Are Class Action Waivers Enforceable in California?

While there is no doubt California courts have openly expressed hostility toward the enforcement of class action waivers, state court and ninth circuit court decisions finding such waivers unenforceable have been consistently reversed on appeal to the United States Supreme Court, where the waivers are contained in an agreement to arbitrate pursuant to the Federal Arbitration Act (“FAA”), which makes agreements to arbitrate “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U. S. C. §2. The natural result of these decisions has been for more businesses and their attorneys to include such waivers as part of an agreement to arbitrate. This article provides a brief history of such rulings and discusses the current state of the law in California with regard to certain class action waivers.

A Brief History of Class Action Waivers

In previous cases, the U.S. Supreme Court ruled that in the event there is a state statute preventing waiver of class action suits, that state statute is superseded by the FAA where the waiver is contained as part of an agreement to arbitrate, thus allowing for enforcement of such class action waivers. In 2011, the Supreme Court expanded its earlier holdings to include not only state statutes which are now superseded, but also generally applied contract doctrines. In AT&T Mobility LLC v. Concepcion,[1] the Court was asked to determine whether the FAA preempts generally held contract doctrines, such as the unconscionability doctrine and California’s policy against exculpation. While acknowledging that the analysis required to reach its conclusion was more complex than in earlier cases, the Supreme Court ultimately found that the waivers were enforceable and instructed litigants to look to the language and history of the FAA, not generally applied state doctrines. Id.

Four years later, the Court returned to the issue in DirecTV Inc. v. Imburgia[2] and thwarted another attempt to evade the mandates of the FAA under the guise of state law contract interpretation. The California Court of Appeals reasoned that “because arbitration agreements containing class-arbitration waivers are unenforceable under California contract law, the entire arbitration agreement is unenforceable according to the express terms of the customer agreement.” Id.  In again reversing the lower court, the Supreme Court opined that, absent any federal statute to the contrary, bilateral arbitration clauses with express class action waivers will be enforced. Id. While the majority opinion assumed the California court correctly applied state law in interpreting the agreement, its decision was based on its finding that the California court’s interpretation of the agreement discriminated against arbitration clauses in violation of the FAA. Id.
A New Circuit Split

Since the Supreme Court’s Imburgia decision, there has developed a split in authority among the federal courts of appeals concerning the enforceability of employment arbitration agreements containing class action waivers. Not surprisingly, the Ninth Circuit has sided with employees and held that certain sections of the National Labor Relations Act (“NLRA”), providing for and protecting collective action by employees, render such waivers unenforceable under the FAA. So comes the argument that there is a federal statute which is contrary to the precepts of the FAA.

As sometimes occurs where opinions diverge between the federal circuit courts, the U.S. Supreme Court has agreed to hear three cases involving the enforceability of class action waivers on a consolidated basis.[3] Two of the three cases come to the Court following decisions by the federal circuit courts that the waivers are not enforceable, while the third comes out of a decision finding such waivers are indeed enforceable. While it remains to be seen how the Court will rule, if recent precedent provides instruction, the waivers are likely to be held enforceable since the Court has repeatedly acknowledged that the congressional mandate to enforce arbitration agreements strictly and consistently with their terms is not easily overcome.

Conclusion

There is little doubt that California state courts and the ninth circuit courts will remain hostile toward the enforcement of class action waivers not contained in an arbitration provision. However, because the FAA is a federal law which favors strict enforcement of arbitration agreements across the nation, every court in the United States is bound by well-settled law as decided by the U.S. Supreme Court. Therefore, arbitration agreements containing bilateral class action waivers will continue to gain increasing favor among business attorneys and others who wish to guard against the proliferation of such lawsuits. While it is important to note that certain state law claims cannot be included as part of a class action waiver, such as claims brought pursuant to California’s Private Attorneys General Act (“PAGA”), since such claims are brought by individuals on behalf of the State of California, which courts have reasoned did not sign an agreement to waive its right to be represented collectively or pursue class action lawsuits, businesses and their lawyers are encouraged to consider including a class action waiver in their arbitration agreements in appropriate circumstances. Even though the enforceability of such provisions may be affected by future Court decisions, given the current state of the law and broad reach of the FAA, as interpreted by the U.S. Supreme Court, such waivers will be found enforceable in a majority of cases.

