Partnership Agreements for California Partnerships
Partnership Agreements for California Partnerships
In our recent post describing the types of business partnerships that could be formed in California, we mentioned that forming a partnership can be as simple as an oral agreement or a handshake. However, making such informal business agreements is not recommended.
Since partnerships have multiple owners, it is wise for a written agreement to provide guidelines for how the business will run and how the profits will be shared (and of course, how the liabilities will be shared). Partnership agreements are especially important for general partnerships, in which the owners have no liability protection from business debts or judgments (these could arise from lawsuits, contract disputes, unpaid invoices, etc.). General partnerships, who aren’t required to file anything with the Secretary of State, definitely should address liability and business control issues in their partnership agreements.
By creating a partnership agreement, the company owners are forced to think ahead and address many issues that could potentially arise. It’s wise to plan for varying outcomes, the good along with the bad. We’ve written about going into business with a friend or family member before, and many of the same considerations apply to forming partnerships. Partnerships are often compared to marriages.
It can be tempting for individuals starting a new company to take shortcuts to save time or costs, but forgoing a partnership agreement should not be one of them. Executing a written agreement before business starts can be a safeguard against potential problems in the future.
For more information regarding starting your own business, please contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.
Griswold Law is always posting articles about concepts and issues involved with running a business. Be sure to check out the complete list of these articles!
Complex Real Estate Market Leads to Increase in Legal Disputes
Legal disputes stemming from residential real estate transactions are on the rise, largely due to the increase in short sales and foreclosures. In regards to short sales, some sellers are taking legal action against their own real estate agents, alleging that they misrepresented or failed to disclose the possible loan deficiency amount owed to a lender (usually a “2nd”) and/or tax obligations.
Other homeowners are alleging wrongdoing on the part of banks, who may have taken shortcuts on foreclosure proceedings. Further, there are stirrings of class action lawsuits brought by groups of borrowers/homeowners against banks in different state.
With today’s real estate market, challenging legal issues are popping up everywhere. Now, more than ever, it is important to be a legally-informed buyer, seller, or real estate agent.
For more information regarding real estate law, please contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.
Griswold Law has posted several other articles regarding foreclosure law. Be sure to check out the complete list of these articles!
Tricks of the Trade, Part 2: Trade Secrets and Inevitable Disclosure in California
A few weeks ago, we posted an article geared towards entrepreneurs who are striking it out on their own with a new business venture. We provided some tips on how to make sure you leave behind all files and documents that your former employer might classify as “trade secrets” to avoid misappropriation allegations, but closed the article by acknowledging the impossibility of leaving a workplace with a spotless mind. Let’s discuss a few of these “intangible” types of trade secrets that might seem impossible to physically leave behind.
Even if you have knowledge of trade secrets, you cannot use them, particularly if you’ve signed a confidentiality agreement. You might have personal relationships with your former employer’s clients, but if you “steal” the clients, you may face litigation from your former employer. Certain production techniques or formulas might be considered trade secrets, and you may have committed these to memory from performing repetitive job duties. An example of this might be memorizing the ingredients and formulation technique for a bottled beverage that you mixed every day. Again, you can’t “unlearn” something, but if you reproduce the formula for the bottled beverage and begin selling it on your own, claiming it’s a new product, your old employer will likely slap you with a lawsuit. Bottom line – don’t use any proprietary information from your former employer, even if you are aware of how to use it. If you’re not sure what constitutes proprietary information or a “trade secret,” check out this article (link to our article).
Employers have waged trade secret misappropriation lawsuits against their former employees who haven’t actually disclosed any information, citing the “inevitable disclosure doctrine.” The inevitable disclosure doctrine assumes that if an employee works for one company and acquires trade secrets, and then goes on to work at a similar job for a competitor company, the employee will eventually “inevitably” disclose the trade secrets in the course of carrying out job duties at the new place of employment. In the past, this doctrine was used to prevent employees from working for competitor companies, even if they hadn’t actually disclosed any trade secrets, merely because the doctrine assumes they will at some point in the future (a little like fortune telling, no?). More recently in California, courts have rejected this “inevitable disclosure” doctrine. In the 2002 case, Schlage Lock Company v. Whyte , the California Court of Appeal said that they “hold this doctrine is contrary to California law and policy because it creates an after-the-fact covenant not to compete restricting employee mobility.” This is good news for employees in the state of California.
