What is a Close Corporation in California

In California, Close Corporations are creatures of statute. They are not judicially created as they can be in other states. Therefore, in order to benefit from the legal protections of a Close Corporation, it must be properly formed and meet all statutory requirements.

A Close Corporation is designed to give its shareholders more control over the operations of the business and allow for a flexible management model. A California Close Corporation may not have more than 35 shareholders. It must have a written Close Corporation agreement, Articles of Incorporation, and active management by shareholders.

Complying with specific statutory requirements allows a Close Corporation to reduce the risk of creditors piercing the corporate veil and reaching the owners’ personal assets.  California law states that:

“The failure of a close corporation to observe corporate formalities relating to meetings of directors and shareholders in connection with the management of its affairs, pursuant to an agreement authorized by subdivision (b), shall not be considered a factor tending to establish that the shareholders have personal liability for corporate obligations.” Cal. Corp. Code § 300.

It is also important to note that majority shareholders in a California Close Corporation are still subject to the same fiduciary duties that any director or officer of a corporation would have. Breaching these duties could result in liability against the shareholders individually.

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.

California Boundary Disputes and Property Line Disputes

Boundaries are the lines defining the location of a parcel of real property. Boundary disputes frequently arise between homeowners, business owners, private individuals, and the government. These disputes sometimes arise because of misunderstandings, but more often they are just disagreements about ownership, land use, and property lines.

Other property disputes involve disagreements about the boundaries. These disputes can arise from changes in property ownership, conflicting property descriptions, or even changes in the physical property.

Just as there are many types of boundary disputes, there are many legal remedies for them. Often, alternative dispute resolution can resolve a property dispute. For example, by working with a mediator and having new property surveys done, property lines can be established without a lawsuit. If the use of property is in question, an attorney may be able to help with a deed or title search to see if an easement can be proved through recordings.

If alternative dispute resolution does not work, parties can petition a court to give a declaratory judgment deciding and declaring the boundaries of a parcel and/or the rightful property owner.

When a resolution is finally made, it is important that a boundary agreement is prepared and recorded with the county recorder. That way, future property owners will be on notice of the established boundaries and use rights.

If you need legal assistance to help resolve a boundary dispute, 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 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 Respondeat Superior?

Under the doctrine of respondeat superior a principle (employer) is liable for the torts of its agents (employees).  A principle-agent relationship exists where the employee has agreed to work on behalf of the employer and to be subject to the employer’s control or right to control the physical conduct of the employee.

Respondeat superior is Latin for “let the master answer.”  In the employment context, it might be read more accurately as meaning that “the employer must respond and take responsibility.”

The legal doctrine of respondeat superior makes an employer responsible for the actions of an employee, except where the employee’s actions occur outside the course and scope of employment. This makes it important to understand what it means to be “within the course and scope of employment.”

Whether an action is within the course and scope of employment largely depends on the specific facts and circumstances surrounding the action.  For example, if an employee is running an errand for the company in his or her own personal vehicle, and is responsible for an accident, his or her employer is generally liable. At least one point of settled law is that, generally, if the employee is just commuting to or from work, and the same type of accident occurs, the employer is probably not responsible.

As a business owner, it would be in your best interest to make sure your insurance covers such situations. If a situation arises where someone is trying to hold your business liable because of the actions of an employee, 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 law concerns.

Considerations Before Investing in a Business

There are many reasons to invest in a business, such as joining a new startup, or becoming part of an established and successful business poised for more growth.  Sometimes these new or established companies just need a little additional working capital to be successful.  Before committing, however, it is important to approach the opportunity with objectivity, weigh all investment considerations, and understand the risks and goals associated with the potential investment.

First, assess whether your interests are best served by an equity investment, which entails potentially greater risk but also greater returns, or a loan, which is less risky but has limitations on returns.  Whichever you decide, make sure you and the business management and other investors are on the same page about the terms of the deal. Research the company and its key players (e.g., essential management or personnel) to get a good idea of the experience and integrity of the individuals that are essential to the operation.

