Selling Partnership Shares

Selling partnership shares often involves various considerations.  In most partnerships, partners can choose to sell their share of the partnership to the partnership or a new potential partner as part of the resolution of a partnership dispute or simply because the individual or entity no longer desires to be part of the partnership.

Selling partnership shares will be governed by a partnership agreement, or if there is no partnership agreement, state law will govern sale of a partnership share. It is especially important to check the provisions of a partnership agreement before selling a partnership share, as there might be restrictions on share sales.  For example, a “right of first offer” provision may subject the selling partner to financial penalties or a lawsuit if there is no initial offer to existing partners before offering to sell to outsiders. Also, a partnership agreement might have certain notice requirements that a partner must follow when considering selling his, her or its share.

It is also important to consider what will and will not change as a result of the  sale of a partnership interest.  For example, according to California Corporations Code Section 16201, “partnership is an entity distinct from its partners.” Therefore, if a partner sells their share, that change alone will not dissolve a partnership or create a new one. The original partnership entity will continue to exist despite such changes.  Similarly, section 16502 of California’s Corporation Code provides that a partner’s only transferable interest is “the partner’s share of the profits and losses of the partnership and the partner’s right to receive distributions.” This means that when a partner is selling partnership shares, they are really only transferring their financial interest in the partnership. All other interests are separate, and must be dealt with separately.

If the partner had a managing role in the partnership, the new partners should update the partnership agreement to make sure the new ownership and responsibilities are memorialized in writing.

If you have any questions about selling partnership shares, 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, real estate, construction and property claims. Contact us at (310) 277-7747 to see how we can help you with your business, real estate or construction 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.

Healthcare Laws Prevent Paying High-Cost Employees to Use Exchange

Many business are self-insured, meaning that they provide healthcare plans for their employees. However, because of the high costs associated with this practice, some companies have been paying employees with significant health issues to opt out of company medical plans and get coverage on the insurance exchange market. Recently, a number of federal agencies have said that this practice is illegal under current healthcare laws.

From a business perspective, it is easy to understand why companies may encourage this practice.  An employee with major health care issues, such as a chronic disease, can accrue hundreds of thousands of dollars in medical costs each year.  If that same employee uses the Affordable Care Act’s health insurance exchange program, their total healthcare costs would only be about $10,000.  The reason for this is that the cost of coverage through the exchange is set at $10,000 regardless of pre-existing conditions.  Therefore, employers are often tempted to pay an employee around $10,000 to enter an exchange, rather than expend (potentially) significantly more than that through a company health plan.

The problem is that when companies pay their employees with high healthcare costs to go through the exchange, this shifts the high costs to taxpayers and other insured individuals. The Department of Labor, backed by the Department of Health and Human Services and the Treasury Department, have said that such shifting also violates current healthcare laws, including the Health Insurance Portability and Accountability Act and the Public Health Service Act because the practice unlawfully discriminates against employees based on their health status.

Although it is unclear what penalties companies could face for violating the healthcare laws paying employees with significant health issues to opt out of the company medical plan, companies are being discouraged from this practice in light of the government’s position described above.

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.

Non-Compete Clauses in Action

Previously on our blog, we discussed the enforceability of non-compete clauses. It is important to be familiar with the concept not only for contracting purposes, but also from the standpoint of being either an employer or employee. Recently, this issue has been in California state news, as it appears that large companies are trying to enforce non-compete clauses that are found in employment agreements of low-wage workers.

The case at issue involved Benny Almeida, a former employee of the company ServiceMaster. While at ServiceMaster, Almeida was paid $15-an-hour for his cleaning job. Another company reached out to him and offered to pay him $18 an hour to do cleaning work there. Almeida took the higher paying job, but was then threatened with legal action from ServiceMaster. The reason is because Almeida’s employment agreement with ServiceMaster contained a non-compete provision allegedly prohibiting him from doing similar work in the same geographic area as the ServiceMaster location. ServiceMaster has claimed that the non-compete provision is to prevent ServiceMaster from training employees only to see their efforts benefit competitors.

As we discussed previously, non-compete provisions are heavily disfavored both by the Courts and by the public policy codified in the laws of the California Labor Code.  However, the Code provides one exception to this general rule, allowing non-compete agreements between individuals selling the goodwill of a business, so as to protect a company’s intellectual property, trade secrets, or client lists.

Considering the intent behind the law, it is unlikely that a low-wage worker such as Almeida will be bound to a non-compete agreement with his or her previous employer. But as shown by the Almeida case, there is still uncertainty about the line between illegal and permissible non-compete contract provisions and whether employers can or (economically) should enforce the non-compete provisions in their employment contracts.

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.

Understanding the Principal-Agent Relationship

Understanding the principal-agent relationship  is critical for all business transactions. The laws of agency govern this relationship, and they establish when an agent can bind a principal to an agreement, how far an agent’s liability extends, and what the fiduciary duties are that arise from the relationship.

The Principal-Agent Relationship

Generally (in terms of an “actual agency”), a principal hires an agent to act on his or her or its behalf.  The principal-agent relationship is not limited, however, to employers and employees. Rather, it is quite broad, incorporating corporations and directors, business partners, and trustees and beneficiaries, to name a few.  Thus, it is not always easy to establish whether an agency relationship has been formed.  For an agency relationship to exist, an agent must consent to do something for the principal, the agent must agree to operate primarily on behalf of the principal, and the principal must exercise control over the agent.