For more information regarding starting your own business, please contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.
Want to read more about trade secrets? Check out Part 1 of this article, our article discussing the definition of “trade secrets,” and our article discussing the definition of “misappropriation.” You can always find a complete list of trade secret articles here.
Tips for Entrepreneurs: Hiring Employees in California
Congratulations! Your business is expanding, work is pouring in and you think it’s time to hire someone to help you handle it all. When it’s time to hire your first employee, it’s important to do everything “by the book” instead of “under the table.” Here’s a quick list of some of the important considerations and requirements for hiring employees:
1. Paying the STATE taxes and registering with the California Employment Development Department (EDD). This will assign you an EDD employer account number, also called a State Employer Identification Number (SEIN). You’ll start filling out forms and filing returns that report all employees, paying state payroll taxes, and reporting total wages paid and taxes due for each quarter. Each form and tax has its own due dates and deadlines. It is the employer’s responsibility to report all wages paid to employees, and then pay all applicable taxes on the employee’s wages. Detailed info can be found here.
2. Paying the FEDERAL taxes. You will fill out paperwork and get assigned an Employer Identification Number (EIN). Similarly to the state taxes, the IRS will require you to report all employees and wages paid, and then pay taxes accordingly. You must issue W-2’s to all employees, which they will use when they report their income to the IRS. The IRS has detailed info for small business owners here.
3. Classifying your employees. People who you pay compensation to may be classified as “independent contractors” or “employees,” and employees may further be categorized as “exempt” or “non-exempt.” Each of these classifications has different tax ramifications for the employee and the employer, so it’s important to educate yourself. The classifications also correspond to different requirements for paying wages and overtime. We’ve written about misclassification here, but more detailed information can be found here.
4. Paying your employees and supervising hours worked. There are both state and federal minimum wage requirements which must be observed. Moreover, there are requirements about overtime and break periods. More details on these major federal laws can be found here.
5. Obtaining Workers’ Compensation Insurance. In California, even if you only have one employee, you are required to obtain workers’ compensation insurance. This type of coverage protects both employees and employers. If the employee gets an on-the-job injury or illness, he or she receives medical treatment and benefits and the employer receives protection from a lawsuit over those illnesses and injuries. Read more information on workers’ compensation here.
6. Considering confidentiality agreements. If your employee is granted access to any confidential material or “trade secrets,” it would be wise to have them sign a confidentiality agreement upon hiring. We’ve written extensively on this topic on the blog- be sure to check out this article on confidentiality agreements and this article on trade secrets.
For more information regarding starting your own business, please contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.
Griswold Law is always posting articles about concepts and issues involved with running a business. Be sure to check out the complete list of these articles!
Mortgage Defaults in San Diego County increase by 34% in April
As the real estate market continues on its rollercoaster, the number of mortgage defaults in San Diego County spiked by 34% in March. The San Diego Union-Tribune is reporting that this is the largest monthly increase for San Diego County in two years.
The number of foreclosures in the county also increased by 17% in March.
As explained in the article, this spike may be caused by banks reloading their efforts to act on defaulting properties, getting past the “robo-signing” fiasco, and/or the likelihood that many area borrowers are suffering from adjustable rate mortgages that are skyrocketing in their fifth or seventh year.
Security Deposits, Part IV – Options if the landlord refuses to return the deposit
Our final blog post in the series on security deposits will discuss a tenant’s options if he or she feels their landlord is wrongfully deducting or withholding the security deposit after move-out.
The landlord is required to provide the refund of the deposit (if any amount of the deposit was not used in restoring the property) and provide an accounting for how the deposit money was spent within 21 days of the tenant’s move-out. The tenant should contact the landlord if 21 days have passed since move-out and the tenant hasn’t received any money and hasn’t heard from the landlord. Another common situation arises when the tenant does receive money and/or accounting within the 21 day period, but feels that the landlord is wrongfully keeping either a portion or the full amount of the security deposit.
The first step would be for the tenant to contact the landlord to ask for a refund of the security deposit. If the landlord did not provide the tenant with an itemized statement outlining what the deducted amount was used for specifically, then the tenant should request one (this is required by law as discussed in this article). The landlord also must provide receipts that back up the itemized statement. Without looking over the accounting, it will be impossible for the tenant to decide whether the security deposit deduction was fair and lawful.
