Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Students to Startups: Be...

Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas

www.kringandchung.com

Students to Startups:

Be Your Own Boss

Legal Issues For

Start Up Businesses

Kring & Chung, LLP

38 Corporate Park

Irvine, California 92606

(949) 261-7700



Overview of Presentation

• Entity Formation• Contract Basics• Dispute Resolution• Choosing an Attorney• How to Handle a Legal Claim



Choosing a Business Entity

• Choosing a Business Entity

Factors for Consideration:– Liability– Formalities– Control– Transferability



Types of Entities

• Types of Entities– Sole Proprietorship– General Partnership– Limited Partnership– Corporation– Limited Liability Company– Limited Liability Partnership



Sole Proprietorships

• Sole Proprietorships– Unlimited personal liability for losses– Management– No formalities– Net profits taxable to owner– Fictitious Business Name filing



General Partnerships

• General Partnerships– Form of co-ownership by several persons– Can be sued in partnership’s name– Partnership Agreement outlines operation (can

be oral or written)– Unlimited personal liability– Each partner has management and control– Consent required to transfer interest– Partnership is not a taxpaying entity (profit and

loss passed through to partners)



Limited Partnerships

• Limited Partnerships– At least one general partner and limited partner– Governed by California Revised Limited

Partnership Act– Purpose to encourage passive investors (limited

partner)– Joint and several liability to general partner– Limited role of Limited Partner – Formalities required (must file LP1 Certificate of

Limited Partnership with Sec. Of State)– Written Partnership Agreement optional (can be

oral or written)



Corporations

• Corporations– Separate and distinct legal entity from owners– Continuity of existence despite death (Buy/Sell

Agreement)– No personal shareholder liability (only

corporation will be liable for debts)– Formalities (must be formed with Sec. Of State

by filing Articles of Incorporation, preparation of Bylaws and Minutes)

– Limitations (cannot appear in pro per in court except Small Claims actions)

– Alter Ego/Piercing Corporate Veil Issues



Structure of Corporations

• Structure of Corporations– Shareholders owners of corporation

voting rights– Board of Directors

elected by Shareholders on annual basismanagement and controlpolicy and major decisions

– Officers (President, Secretary, Treasurer)elected by Board of Directors on annual basisresponsible for daily operations



Types of Corporations

Corporations are separate taxable entities

“C” Corporation– Every corporation starts out as C corporation– No limit on number of shareholders– No limitations on residency requirements of

shareholders– Taxed at corporate level and shareholder level

(no pass-thru taxation = double taxation)– No limit on classes of stock (common/preferred)– future services not adequate capitalization



Types of Corporations

“S” Corporation– Starts out as C corporation – must file “S”

election with IRS and FTB– 100 maximum shareholders– Shareholders limited to individuals, estate and

certain trusts (ie. cannot be other entities)– No non-resident aliens as shareholders (must

be resident aliens or U.S. citizens)– Only one class of stock

Professional Corporations– Law, medicine, dentistry and accountants– Shares can only be issued to licensed



Limited Liability Company

• Hybrid between corporation and partnership• Combines “pass through” tax treatment of partnership with limited

liability of a corporation• Structure: centralized management is optional and may be by

managers and/or members• Liability: alter ego liability• Lack of formalities not a factor for alter ego• Each member can bind LLC• Creation: Must file Articles of Organization with Sec. Of State;

parties enter into Operating Agreement• Taxes: Not a separate taxable entity but must pay annual minimum

franchise tax fee of $800.00



Limited Liability Partnership

• Lawyers and accountants only• Pass through tax treatment with corporate

liability shield• Registered with Sec. Of State• General Partnership with shield from liability• No vicarious personal liability for

partnership acts• Annual franchise tax fee (same as LLC)



Corporation vs. LLC

• Formation: costs about the same• Structure: LLC is more flexible• Corporation requires Board of Directors, Officers,

Shareholders and Minutes• Taxes: must be “S” corporation to get pass through

tax treatment; however, there are restrictions imposed on “S” corps

• No annual franchise tax fee ($800) imposed on corporations for first year

• LLCs more limited in ability to use ownership as employee incentive – (ie. stock options in a corporation)



Government Requirements for Businesses

• Business Licenses - Cities

• Fictitious Business Name - County

• Resale Number - Board of Equalization

• Workers Comp - Insurance Agent

• Taxpayer ID Number - IRS

• State Payroll Taxes - EDD



Intellectual Property Protections

• Guidance on selecting a name/brand (infringement investigation)

• DBA

• Corporate Name

• Trade Name/Trademark

• Licensing

• Pre-meeting confidentiality – – Non-Disclosure Agreement



Insurance Coverage for Businesses

• Directors & Officers Liability

• Workers Compensation

• Credit Insurance – Bad Debt Insurance

• Other Insurance



Why A Written Contract?

• Almost always advisable• Complexity of Transaction and Contract

• Allows you to clearly document terms• Helps ensure you address relevant issues

• Damage Limitation Provisions

• Binding Arbitration

• Liquidated Damages

• Lease Agreements• Ability to bring suit

• Contracts Between Companies

• Business “Partnerships”



Important Contract Terms

• Liability Limitations• Product Warranties• Indemnity Provisions• Intellectual Property Protections• Venue• Attorneys Fees



Human Resources

• Employee Handbook• At-Will Acknowledgments• NDA/Non-Disclosure Agreements/Confidentiality• Harassment Compliance Seminar• Hiring Procedures• Termination Checklist• Wage & Hour Issues

- Independent Contractor vs. Employee

- Exempt vs. Non-Exempt Issues

- Overtime, Rest and Meal Break Claims



Selecting an Attorney

• Referrals• Phone Books, Radio and TV• Proper Expertise• Fees Charged by Attorney• Personal Fit• Check the California Bar Website



How to Handle a Legal Claim

• Comply Promptly with Imposed Deadlines• Consult with an Attorney• Determine Whether to Tender to Carrier• Prepare Chronology of Events While Memory is

Fresh• Identify Evidence and Witnesses• Exercise Caution When Communicating With

Adverse Party• Attorney-Work Product Privilege• Organize and Index Files



Q & A

Thank you for your time!

Legal Issues For

Start Up Businesses

Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Students to Startups: Be...

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