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If you would like to learn more about class action waivers or other business-related legal issues, contact the knowledgeable business attorneys at Gehres Law Group for your complementary evaluation. We’re here to support California businesses navigate legal complexities so they can grow and thrive in any climate.

[1] AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339-52 (2011).

[2] DIRECTV, Inc. v. Imburgia, — U.S. —, 136 S. Ct. 463, 468-71 (2015).

[3] See Epic Systems Corp. v. Lewis, 823 F.3d 1147 (7th Cir. 2016), cert. granted, No. 16-285 (U.S. Jan. 13, 2017); Ernst & Young LLP et al. v. Stephen Morris et al., 834 F.3d 975 (9th Cir. 2016), cert. granted, No. 16-300 (U.S. Jan. 13, 2017); and NLRB v. Murphy Oil USA Inc., 808 F.3d 1013 (5th Cir. 2015), cert. granted, No. 16-307 (U.S. Jan. 13, 2017).

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HEARSAY – WHAT IT IS AND WHAT IT ISN’T

Introduction

to the other side’s claims (if you are a defendant). How exactly you and your attorney will go about doing so will be governed by the applicable rules of evidence.

The rules of evidence will make presenting your claims or defenses akin to running an obstacle course, since they present a myriad of weapons for the other side to keep out evidence helpful to you. We will discuss one of those obstacles in this and subsequent articles — the hearsay rule.

Definition of Hearsay

What exactly is hearsay? It is generally defined as a statement made out-of-court that is introduced to prove the truth of its contents.[1] Consider this statement: “I saw the defendant run through a red light and hit the plaintiff’s car.” If that statement is made by an eyewitness while testifying under oath in court, it is not hearsay, because it is not an “out-of-court” statement. On the other hand, if you are the plaintiff whose car was hit by the defendant, and a witness at the scene says to you, “I saw him (the defendant) run through a red light and hit your car,” and you seek to testify that you heard the witness say that at the scene, the statement would be hearsay, because it was made “out-of-court.”

One of the reasons for the hearsay rule is that, in the above example, if the witness is not in court to testify, he is not subject to cross-examination by the defendant. The defendant has a right to test the witness’s ability to perceive, his bias or prejudice against the defendant, and any other matter that might cast doubt on the truthfulness or accuracy of the witness’s testimony.

Statements That Are Not Hearsay

Some out-of-court statements, however, are not hearsay, because they are not introduced to prove the truth of their contents. Consider this example: You offer to sell your car to Bob Buyer for $10,000, and Bob Buyer says: “I accept your offer and will pay you $10,000 for your car.” Bob Buyer later reneges on the deal, and you sue him for breach of contract.

You would be permitted to testify that Bob Buyer accepted your offer and agreed to pay you $10,000 for your car. That is because Bob Buyer’s statement, although made out-of-court, would not be offered to prove that he would in fact buy your car. Obviously, he has chosen not to buy your car. Instead, you are offering his agreement to pay you $10,000, because those very words spoken, whether Bob Buyer meant them or not, created a contract. In other words, Bob Buyer’s statement that he would pay you $10,000 for your car had “independent legal significance,” regardless of its truth or non-truth.

Similarly, a defamatory statement (libel for a printed falsehood, or slander for an oral falsehood) would not be offered to prove the truth of its contents. In fact, just the opposite. If someone said, for instance, that you were a criminal or a felon, and that was not true, you could sue the person who said that about you, and introduce the statement in evidence, despite the fact it was made out-of-court. That is because you would not be introducing it to prove that you were in fact a criminal or a felon, but simply to prove that the statement was made.

As your business litigation attorney can advise you, the giving of notice is also admissible in evidence, because it is not offered to prove the truth of its contents. For instance, if parties enter into a three-year contract, but the contract also provides that either party may cancel the contract before its expiration by giving the other side 30 days’ notice, the giving of 30 days’ notice by one party to the other (e.g., “I am canceling this contract effective April 30, 2017”) is not hearsay. As in the Bob Buyer example above, the statement “I am canceling this contract” has “independent legal significance” (i.e., it causes cancellation of the contract effective April 30, 2017), regardless of whether the canceling party meant what he said.

