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Why Might a Business Incorporate in Delaware Instead of California?

Classified Board of Directors

Many of the largest public companies in the world are incorporated in Delaware. California business owners ask me whether they should incorporate in Delaware when choosing a state of incorporation for a business about to go public. This post will examine some of the key differences between incorporation and corporate governance laws in California and Delaware.

Under Delaware law, corporations are permitted to have a classified board of directors, with each class having a term of longer than one year. Whereas, a non-public California corporation requires annual election of its board of directors.

Cumulative Voting for Directors

Delaware law permits cumulative voting for directors, so long as this provision is included in the company’s certificate of incorporation and/or its bylaws. California law is more expansive with respect to cumulative voting. By default, cumulative voting is available to shareholder elections of directors and it need not be specified in the articles of incorporation or bylaws. Cumulative voting is considered a statutory right for shareholders of non-publicly traded corporations, unless specifically excluded in the company’s articles of incorporation and/or its bylaws.

The Right of Stockholders to Call Special Meetings of Stockholders

Stockholders are only permitted to call special meetings if the company’s certificate of incorporation or bylaws authorizes it under Delaware law. In California, on the other hand, not only may a special meeting of shareholders be called by the holders of 10% or more of the voting stock of the corporation, but this right may not be waived by the shareholders in the company’s certificate of incorporation or bylaws.

Insulation of Directors

California permits unlimited monetary liability for directors upon a finding of breach of fiduciary duty. Delaware law provides a complete shield to directors from monetary liability for breach of fiduciary duty except in circumstances in which a stockholder can demonstrate a breach of the duty of loyalty, a failure to act in good faith, intentional misconduct, or a knowing violation of law, among other violations.

Predictability Surrounding Corporate Outcomes

In Delaware, both the legislature and the courts work in concert to act quickly and effectively to meet changing business needs. Corporation law in Delaware is one of the most extensive and well-defined bodies of corporate law in the United States. The Delaware Court of Chancery is renowned for its sole focus on business and corporate law, no backlog, and a knowledgeable bench in resolving complex corporate issues.

If you are starting a business in California, or own an existing business in the East Bay Area including Fremont, Newark, Hayward, East Bay Milpitas, Union City, San Leandro, Gilroy, San Jose, or Santa Clara and you are seeking to explore incorporating in California or Delaware, you will need to ensure that the right steps are taken for incorporation. Seek legal advice and counsel from a knowledgeable California business lawyer today, call us at 510-794-9290.

board of directors, business entity, business incorporation, startups, stockholders

Three Things You Must Know When Starting a Home Health Agency

Home health agencies have revolutionized elder care options, permitting many older adults to live in their own homes longer than before. These agencies are responsible for placing health care professionals – registered nurses, nursing assistants, physical therapists, or home care aides – in the patient’s home to provide primary care, medical treatment, and assist with day-to-day living activities so that the patient may remain in his or her home.

If you are interested in starting your own health care agency, you will need to master the following three topics to successfully grow your business and meet market demands:

Regulations that apply to home health agencies
The importance of providing employee training, and
The labor laws that apply to the home health care industry.

Know the Regulations That Apply to Home Health Agencies

The federal government and the state of California heavily regulate the home health agency field. There are different laws that apply when hiring a home health care worker directly than when hiring a health care worker through an agency. Additionally, you must have a license to operate a home health agency before you start operating your business.

Copying information from another home health agency to create your compliance documents may not be sufficient. The information may not apply in California, may be outdated, or may never have been correct. It is important to consult with a business lawyer who is knowledgeable about the legal needs of a home health agency and can help you comply with all legal requirements, including record keeping, on-going legal requirements, and compliance with HIPAA.

One of the costliest problems is that if the home health agency collects Medicare, their rules regarding what protocol must be followed and required documentation must be kept in compliance. Medicare performs audits routinely and then charges back the agency many thousands of dollars if records are not in compliance.

Develop and Train Your Team of Employees

It is important for your employees to be fully trained to perform their tasks and to understand what documents need completing and maintaining when providing care for an individual in his or her home. You must provide training that demonstrates how to properly complete these documents and why their inclusion in the patient’s care plan is necessary. Other topics that you should cover in training include HIPAA compliance and labor law compliance.

Know Applicable Labor Laws

Owners of home health agencies must know the labor laws that apply to their workforce. Your payroll department must understand when to pay overtime, the rest and meal break laws, the difference between independent contractors and employees, and what labor records to keep.

If you are an entrepreneur planning to start a home health agency or already running one in the East Bay Area including the communities of Fremont, Hayward, Union City, Milpitas, or Newark, California, seek legal advice and counsel of a business lawyer today.