It is important, however, to know whether a principal-agent relationship exists and to define its scope, because failing to do so can pose significant risks to business owners and other principals, particularly because an agent can bind a principal to a contract, principals may be liable for an agent’s torts, and principals and agents have and owe certain fiduciary obligations to one another.  For example, a principal can be bound by a contract that an agent enters if a third party is under the impression that an agent does have signing authority even if the agent does not have the actual (explicit) authority to do so.

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 a Breach of the Duty of Loyalty?

The relationship between an officer or director and a corporation gives rise to certain fiduciary obligations as a matter of law. One of the fiduciary duties that an officer or director owes the corporation is a duty of loyalty. The duty of loyalty requires every officer or director to act in good faith and with a reasonable belief that what he or she does is in the corporation’s best interest.

A classic example of a breach of the duty of loyalty is where a director profits at the corporation’s expense, meaning that a director acts in furtherance of his or her own personal financial interests, separate business interests, or a family member’s business.  If the corporation loses money as a result of a transaction in which the officer or director has a personal interest, that director could be found liable for the corporate losses.  However, even if there is no loss to the corporation (for example, if the corporation could not have gotten a better price), the officer or director may still be forced to disgorge any profits (i.e., give them to the corporation).

Where an officer or director’s actions are in furtherance of the corporation’s businesses, and he or she has no connection to any personal interests tied to the corporate transaction, there is usually little to no risk of a breach of the duty of loyalty.  Similarly, an officer or director with a personal financial interest may disclose that fact to the corporation and seek the approval of the transaction by disinterested members of the board.  Assuming that a full disclosure was made and board approval was obtained, there would likewise be little to no risk of a breach of fiduciary duty.

Another part of the duty of loyalty comes into play where an officer or director plans to terminate their employment and join a competing company or venture.  In the absence of an agreement to the contrary, a director may engage in competition with the corporation after termination of his or her directorship relationship. However, before planning or deciding to compete with the corporation, whether before or after deciding to leave, an officer or director should consult with an attorney to determine the scope of any noncompetition or nonsolicitation clauses in their employment agreements.

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.

Alternative Dispute Resolution

The legal conflicts that businesses most often face are contract disputes, financial disputes, and employer-employee issues. If your business is facing such a conflict, it will be encouraging for you to know that most of these disputes can and are resolved without going to court. Alternative dispute resolution (“ADR”) can save your business a lot of time and money if you utilize it as a means to resolving your legal issues. There are many kinds of ADR, but the most commonly used are negotiations, mediations, and arbitrations.

In a negotiation, the parties involved in the dispute, or their attorneys, communicate directly with each other to try reaching a mutually agreeable resolution.

In mediation, a neutral third-party (the mediator) serves as a middleman in a confidential process. Each party spends time alone with the mediator engaged in a discussion aimed at finding a way to resolve the conflict. The mediator switches between the parties communicating possible resolutions until an agreement is made. A mediator generally does not have the power to decide the case if an agreement is not reached.

In arbitration, a neutral arbitrator is the one that makes the final decision after reviewing presentations from both sides. The presentations usually include documents and witness testimony related to the dispute. If the arbitration was set up by a court, the arbitrator’s decision may be binding, meaning that the case will not proceed to trial. If the arbitrator’s decision is non-binding, however, the parties will still have the option to take their case to trial.

Alternative Dispute Resolution can be used instead of filing a lawsuit, or if a lawsuit has been filed, it can help avoid trial. Unless mandated by a court, the parties can usually pick which type of alternative dispute resolution to pursue. In addition to resolving a dispute faster than is possible in court, alternative dispute resolution has many other benefits. It is often less costly and time intensive, it is usually confidential, and it can help preserve relationships through better communication.

California Paid Sick Leave Law

On September 10, 2014, California Governor Jerry Brown signed AB 1522, a law requiring public and private employers to provide their employees with at least 3 paid sick leave days per year. It is very important that employers begin implementing paid sick leave policies to make sure they are compliant with the new law, which goes into effect in July 2015.

Under the new law, most employees will be entitled to one (1) hour of paid sick leave for every 30 hours worked.  Employees will be able to use sick leave for their own illness as well as for preventive care, which includes looking after a sick family member or recovering from certain crimes.

The law creates an accrual option and a lump sum option. Under the accrual option, sick days that go unused during a year will roll over to the next year. However, employers can choose to stop employees from accumulating more than 48 hours, or six (6) days, of accumulated paid sick leave. Under the lump sum option, employers can give all employees a minimum of three (3) days of paid sick leave at the beginning of each year. No accrual or carryover is required.

Employees will not be entitled to pay for unused sick leave at separation of employment. In other words, if an employee leaves his or her job, he or she cannot “cash out” unused sick days in the manner vacation and paid time off can be cashed in.  However, if the employee is rehired by the same employer within a year, he or she can reclaim those unused sick days.

California employers that already have paid sick leave policies that already live up to the requirements of the new law do not need to provide additional leave, but they should make sure they have a way of tracking used and unused leave. California employers who do not have paid sick days need to review the new law and adopt a paid sick leave policy.