Solicitations similarly do not constitute hearsay. For instance, a newspaper or TV ad which touts the quality, durability or benefits of a product, which the product does not in fact have, would not be hearsay if offered in a lawsuit against the seller for unfair business practices. Again, the plaintiff would not be introducing the solicitation to prove it was true. Indeed, he would be seeking to prove that the statement was not true.

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Even when a statement made out-of-court is offered to prove the truth of its contents, it may be accepted into evidence if it meets one of the many exceptions to the hearsay rule. Look for a discussion of these exceptions in future installments on our blog posts by our AV-rated business and employment litigation attorney, William Tucker.

[1] For the Definition of Hearsay pursuant to the Federal Rules of Evidence, see http://ift.tt/1FMyo9y; For the Definition of Hearsay pursuant to the California Rules of Evidence, see http://ift.tt/2n7zfy5.

 

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Expressing Your Wishes and Mitigating Tensions Through Letters of Intention

The estate planning process can be an overwhelming experience for clients. After all, we are discussing a pretty unpleasant topic (your ultimate demise), and what will happen when you’re gone. It is an inevitable part of life as we know. In some situations, there is a gap between how I, as an estate planning attorney, can draft your estate plan to meet technical and legal nuances, while you, as the Grantor, can actually convey your wishes to the people administering your estate after you’re gone. This is when we have to move beyond the legal structure and into more practical and emotional areas of estate planning.

Letters of Intent

A solution to bridge this gap is actually pretty simple, yet probably underutilized. In appropriate cases, I recommend my clients draft Letters of Intent to go along with the estate planning documents I have drafted for them. In fact, taking this extra step and writing these Letters of Intent for both your Successor Trustee and Beneficiaries, can provide you with peace of mind that your specific wishes are clearly known.

A Letter to Your Successor Trustee

A Letter of Intent to your Successor Trustee (the person who manages your estate after you have passed) can spell out your intentions, including certain goals you want your Successor Trustee to consider, or specific actions you want him or her to take, but which might not be appropriate to include in the meat-and-potatoes of the main Trust document.

For example, many estate planning clients tell me they don’t want their Beneficiaries (usually their children) to get their inheritance unless or until they obtain a 4-year degree from a university. I understand the point- they want their kids to be good, productive citizens, and not “trust fund babies” – but someone can certainly be a good, productive citizen without a 4-year degree from a university.

• Firefighters don’t need degrees.
• Steve Jobs dropped out of college. So did Bill Gates and Michael Dell.
• Some people obtain their 4-year degrees at a Community College, which is not technically a “university”.

If the Trust says your Successor Trustee may not make a distribution until a 4-year degree is obtained from a university, that is exactly what has to happen. You can see why specifying this criterion in the Trust document itself can be problematic. A better solution is to let your Successor Trustee know your ultimate intentions (good, productive citizen) via the Letter of Intent, and then let him or her decide if your Beneficiary meets that standard when the time comes.

In the letter to your Successor Trustee, you can also address your fears or concerns (i.e., a child’s spouse getting their hands on the money you’re leaving to your child or grandchildren), or examples of what you consider an appropriate use of inheritance (i.e., “I would like my children to study abroad or travel frequently with the money I am leaving them.”). Ultimately, the way it works is this: I draft your Trust to leave some discretionary power to your Successor Trustee, and you augment the Trust with a Letter of Intent that provides guidance in his or her exercise of that discretionary power.

Word of Warning: Letters of Intent are not legally binding. This means that your Successor Trustee is free to disregard the letter, and there are no legal repercussions for doing so. This, however, is what makes Letters of Intent such a wonderful tool! Our goal is to provide guidance to the Trustee without tying his or her hands. None of us can predict the future; what you want now may not be advisable or even possible in the future, but guidance provide in a Letter of Intent allows you to make your wishes and preferences know, while at the same time preserving flexibility. A well-written Letter of Intent provides guidance as to what matters to you—so it is important to be clear about what you want and why, what your ultimate goals are for your Beneficiaries, what you are expecting of your Successor Trustee, and provide examples where possible.