Business Startup, HIPAA, home health agency, labor laws

The Business Activities Without Corporate Protection

Back to the Basics: Understanding Limits on Corporate Protection

Protecting personal assets from liability for business activities that produce a loss, debt, or liability is one of the chief drivers motivating business owners to establish a corporation, limited liability company, or limited partnership when they set-up their new business. For the most part, in California, once you form one of these entities, your personal assets (such as your home, automobile, and savings) are protected from the reach of creditors of losses, debts, or liabilities, incurred by the business.

There is no corporate protection, however, for debts and liabilities of a business if:

The corporation was not formed correctly; and/or
The corporation does not operate as a corporation.

Even if your corporation was formed correctly and operates as a California corporation, personal liability for the corporation’s debts and liabilities may flow to you personally if you are an officer, director, and sometimes shareholder of the corporation.

California does not provide corporate protection to directors, officers, and shareholders when:

Wages owed to employees: If the corporation is unable to pay employee wages, the officers and directors of the corporation are personally liable during the time that they are directors and officers for those unpaid wages. California holds officers and directors to a higher standard as fiduciaries of the corporation. A fiduciary in these cases is one who is legally obligated to act in the best interest of the corporation (as opposed to themselves). As fiduciaries, the officers and directors should have made provisions to pay employee wages first. If they failed to do so, they can be held personally liable for the employee wages. This also includes the wages of independent contractors, who are wrongly classified as independent contractors, when they are actually employees.
When officers and directors have extended personal credit: Officers and directors of corporations will remain personally liable on corporate debts and liabilities if they extend their personal credit in two types of situations:
- First, granting a personal guaranty on a corporate debt, usually done for commercial leases and bank loans, makes one personally liable for the corporate debt in the event the corporation cannot meet the repayment terms.
- Second, when the corporation operates initially as a partnership or sole proprietorship, and it is then incorporated. If personal credit was utilized to obtain credit for the business in the past, it will remain after a change in status. Even though vendors are informed of the new corporate structure, and they change the name on the account to the corporation, personal liability holds.

Seek Legal Advice From a California Business Lawyer

There are ways to minimize your personal liability when forming a California corporation. Limited liability company, or limited partnership. A California attorney can assist you in reducing your personal liability by forming a corporation correctly and advising you on the proper way to operate the corporation. A California lawyer can also assist you in minimizing or eliminating your personal liability on vendor accounts once incorporated, and not incurring personal liability for future corporate debts.

If you are interested in forming a corporation or converting an existing partnership, sole proprietorship into a corporation, in the East Bay Area including the communities of Fremont, Hayward, Union City, Milpitas, or Newark, California, seek legal advice and counsel of a California business lawyer today.

california corporation, corporate protection, liabilities, officer, shareholder

Buying a California Business

Get Advice from an Experienced Business Lawyer

Buying an existing company is a great way to enter the market with an established customer base. You can obtain financing more easily, benefit operationally from existing systems and processes, and rely on the deep knowledge base of established employees. It may also be less risky than starting a business from scratch.

However, the risks of liability in purchasing a business are great. When you purchase all or substantially all the assets of a business OR you purchase the business as a whole, the liability of the business flows through to you. Some risks can be mitigated by a corporate shield, but some cannot, and you will find that you are personally liable for any wages and taxes that were not paid by the prior business (even if you did not know about them).

If you are looking at buying a business, the first thing you need to do is evaluate the business as a whole and make a list of pros and cons. This also means digging deep into the company’s financials.

Regardless of the price you are paying for a business, there are three things you should do when evaluating a business for purchase:

Hire an attorney. A California business lawyer can help you draft the purchase agreement to expand your rights during the due diligence process. A good purchase agreement incorporates the right to walk away if you don’t like what you find during the due diligence period and get your money back if you discover that the company’s financials or business operations are problematic.
Always have a business escrow. Including a business escrow in a purchase agreement, where the contract is provided to the escrow company, will help you minimize unknown risks when purchasing an established business. It means that all money is deposited into the escrow company and all debts of the business are paid through the escrow company so that when you close the business purchase, you will receive the business and its assets free of unknown liabilities.
Never waive the bulk sale requirement. Sending bulk sale notices to all creditors including the taxing authorities, that the business assets are transferring, limits the time for creditors to put forth a claim. In an Asset Purchase Agreement, known and unknown liabilities do not transfer to the buyer, if noticed through a bulk sales notice. However, in a business purchase, the business would remain liable for any debts owed by the business post sale.

If you are buying a business in the East Bay Area including Fremont, Hayward, Union City, Milpitas, or Newark, California, protect yourself. Seek legal advice from an experienced business lawyer today.

assets, business, purchasing a business

Incorporating in Another State Might Be Good Business Planning

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Business Formation & Planning on Friday, April 28, 2017.

Many California residents are currently developing goals for various types of business endeavors. This type of business planning typically involves many challenges and important decisions, such as whether to incorporate a company. Recent news suggests one state may be better than others when incorporating a business.