Second, decide whether you want your investment to come with the power to have input or control over the businesses’ operational decisions and practices. If you do seek this type of relationship, make sure you understand the risks of any potential personal liability you could be faced with, such as officer and director liability.

Finally, establish what kind of reporting and feedback you want on business operations. If you are to receive any feedback including potentially negative feedback about the business’ poor performance, will you have any remedies to salvage part of your investment? For example, if you choose a debt based investment, as a secured investor you would have priority in a bankruptcy.  Alternatively, if you choose an equity based investment, consider having preferred stock rights that will allow you to get paid before others if the corporation dissolves or there is a dividend payment.

If you are considering investing in a business, it is highly advised that you work closely with a competent and experienced attorney. Legal counsel can help you evaluate the risks and terms of an investment opportunity.

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 concerns.

The California Unfair Business Practices Statute

Previously on our blog, we discussed the California statute that protects consumers and business competitors from unfair business practices. In today’s entry, we will further parse out what exactly constitutes an “unfair business practice.”

As mentioned before, section 17200 of the California Business and Professions Code states that “unfair competition” includes any unlawful, unfair or fraudulent business act or practice. The key to knowing whether you have a case under the statute is understanding what type of activity is unfair, unlawful, and/or fraudulent.

Unfair

In general, an unfair business practice is one that could potentially deceive the public.  Courts do not have a general license to review the fairness of contracts, but may enjoin deceptive or especially harsh business practices.  Whether or not a particular business practice is unfair will depend largely on the facts of the case.

Unlawful

An unlawful practice is one that violates a statute, rule, or regulation.  The statute, rule, or regulation can be anything from a violation of an obscure federal regulation to a violation of a local city ordinance. This means that even if a plaintiff lacks a private cause of action for a violation of the underlying business law, he/she/it can still bring an unfair competition claim.

Fraudulent

The standard for fraudulent conduct under section 17200 is lower than the traditional common law standard and requires only a showing that members of the public are likely to be deceived.  There does not need to be proof of actual deception, reasonable reliance, or actual damages.

Importantly, under California law a plaintiff does not need to prove all three prongs of the statute (unfair, unlawful, and fraudulent). Rather, the business practice only needs to meet any one of the three prongs in order for the plaintiff to be able to state a claim under section 17200.

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.

California Unfair Business Practices

California law protects both consumers and business from unfair and illegal business practices.  Unfair and illegal business practices are major concerns of business competitors, especially with increased competition, and cost reduction measures.

California Law Preventing Unfair Business Practices

Section 17200 of the California Business and Professions Code states that “unfair competition” includes any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any other act prohibited by the Business and Professions Code. This is the most frequently used consumer protection statute, but is also used by business competitors in a wide range of other types of litigation.

The reach of section 17200 is broad and imposing.  For example, intent (which is typically a required part of a cause of action) is irrelevant under section 17200, meaning that a plaintiff is not required to show that the defendant actually intended to injure anyone with his/her/its unfair business actions or practices.

Similarly, section 17200 does not exempt specific industries, making it applicable to any “person,” which term is broadly defined as “all natural persons, corporations, firms, partnerships, joint stock companies, associations and other organizations of persons.”

Activities that are considered unfair business practices include price fixing between competitors, false advertising, monopolies, boycotting certain businesses, or violating other laws during the ordinary course of business. If your business has fallen victim to such  activities, an experienced business lawyer can defend your interests and help you bring an end to such conduct.

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.

Protecting Yourself from Partnership Disputes

Countless business people go into a business partnership, whether in the form of a true partnership, a joint venture, limited liability company, or corporation with the best intentions, only to find themselves in a legal dispute. Clashes amongst partners, members, joint venturers, and/or shareholders are extremely common, and occur in every type of business and industry.