A Letter to Your Beneficiaries

In addition to a Letter of Intent to your Successor Trustee, I recommend also drafting letters to each one of your Beneficiaries (the people who will be inheriting from you). These letters are meant to be personal, and should not be shared with the named-beneficiary until after your death. They can be exceptionally useful because it’s you explaining your goals and wishes to them, in your own words, and hopefully with some personal touches included. (In fact, these Letters of Intent often become cherished family mementos; more like a note from mom or dad rather than merely one of the tools in in your estate planning tool-kit).

Moreover, tough language of the Trust can be softened by these Letters, particularly to explain to adult-children why you left their inheritance to be managed by someone else (your Successor Trustee) rather than leaving it to them to handle right away. You can use this Letter of Intent to explain to them the reasons you made the choices you did (i.e., “It’s not that I don’t love and trust you; it’s that I think you are too young to make financial decisions without guidance, and I’d rather you work with a Successor Trustee until you’re 30 years old, and a little more established.”). Another related side-function (and ultimate benefit for your Successor Trustee) is that these letters tend to make the Trustee less of “the bad-cop” when making distributions in accordance with the Trust language (or withholding distributions from adult-beneficiaries), as the letter you have written to the Beneficiary explains your reasons for putting your Successor Trustee in charge, and the criteria you want met before a distribution is made.

Conclusion

Overall, both types of Letters of Intent can be useful, and especially powerful when used together in your estate plan. They allow the Grantor to feel that his or her voice will be heard, and their long-term goals are accurately reflected, while keeping with the technicalities of the law. Once you’ve spent the time creating and executing your estate plan, take it a step farther and draft these Letters of Intent.  Your Beneficiaries and Successor Trustees will be grateful you did.

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Look Before You Leap! Don’t Sue for an Uncollectable Judgment

When a client walks in the door and says “I really don’t care about the money, it’s just the ‘principle’ of the matter,” the wise lawyer may reply: “You shouldn’t sue for ‘principle’, unless it’s ‘principal plus interest’”, i.e. money.

The meaning of this old pun, of course, is that the only satisfaction likely to be gained in litigation is financial satisfaction. You are not likely to make your adversary weep, or leave town, apologize, or reform his cheating ways. But if you have a strong case, a “winning case” where you are likely to prevail at trial and get a judgment, and your adversary has assets against which you can collect a judgment, if and when you win your lawsuit, then you can sue for principle and principal (and interest, and maybe even attorneys’ fees).

The smart client will understand that, unless his or her trial lawyer is willing to take a case on a contingent fee basis, i.e. where the attorney will only collect attorneys’ fees from moneys the client collects from his adversary, the client is the one who is taking the financial risk. Litigation is likely to get very expensive. (If an attorney is willing to take a case on contingency, the client has little to lose by proceeding in litigation, except for time and perhaps out of pocket expenses.) It is a waste of time and money, usually, to sue a deadbeat, or a person with a long line of creditors. On the other hand, if there is an asset you can attach, a lawsuit might be very worthwhile.

Ethically, of course, attorneys are obligated to place the client’s interests first, and not recommend a lawsuit that will earn the lawyer a good fee if it will not likely earn the client a good result as well.  But human nature being what it is, his or her litigation attorney may be tempted by the legal fees.  A client should not be shy about engaging the attorney in a frank and detailed discussion about whether and how a judgment can or might be collected.  This is every bit as important as the discussion concerning the strength of the client’s case, i.e. whether he or she can win at trial and get a judgment.