When business planning, it’s crucial to remember that it’s not necessary to incorporate a business in one’s home state. Incorporation can take place in another state where a business does not have an actual physical location. It is often necessary, however, to choose a Registered Agent in the incorporating state to receive notices from that jurisdiction’s Secretary of State regarding one’s business.

At the top of the list for best states in which to incorporate a business is Delaware. Obviously far from California’s west coast, many successful businesses choose Delaware as their corporate home. Delaware business owners are shielded from personal liability in certain business situations, which may have something to do with it ranking number one in at least eight different studies regarding best legal systems in the nation conducted by the U.S. Chamber of Commerce.

Many affluent business owners say another main benefit of incorporating in the small state of Delaware is that the process of incorporation there is highly affordable. An annual LLC fee is only $300 regardless of company size or capital. An experienced business planning attorney can provide sound counsel and clarification of all laws pertaining to incorporating in a state, whether in California or a jurisdiction outside a business owner’s home residence.

Business Formation & Planning, incorporation

Business Planning Tips for California Entrepreneurs

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporationposted in Business Formation & Planning on Thursday, July 14, 2016.

Plunging ahead to launch a new business in California may be a great lifetime adventure. Prospective entrepreneurs often face many challenges during business planning stages, however. In such circumstances, it is advisable to seek immediate and experienced guidance to increase one’s chances of achieving business success.

New business owners must make all types of decisions, ranging from whether they will create and sell hard-copy products or provide a service to the public. Once a business type is chosen, it is common for budding entrepreneurs to choose names for their new companies. Those pursuing business planning options are advised to seek clarification on trademark and copyright laws before staking claim to a specific title or name.

Whether one will function as a sole proprietor or enter a partnership is another crucial choice that may affect one’s business future. There are many valid reasons for choosing either style. An experienced attorney would be able to offer counsel as to the benefits and potential downfalls of each, then help determine what may be best suited to one’s particular interests.

Many California business owners choose to register trademarks. Also, some states require a new business owner to file a DBA (Doing Business As) to conduct business under a certain name or brand, especially if business and company names differ. Obstacles and challenges may arise when making decisions about company basics and preparing to launch start-ups. By asking a business and commercial law attorney for help, entrepreneurs may avoid delays, and move forward toward accomplishing their bottom line goals.

Source: rocketlawyer.com, “How to Start a Business“, Accessed on July 13, 2016

Business Formation & Planning, business tips, entrepreneurs, starting a business in california

Getting Off to the Right Start Involves Good Business Planning

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporationposted in Business Formation & Planning on Tuesday, May 17, 2016.

Throughout California, there are currently many prospective business owners who may be wondering what the best course of action might be to get their companies off to the right start. Future business success often hinges on good business planning. Regardless of the type of business being launched, an ability to flourish often depends on a plan that was well laid out in the first place.

The Law Office of Lynnette Ariathurai, A Professional Corporation, provides sound legal counsel in all stages of business formation and start-up. Our experienced legal team is prepared to guide you through any potential legal challenges that may arise during the process. By acting alongside effective representation from the beginning, your chances for future business success may be increased.

Every company owner’s business vision is different. Depending on your particular plan, there may be personal liability factors, tax issues and a number of other important matters that may significantly impact your immediate and long-term goals. Our attorneys can offer clarification of the laws that govern California business and provide valuable insight as to what options may be available to help you maximize your chances for success.

Whether you are entering a sole proprietorship or partnership, we can explain the potential advantages and disadvantages of each from a legal perspective. By helping to protect your business interests now and in the future, The Law Office of Lynnette Ariathurai, A Professional Corporation, can help you reach your full potential as a California business owner.

If you have questions regarding good business planning, or are facing legal challenges during any phase of your business venture, you may call our office to schedule a meeting to discuss the situation with an experienced business and commercial law attorney. We work with businesses throughout the Fremont / East Bay area including Hayward, Union City, Castro Valley, Milpitas and Newark, CA.

Business Formation & Planning, business plans, starting a business in california

Common – And Critical – Errors That Can Sink A Business

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Business Formation & Planning on Wednesday, May 11, 2016.

Eager to follow their dream and make a profit off a great idea or their passion, many business owners make critical mistakes during the formation period. Some mistakes cause problems that can be corrected later – but far too many cause problems that can stunt or sink a business. It is critical that you have skilled legal guidance on your side as you establish a business to avoid common pitfalls and errors.

Here are a few of the most common small business formation mistakes:

Assuming they need an LLC – Most people have heard of an LLC and therefore automatically assume that it is the entity type they need legally protect their business. There are a broad range of types of business entities, however, and each accomplishes something unique. Sometimes an LLC is not the correct fit for a business and creating an LLC could leave the business – and its owners – exposed to risk. It could also severely inhibit growth of the company later down the road.