As in divorce, financial issues predominate over other causes of insider disputes and dissatisfaction.  Also like divorce, business partners are inclined to blame each other for poor financial success and fight over control, assets, and the future of the partnership.  Disputes of this nature may have severe negative impacts on the overall functionality of a business partnership, irrespective of the form, and make it difficult for partners to reach a resolution. The most common partnership disputes include:

  • One or more partners, members, joint venturers, and/or shareholders wanting to sell the company;
  • Deciding who will retain ownership and control over the business;
  • Personnel retention; and
  • How will profits be distributed and losses will be allocated.

If your business is suffering from internal disputes, disagreements, or financial losses, an experienced business lawyer can help you resolve issues before the dispute gets to a point where winding-up, dissolution, or litigation becomes necessary. Having an experienced business attorney can also help identify and evaluate options to be explored.

If your partnership or business is failing or if you are in the midst of a dispute amongst partners, members, joint venturers, or shareholders, contact Ezer Williamson Law to discuss how best to protect your business interests.

Provisions of a Partnership Agreement

Although it is not required to have a formal written agreement to form a general partnership, having one is highly recommended, not only because it can be very difficult to prove the existence of and enforce informal oral arrangements, but also because the “default” statutory laws a court will apply in the absence of an agreement may not ensure an equitable result.

Before creating any partnership, the parties should work with an attorney to create a formal, written partnership agreement that outlines exactly how management control, profits, and losses will be divided. The following are typical partnership agreement provisions and should help those who are considering a partnership begin to think about the issues to be addressed at the outset.

Partner and Partnership Information

Each agreement should contain the most basic information, including the name, purpose, and location of the partnership.  It should also spell out partner names and how much capital (or other investment) each  partner contributed, and/or agrees in the future to contribute.

Sharing Profits and Losses

An agreement should state the percentage of partnership profits and losses that each partner will bear and how the percentage is derived.
Management and Voting Information

To prevent future disputes about partnership control or obligations, establish who is going to manage the partnership, who has authority to sign checks and contracts, and whether partners will receive salaries or other benefits for their services to the partnership.  The agreement should also include a provision establishing partner voting rights.

Plans for Winding Up

In case of partnership dissolution, an agreement should include provisions for winding up. This will be an anticipated exit strategy detailing the circumstances under which partners can withdraw, how much notice they must provide, and how partnership assets will be distributed. The agreement should also address how to handle partner retirement, bankruptcy, disability, and death.

Dispute Resolution Preference

The partners can and should agree to bring disputes to mediation or arbitration prior to or as an alternative to filing a lawsuit.

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 any business dispute concerns you may have.

The Difference Between General and Limited Partnerships

The two most common types of partnerships are general partnerships and limited partnerships. Depending on the type of business involved, one type of partnership may be a better option than the other.

General Partnerships

All it takes to form a general partnership is an agreement between two or more people to enter into business for profit.  There does not need to be a written agreement, and no state or local filings are required. This formation requirement is so simple that individuals may not even know they have created a general partnership.

In a general partnership, each partner is jointly and severally liable for the partnership’s liabilities, and, most importantly, an individual partner is personally liable for partnership liabilities.  That means each partner is liable for any debts of the partnership or of any partners on behalf of the business, and creditors or third parties can attempt to collect debts and liabilities by going after an individual partner’s personal assets. This makes the general partnership a particularly risky business form.

Limited Partnerships

To form a limited partnership, there must be a formal agreement and the required documents must be filed with the California Secretary of State’s office.  Limited partnerships are similar but distinct from general partnerships. In a limited partnership, there has to be at least one general partner and one limited partner.  The general partner faces the same liability risks described above – joint and several, and potentially personal liability.  Because of this, the general partner in a limited partnership is typically an entity with limited liability.  The limited partner has limited personal liability in most instances, with the limitation being the limited partner’s investment in the partnership.

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 any business dispute concerns you may have.