Pre-Lawsuit Investigation and Analysis of “Collectability”

The question of whether a “winning case” will be “collectable” is often complex, and somewhat speculative, and can involve many issues beyond the primary question of whether the target defendant has money or assets. It may involve a consideration of whether additional defendants might be included, or where the lawsuit should be filed, in State or Federal Court, or what specific claims might be plead to trigger additional remedies for collection, what insurance might exist, etc. It will usually involve some analysis of whether pre-judgment remedies might be available, such as liens, or writs of attachment, to “freeze” assets so that the defendant(s) cannot hide, transfer, or encumber them. It may involve investigation of real estate records, corporate filings with the Secretary of State, Court records of other litigations/judgments, and even credit reports, to locate and identify assets, or competing creditors. The specifics of these considerations and inquiries are too various and complex to discuss in meaningful detail here.  But the point is, an experienced litigation attorney should conduct a pre-lawsuit investigation and analysis of collectability, and discuss it with the client, to agree on a plan of action before filing any lawsuit.

Free Consultations by Experienced Attorneys at Gehres Law Group, P.C.

The experienced business litigation lawyers at Gehres Law Group understand the importance of analyzing collectability at the outset of a case, and advising the client and planning the case accordingly. Our attorneys are available for free consultations to evaluate your case and share with you the wisdom of their experience to help you decide whether you should file a lawsuit. We encourage you to take advantage of our knowledge and decades of experience successfully representing clients in litigation.

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Legal Considerations When Buying a Business: Summary of the M&A Process

Thinking of buying a business? For any arms’ length transaction, it is critical that buyers take certain steps during the purchase process (also referred to as the M&A process) to protect their legal and financial interests. Assuming the buyer has already identified a viable target company to purchase, we summarize here the essential next steps in this M&A process.

Hiring a Valuation Expert and Business Attorney

While each situation varies, often a good first step in buying a business involves hiring professionals to assist the buyer through the purchase process. A valuation expert will typically aid the buyer in assessing whether the target company is a sound investment and determining a reasonable purchase price to begin negotiations with the owner of the target company.

Similarly, a knowledgeable business attorney can work together with the buyer and valuation expert to determine the best approach for opening negotiations with the target company in order to maximize chances to obtain favorable terms for the buyer and, ultimately, a successful outcome. A business attorney will also advise the buyer on legal issues as they may arise during the M&A process and prevent the buyer from falling prey to common pitfalls.

Executing a Non-Disclosure Agreement

Prior to the initiation of negotiations with the target company, it is often wise for the buyer to require execution of a Non-Disclosure Agreement with the seller. The NDA typically prevents either party from using sensitive information about the other, which may be disclosed during the M&A process, to its advantage. This step is especially important if the buyer is a company or individual which owns or possesses confidential information that could harm it if disclosed publically and which may be disclosed during the course of the transaction.

An NDA should clearly describe what type of information is covered by the NDA, how the parties may share and utilize that information through the course of their negotiations, as well as the extent to which their information might be shared with third parties such as valuation experts, accountants, law firms and others who may be involved in the M&A process and beyond.

Should the parties reach a final agreement and execute a purchase or sales agreement, that document will usually include non-disclosure provisions which supersede this initial agreement. However, if negotiations break down and the parties never execute a purchase or sales agreement, the buyer’s confidential information will remain protected by the NDA and provide recourse to the buyer should the seller violate its material terms.

Signing the Term Sheet or Letter of Intent

A term sheet or letter of intent are two types of documents which serve the same central function: they summarize the primary terms of the proposed deal. Depending on a variety of factors, these documents may be quite brief or provide extensive detail concerning the parties’ intentions; they may also be binding or non-binding in nature, or a combination of both. The content of these documents will also vary depending on the type of purchase involved—whether the transaction involves a purchase of the entire company, including its liabilities, or simply its assets.

Learn more about letters of intent from our previous articles: “Letter of Intent: Is it Enforceable?” and “Using a Letter of Intent When Purchasing a Business”.

Performing Due Diligence

The importance of performing appropriate due diligence during the M&A process cannot be overstated—it is the buyers best opportunity to uncover any information that may have an impact on the value of the target company before taking ownership of the company or its assets. During this phase of the deal, the buyer and its accountants are provided access to the seller’s financial statements, employment and corporate records, as well as other information or documentation which may affect the value or viability of the target company. The buyer may also involve their business attorney to engage in independent due diligence tasks, such as performing a UCC search, reviewing company records held by the appropriate secretary of state’s office, securities filings, court records and other available documentation which relates to the target company.