If the landlord is uncooperative or the tenant does not believe the landlord deducted the money from the security deposit for any of the lawful reasons (discussed in this article), then an option would be taking the landlord to small claims court to ask the Court to order the landlord to refund all or a portion of the security deposit. In small claims court, the tenant can ask for up to $7,500.00. If the tenant is asking for more than $7,500, the tenant would have to file a civil lawsuit. In either a small claims suit or a civil suit, the outcome is unpredictable. To win a case against a landlord, the tenant must convince the judge using facts and records. Any court case is difficult and abiding by all the specific rules can be confusing. Using the tips posted in the previous articles about security deposits, like requesting an initial walk-through inspection prior to move-out, can steer tenants away from situations like this.
It is recommended you consult with a real estate attorney about your landlord-tenant concerns and inquiries. For more information, please contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.
Be sure to check out the Griswold Law Blog’s complete list of articles of concern for tenants here.
Types of California Business Partnerships– General Partnerships, Limited Partnerships & Limited Liability Partnerships
In California, a business partnership can be created by a formal written contract filed in state records, or by something as simple as an oral agreement. The different types of partnerships have different requirements.
A general partnership is the easiest partnership to form since you are not required to register this type of partnership at the state level. The partnership could simply be based on an oral agreement. In California, this type of partnership means that two or more people are engaged in a business for profit. Except as otherwise provided by law or a written partnership agreement, all partners are liable jointly and severally for all obligations of the partnership. Profits are taxed as personal income for the partners. A general partnership can be registered with the Secretary of State, but this is optional.
A limited partnership may provide limited liability for some partners. There must be at least one general partner that acts as the controlling partner. The other, limited partner(s)’ liability is limited in concern to the amount of control or participation in the partnership. Therefore, the general partners have unlimited personal liability for the partnership’s debts and obligation. To form an LP, a Certificate of Limited Partnership (Form LP-1) must be filed with the California Secretary of State.
A limited liability partnership is a partnership in which all the partners receive limited liability protection. Unlike a limited partnership, each partner can actively control and participate in the partnership. In California, this type of partnership is only permitted for persons licensed to practice and conduct business in public accountancy, law, or architecture. An LLP is required to maintain certain levels of insurance as required by law. To register an LLP, an Application to Register a Limited Liability Partnership (Form LLP-1) must be filed with the California Secretary of State. LLP’s also are required to follow specific tax rules, such as issuing and reporting Schedule K-1 forms to the IRS and paying an annual LLP tax.
For more information regarding starting your own business, please contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.
Griswold Law is always posting articles about concepts and issues involved with running a business. Be sure to check out the complete list of these articles!
Trademark Protection for the Entrepreneur
A trademark is a word, phrase, symbol, or design, or a combination thereof, that identifies and distinguishes the source of the goods of one party from those of others. A service mark is basically the same thing, except it distinguishes the services provided by one party rather than physical goods. Trademarks protect what we typically think of as brand names or logos.
The United State Patents and Trademark Office handles the registration of trademarks. It is not required to register a trademark with the USPTO and you may be able to establish ownership rights simply based on using a trademark on products and services in the market. However, officially registering your trademark certainly affords a business owner with a level of legal protection and presumption of ownership of the mark. For business owners, registering a trademark can be one of the most important branding decisions you will make. A trademark will represent your company’s image and serve as a symbol to the public. If you are running a business that provides quality products or services, you will want to use your trademark as a “stamp of approval” by your business on everything you put out into the market.
In the legal world, it’s commonly said that a trademark is only as good as your protection of it. This refers to, among other things, monitoring your industry, issuing cease and desist letters, filing trademark oppositions and/or litigation in the defense of your trademark. It is often difficult for trademark registrants to understand that it is not the USPTO’s responsibility to enforce trademark rights or bring legal action against infringers. It is the trademark owner’s responsibility alone to protect their trademark and ensure that no one else is using it, or attempting to trademark something “confusingly similar.” When a trademark holder finds someone who is infringing on their trademark rights, they have several options. The first step might be a “cease and desist” letter which demands the infringer stops using the trademark. If the infringer is attempting to register the potentially infringing trademark with the USPTO, an “opposition” can be filed with the USPTO. In some cases, a trademark holder may file a lawsuit for trademark infringement.
For more information regarding starting your own business, please contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.
Be sure to check out the complete list of articles involving trademark law!
