the buyer and seller, but rather, different agents from different offices of the same firm representing the two parties.  As with law firms, even though different agents at different offices may be working with different clients as their agent, when a single firm represents multiple parties the firm and all of its employees owe each party a fiduciary duty.  Thus, the court held that even when a different salesperson with the broker represents each party, fiduciary duties are not diminished. The firm owed a fiduciary duty to both the buyer and the seller, and therefore each salesperson owed a fiduciary duty to both the buyer and the seller.

In any business transaction, it is always best to consult with an attorney who is representing and looking to protect your interests. It may turn out that having one agent representing both the buyer and seller in a transaction creates a direct conflict of interest. An attorney can help you spot this concern and resolve it.

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 law concerns.