During the due diligence process, the buyer’s business attorney will review records for the purpose of advising the buyer on a variety of legal issues, including an assessment of the potential risk of litigation. At the same time, the valuation expert will typically review the results of the financial record review for the purpose of advising the buyer regarding the continuing viability of the company from a financial perspective as well as fine-tuning the purchase price and other terms of the sale. These professionals will provide the buyer with an opinion, if requested, as to whether it makes sense to proceed with the M&A process from a legal and financial perspective, respectively.

Drafting and Executing the Purchase Agreement

Assuming the buyer has committed to proceed with the M&A process, the parties will negotiate the final terms of the purchase, which will be consummated in a purchase or sales agreement. In addition to a complete description of the assets and liabilities being purchased, the purchase or sales agreement will generally include extensive and concise detail regarding the parties’ rights and responsibilities in relation to the transaction, any warranties by the parties, conditions to closing, the consideration being given for the company or its assets, as well as non-disclosure and non-compete provisions.

Closing

The closing represents a successful conclusion to the entire M&A process. It is the date and time on which the terms set out in the purchase or sales agreement are finalized and ownership of the company/assets passes to the buyer. In some cases, all of the relevant documents will have been executed prior to closing and the consideration promised by the buyer is released to the seller.  Traditionally, however, the closing of a business purchase is very similar to the purchase of real estate in that the parties will meet, along with their respective advisors, and execute the final documents as required by the purchase agreement. Upon execution, certain interests may be perfected through recordation with an appropriate government entity or agency, but the transaction will have concluded and ownership passed to the buyer.

© 2017 Gehres Law Group, P.C. This article is for general information only. The information presented should not be construed to constitute formal legal advice nor the formation of a lawyer/client relationship.

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CONSIDERATIONS IN CHOOSING A TRADEMARK

The process of developing a successful brand for your business can be difficult and overwhelming.  One must consider a variety of factors, including the products or services that will be associated with a specific mark and decide how to effectively market them with a strong, unique brand, such that consumers will develop trust and goodwill in the business. It is usually beneficial tostart by developing a list of potential candidate trademarks, then consider the strength of the marks and the likelihood of registration. In determining registerability, it is helpful to know that trademarks are categorized based on their strength or distinctiveness. In this article, we discussthe various categories of marks available and whether they are registerable. Generally, a strong or distinctive mark is easier to register and to protect from infringers than a descriptive, weaker mark. Descriptive marks are also often more challenging to enforce should someone infringe on the mark.

COINED TRADEMARKS

The strongest trademark is a “coined” or “made-up” word that has no meaning other than as a trademark. For example, VERIZON and KODAK are well-known examples of such marks. While they may be more difficult for consumers to remember at first, since they do not carry any inherent meaning, a trademark owner has a great opportunity to create a positive association between the mark and a product, service, or business. Once this goodwill is established, coined trademarks generally are afforded the broadest scope of protection against infringers.

ARBITRARY TRADEMARKS

Arbitrary marks are comprised of words that have a common meaning but are applied to a product or service that is unrelated to that meaning. For example, APPLE for computers, SHELL for gasoline, and BLACKBERRY for cell phones. Like coined marks, established arbitrary marks are afforded a broad scope of protection against infringers.

SUGGESTIVE TRADEMARKS

Suggestive marks indicate some quality or characteristic of the products or services with which they are associated, but they do not directly describe the product or service. Rather, they require some imagination, thought, or perception for the consumer to reach a conclusion as to the exact nature of the products or services. Examples of suggestive marks are AIRBUS for airplanes, KITCHENAID for kitchen appliances, and SWEETARTS for candy.

DESCRIPTIVE TRADEMARKS

In contrast to the above-described marks, descriptive marks directly identify the nature of the products or services without imagination, thought, or perception. However, it is typically difficult to register and prevent others from using merely descriptive marks because of the competitive need to describe products and services accurately. For example, COLD AND CREAMY as a trademark for ice cream, or merely laudatory terms such as “best” or “quality,” describes attributes of the product and are likely not registerable. However, if consumers learn to identify the mark as being associated with a single source of origin for that product or service as a result of years of exclusive use, that mark acquires secondary meaning, and it may be registered and protected.