Tricks of the Trade, Part 1: Avoiding Trade Secret Misappropriation Allegations
Chances are, if you are starting your own company, you aren’t going to be a newcomer to whichever industry category your new business falls within. After years of managing hotels, you found the perfect location to convert into your own bed and breakfast. After working as a mechanic at a dealership for a decade, you decide to go independent and open your own auto repair shop. After cooking in the kitchens of several well-known franchises, you are starting your own restaurant. But are you essentially stealing the “tricks of the trade” you may have picked up at your last place of employment when you open up your own shop?
You may or may not have signed a confidentiality or non-compete agreement with your former employer. We’ve written about the lack of enforceability of non-compete agreements in California before, but a signed confidentiality agreement could be used as evidence in a breach of contract lawsuit. A confidentiality agreement can show that an employer is taking “reasonable measures” to protect certain information, and this is a requirement of proving that the information is considered confidential and/or a “trade secret.” By signing the confidentiality agreement, the employee is acknowledging that they are privy to this “secret” material that belongs to the employer. Naturally, a new business owner must be aware of the potential risks that come along with becoming a competitor to a former employer.
Rising use of technology in the workplace has also given way to many employers accusing former employees of stealing code or software. A highly publicized case in which Goldman Sachs alleged former employee and programmer Sergey Aleynikov stole the firm’s trading system source code recently concluded with the U.S. District Court sentencing Aleynikov to 97 months in prison. Prosecutors were able to prove Aleynikov uploaded Sach’s proprietary information to a server in Germany, despite Aleynikov’s attempts to compress and encrypt the code. Clearly, not having a “paper trail” is not enough to protect employees who steal electronic information.
I know what you’re thinking. Sure, I can leave all my old solicitation letters, budget spreadsheets and Outlook contacts in my cubicle when I leave my job, but how can I erase my memory? We will be discussing this in a second blog post on this topic- look out for the article in the coming weeks!
For more information regarding starting your own business, please contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.
Griswold Law is always posting articles about concepts and issues involved with running a business. Be sure to check out the complete list of these articles!
Tips for Entrepreneurs: Various Insurance Options available to Businesses
Auto insurance, homeowner’s insurance, health insurance…you probably are a policyholder for at least one of these common types of coverage. Just as individuals can insure their cars, homes and good health, business owners have the option (and in some cases, requirement) to insure different aspects of their business.
In this article, we will discuss the most common coverage options out there for business owners. This article is not meant to be an exhaustive list of options. The only way to get that exhaustive list of options is by contacting a licensed insurance broker, which is my first suggestion for a new business owner. Developing a relationship with an insurance broker can be a very good idea, particularly if your business rapidly expands and you need to broaden your coverage. The broker’s insurance license should be verified with the California Department of Insurance, and you’ll probably want to work with a broker who specializes in commercial insurance. An experienced insurance broker will be able to guide you to the coverage options your business should consider, since it significantly depends on the type of business you own.
Professional liability insurance protects policyholders against claims arising from negligent professional services. This type of insurance is commonly obtained by business owners in the engineering, architecture, accounting, legal and medical fields. In reference to specific industries, this type of insurance is often called different names. For example, in the medical industry, this type of coverage is referred to as “malpractice” coverage, and for an accountant it might be called “errors & omissions” coverage.
Commercial Property insurance can protect business owners from property damage. The term “property insurance” includes many lines of available insurance. While coverage options differ from plan to plan, this can include protection of stolen and damaged property and goods, as well as property and goods destroyed by natural disasters like floods.
Commercial Automobile insurance can protect businesses from liability related to vehicles used in your business or any damage to the covered vehicles. This type of insurance should be considered by any employer who plans on purchasing and/or utilizing a company vehicle.
Workers Compensation insurance protects employers and employees. Every employer in the state of California is required under California Labor Code Section 3700 to provide workers compensation benefits for its employees. If an employee suffers a work-related injury or illness, this type of insurance will provide specific benefits to the injured employee.
As a closing note, I want to point out that whether or not a specific loss or claim will be covered depends entirely upon the facts of the specific claim AND how these facts apply to the policy language, exclusions, and endorsements of your specific insurance plan. Further, there are several other types and variations of insurance policies not addressed above.
For more information regarding starting your own business, please contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.
Griswold Law is always posting articles about concepts and issues involved with running a business. Be sure to check out the complete list of these articles!