Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Students to Startups: Be Your Own Boss Legal Issues For Start Up Businesses Kring & Chung, LLP 38 Corporate Park Irvine, California (949)

Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Overview of Presentation Entity Formation Contract Basics Dispute Resolution Choosing an Attorney How to Handle a Legal Claim

Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Choosing a Business Entity Factors for Consideration: – Liability – Formalities – Control – Transferability

Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Types of Entities –Sole Proprietorship –General Partnership –Limited Partnership –Corporation –Limited Liability Company –Limited Liability Partnership

Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Sole Proprietorships –Unlimited personal liability for losses –Management –No formalities –Net profits taxable to owner –Fictitious Business Name filing

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

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

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

Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Structure of Corporations –Shareholders owners of corporation voting rights –Board of Directors elected by Shareholders on annual basis management and control policy and major decisions –Officers (President, Secretary, Treasurer) elected by Board of Directors on annual basis responsible for daily operations

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

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

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

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

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

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

Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Intellectual Property Protections Guidance on selecting a name/brand (infringement investigation) DBA Corporate Name Trade Name/Trademark Licensing Pre-meeting confidentiality – –Non-Disclosure Agreement

Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Insurance Coverage for Businesses Directors & Officers Liability Workers Compensation Credit Insurance – Bad Debt Insurance Other Insurance

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

Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Important Contract Terms Liability Limitations Product Warranties Indemnity Provisions Intellectual Property Protections Venue Attorneys Fees

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

Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Selecting an Attorney Referrals Phone Books, Radio and TV Proper Expertise Fees Charged by Attorney Personal Fit Check the California Bar Website

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

Irvine ● Ontario ● Chino ● San Diego ● Sacramento ● Las Vegas Q & A Thank you for your time! Legal Issues For Start Up Businesses