GENERIC MARKS

Finally, a generic term is a word or phrase that is the common term associated with a particular category of products or services, and thus cannot function as an indicator of origin. Escalator and cellophane are classic examples of terms that once functioned as trademarks but that, through lack of protection, became generic and now are used as the common names for the products, regardless of their source. Like some descriptive marks, generic terms are not registrable or protectable.

Conclusion

As is highlighted by this article, spending some time and money in choosing and registering the right type of mark for your business can mean the difference between success and failure of a brand.If you have a potential trademark you would like to register, please contact the experienced attorneys at Gehres Law Group to discuss the likelihood of success for registration, or for assistance in choosing a new trademark. We offer a free initial evaluation to new clients.

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Importance of Annual Meetings for California Corporations

Did you know that failing to address your company’s corporate and legal compliance issues can lead to costly and avoidable consequences such as:

-Legal claims by employees, shareholders, vendors or customers

-Personal liability of owners/managers for company obligations

-The potential for a dissolution of your company

-Limited access to new capital or loans

-A negative company image

-Increased costs of doing business

The good news is this:Many legal issues can be addressed at a relatively low cost compared to the expense of facing one or more of these consequences. For example, ensuring your corporation’s annual minutes have been timely prepared and executed typically takes only a few hours of time and goes a long way in avoiding the potential personal liability being asserted against the company’s shareholders in a lawsuit. In other words, being proactive rather than reactive can save a company and its owners big bucks!

For corporations and LLC’s which have formed a board of directors, the burden of complying with the California Corporation’s Code can be minimized through use of written consents. California law permits actions to be taken both by shareholders and directors without a meeting if all appropriate persons consent in writing. A provision allowing for written consents is usually included in the company’s bylaws, as is the date, time and place of annual meetings.

One of the greatest problems owners often have is knowing when action by the shareholders or board of directors is necessary. While a corporation’s bylaws, along with the Corporation’s Code, will define the extent of authority granted to shareholders and board members, generally, any action which is not what lawyers call “in the ordinary course of business” typically requires specific approval by the board of directors. Some actions, such as selling any substantial part of the corporation’s assets, a merger, or an amendment to the articles of incorporation or bylaws usually require the consent of shareholders as well.

“What Constitutes “Not in the Ordinary Course of Business”?

Actions which are generally considered not to be in the ordinary course of business, and therefore require board action, include:

-The purchase by the corporation of expensive items of equipment or of land (unless it is for sale as inventory);

-The issuance of additional shares (which may require registration as well);

-The granting of options to employees to purchase shares (which may also require registration);

-The signing of contacts which will commit the corporation to substantial tasks, which will bind the corporation for a long period of time or which involve high dollar amounts or unusual risks;

-The signing of employment contacts with corporate officers;

-Almost any transaction between the corporation and its shareholders or executive officers; and,

-The borrowing of money by the corporation or the loaning of money by the corporation.

We Can Help!

With more than 80 years of collective experience, the award-winning and AV-rated attorneys at Gehres Law Group, P.C. focus on preventing and solving legal problems before they spiral out of control, saving our clients a great deal of time, distress, and money. We offer clients an extensive and diverse set of skills, with one-on-one attention for each client, as well as collaboration among our attorneys and staff as client needs require.

As a client-focused, full-service firm, each business and estate planning client receives a prompt and thorough examination of their legal needs from our experienced attorneys. Each of our lawyers have been licensed to practice law for more than 10 years, and most have been licensed for 19 years or more. These years of hard-earned experience and results, along with our conservative billing practices, lead to concrete and cost-effective legal advice and strategies, without the waste caused by missteps and misjudgments often made by less experienced lawyers.

Whether you need business and corporate law services, contract drafting, business or commercial litigation services, intellectual property representation, employment law advice, estate and succession planning, or other business and commercial legal services, our diversity makes us unique in seeking to achieve the best results possible for each client. We know our success is your success and live by this credo every day of every year, working to meet and exceed your expectations.

Call or write us today to obtain the peace of mind that comes with knowing your business is covered.

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