Assuming template forms and contracts are good enough – Many people simply download boiler-plate agreements and contracts online and then fill in the blanks. In a lot of cases, business owners do not even read these agreements and have no idea what kind of exposure they leave the business open to. Work with an attorney to create contracts and agreements that protect your company and meet its growth needs.

Assuming they can have an “understanding” with partners and shareholders – Many people go into business with friends, family and colleagues with whom they already have a great relationship. They neglect to write agreements to formalize the business relationship, including obligations, percentage ownership and entitlements. You can count on disputes arising at some point in the life of the business. If those disputes are severe enough, your lack of an agreement could cost you or your partner an entire ownership share of the company and all the hard work and resources that have been invested.

Assuming no one will steal their idea – The greatest asset a small business has is its idea. Whether that is the concept to sell purple popsicles from a food truck to the next great innovation in technology, someone will try to duplicate what you are doing. It is critical that you work with an intellectual property attorney to develop safeguards, patents, licenses and trademarks that will protect your idea and the ability of your company to extract return from that idea.

The Law Office of Lynnette Ariathurai partners with business owners and entrepreneurs to build a solid legal foundation that will facilitate growth, both in the early stages and throughout the life of the company. Investing the time into doing it right up front will pay in dividends later.

Business Formation & Planning, Contracts, entrepreneurs, managing partners, trade secrets

Proper Business Planning May Bring Quicker Success

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporationposted in Business Formation & Planning on Thursday, February 4, 2016.

In 1988, two California brothers took a road trip to get inspiration for what to do with their lives. This trip led to them starting an enterprise selling T-shirts. It is not uncommon for young people to start off their careers buying and selling merchandise, but in many cases, no business planning is involved at the onset. The two young men, ages 20 and 23, started with limited funds and purchased a van to travel to different college campuses to sell their merchandise. They say that they failed a thousand times and struggled to make enough money to support themselves from month to month.

Their persistence helped them to persevere until 1994, when, with only $78 in their business account, they came up with the idea to print a positive message on their T-shirts. Their Life is Good line of merchandise was launched, and they say that was the start of their success. They continued their marketing from the van, but the results were disappointing. This was until a small shop bought 24 T-shirts, and sold them all within 14 days. Their sales totaled $87,000 by the end of that year.

They hired their first employee the next year and sold $262,000 in merchandise by the end of that year. They also moved their office from the van to an old shipping container in 1997 and recorded $1 million in sales at the end of that year. Through continued success, Life is Good now has an extensive range of merchandise that is available in 4,500 stores. They have approximately 160 employees, and their sales turnover has reached $100 million. The brothers donate 10 percent of the company’s annual profits to charities that help improve the lives of children.

Although these California brothers have built a successful business over about 28 years, only their determination carried them through the first nine years until their sales reached $1 million. The valuable advice of an experienced business attorney may help to get new enterprises on the track to success much quicker through effective business planning. Building such a relationship with a lawyer from the start may avoid many of the pitfalls that may be encountered as the business grows even more successful.

Source: businessinsider.com, “The fascinating story of how 2 brothers went from running a failing business out of a van to building a $100 million company“, Natalie Walters, Feb. 3, 2016

business attorney, Business Formation & Planning, life is good, sales growth

Legal Guidance in Business Startups May Lead to Future Profits

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Business Formation & Planning on Friday, January 22, 2016.

Starting up a new business in California is an exciting time for any entrepreneur. It is not uncommon for excitement about potential success to prevent new business owners from considering the legal aspects of a business startup. One of the first decisions to make involves the type of business entity that will be formed. Will it be a sole proprietorship or a partnership? There are advantages and disadvantages presented by both.

Choosing a business partner is a process that requires careful consideration. It has been suggested that disputes between business partners are one of the most regularly cited reasons for new businesses to fall apart. A partner in a well-known and successful consumer company said business partners must be able to work together on multiple levels of business, and mutual trust is vital. He also said he would not recommend starting a business with someone who you would not trust to access your bank account.

In any successful business partnership, there will be the need to have someone to consult when legal issues arise. When important decisions have to be made that will not only impact on the new business but also on the business’s long-term success, the advice and guidance of an experienced business law attorney can be beneficial. A lawyer who is prepared to become familiar with the business and its operations can provide valuable input in any circumstances.

A California attorney can provide guidance and support for the idea of a business startup and all the choices that need to be made early in the process through the ultimate decisions concerning the corporate form that will be best for the company. Along with other legal matters, a lawyer will explain responsibilities regarding personal liability and other factors. such as tax considerations. Knowing that the legal side of the business is properly covered by an experienced attorney can leave a sole proprietor or business partners to look after the daily operations that will provide the profits.

Source: entrepreneur.com, “Before Starting a Company With a Partner, Ask Yourself This Question“, Laura Entis, Jan. 20, 2016

Business Formation & Planning, business partners, business planning, startups