Business Law, employment law, Legal

So You Want To Start a Business?Legal Reasons #66

Before starting a business in California, you should consider the multitude of legal issues that surround such a task, including choosing the right business structure (sole proprietorship, corporation, limited liability company, or partnership), selecting the right company and/or product name, and how the business (including legal and accounting fees) will be financed, what potential liabilities you face with your proposed business, and what licenses and permits you will need.

Choosing the Right Business Entity For a California Business Start-Up.

Once you have determined that you are prepared to start your own business, you should begin the process of making your business legal. The first step should be to decide which legal structure is right for you. There are four main types: sole proprietorship, partnership, corporation and limited liability company. Which one is right for you? A sole proprietorship may be sufficient if: (1) you have no assets; (2) your proposed business is unlikely to be a source of liability; and (3) you don’t anticipate earning more than $50,000 a year. If you do have assets that you want to protect, or if you believe your new business will generate at least $50,000 in income, then you should consider either a corporation or a limited liability company. See, S-Corporation or LLC and then discuss your impressions with a local attorney, hopefully Melissa C. Marsh. Seeing an attorney for just an hour to learn more valuable information could save you thousands down the road.

Sole Proprietor.
If you are not ready to form a corporation, or a limited liability company, you can simply remain a sole proprietor. To start a business as a sole proprietor, all you need to do is get: (1) a taxpayer identification number ( EIN ), (2) a fictitious business name, (3) a local city business license, (4) a seller’s permit if you will be selling taxable goods, and (5) other city or state permits required for your particular business. Prior to selecting a fictitious business name, it is important to make sure the name is available.

Partners.
If you are planning to go into business with one or more other individuals, get a commitment — an agreement that sets forth your planned relationship, expectations, and financial commitment. If you are forming a corporation, make sure there is a shareholder buy-sell agreement in place. If you are forming a limited liability company, make sure the Operating Agreement contains buy-sell provisions. If you plan to operate as a general partnership, ask yourselves if the additional co-owners are merely going to contribute products and/or services as opposed to money. If so, consider forming a single owner business (sole proprietorship, corporation, or single member LLC) with contractual agreements with those who are to provide products and/or services. If a party later fails to perform, then you can typically find a replacement. If you are going to operate as a partnership, then make sure you execute a written partnership agreement that contains provisions addressing how each partner can leave the business.

It is always best to start a business on your own, rather than with partners. If co-ownership is essential, then make sure you have a well written partnership agreement that: (1) calls for the formation of a corporation or limited liability company if a certain goal is met, and (2) contains buy-sell provisions that provide for the buyout of any co-owner at a set price in the event the co-owner fails to perform, becomes disabled, dies, files for bankruptcy, or becomes involved in a divorce. Most owners of a business never intend, or expect, to become partners with their co-owner’s spouse, but that is exactly what can happen if you don’t have a well prepared buy-sell agreement executed by all of the co-owners.

Corporation. To determine if a corporation will best suit your needs, I will cover in the next blog post.

Food For Thought, Inpsiration, Journal

The Unfinished Me

It is hard to believe that we are already in the middle of February, the days get faster and faster, and I cannot let go of this nagging feeling to go, go, go! There is a constant energy inside me which pushes me to be the best version of myself, and I am not satisfied with my progress in some matters such as my writing and being in service. Each day feels as if I am playing catch up, yet it is not an emotion of putting myself down but pushing myself forward.

There are many around me suffering me, and it hits me that life is a treasure to be treasured and instead of focusing on what I don’t have. I get to celebrate my blessings. If I am being completely honest, it is not always easy but more and more I set myself up ways to win by just showing up, my having a morning routine that feeds me emotionally, physically and spiritually.

It has become a pleasure to take in the mornings where I sit in silence and contemplate my day, and that nervousness inside me that used to hold me back from jumping into the best version of myself now propels to take ever more chances.  I finally get so many of my father’s lessons, and more and more I realize that a Sabarwal man does not take things or people for granted. He gets to leave the world better than he found it. So off I got to another day.

Happy Monday!

Brownness, employment law, Legal

5 Things Small Businesses Should Be Aware of:Legal Reasons #65

California’s state minimum wage increased for California’s employers on January 1, 2018.  California’s minimum wage law provides for two different rates based on the size of the employer, and the minimum wage increases are reflected in this chart:

Date Minimum Wage for Employers with 25 Employees or Less Minimum Wage for Employers with 26 Employees or More
January 1, 2017 $10.00/hour $10.50/hour
January 1, 2018 $10.50/hour $11.00/hour
January 1, 2019 $11.00/hour $12.00/hour
January 1, 2020 $12.00/hour $13.00/hour
January 1, 2021 $13.00/hour $14.00/hour
January 1, 2022 $14.00/hour $15.00/hour
January 1, 2023 $15.00/hour

 

Once the rate reaches $15 per hour, it will be adjusted annually based on inflation.  Here are five potential pitfalls California employers need to be careful to avoid with the increase in the state minimum wage.

 #1: Who is considered an employee?

California’s Department of Industrial Relations website provides the following explanation:

Labor Code section 1182.12 defines “employer” as: “any person who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person [and] includes the state, political subdivisions of the state, and municipalities.”

Any individual performing any kind of compensable work for the employer who is not a bona fide independent contractor would be considered and counted as an employee, including salaried executives, part-time workers, minors, and new hires.

 #2: The salary level to qualify as an exempt employee increases based on the state minimum wage.

Employers need to review the base salary for all exempt employees to ensure the employees meet the salary required to be exempt.  To be exempt from the requirement of having to pay overtime to the employee, the employee must perform specified duties in a particular manner and be paid “a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” (Lab. Code, § 515, subd. (a).)

With the increase in the state minimum wage in 2018, the equivalent of two times the minimum wage of $10.50 per hour for small employers equals $43,680 per year, and two times the minimum of $11.00 per hour for large employers equals $45,760 per year to qualify for the white collar exemptions.

It is important to note that the salary basis test is set according to the California state minimum wage, not the applicable minimum wage that may apply in the various local city and counties in California.

#3: Which minimum wage rate applies if the number of employees raises and falls below 26 employees throughout the year? 

The California Department of Industrial Relations provides that: “An employer with 26 or more employees at any time during a pay period should apply the large-employer minimum wage to all employees for that pay period.”  Changing the rate of pay for each pay period raises another pitfall about the notice employers are required to provide employees before changing their rate of pay ( #4 below).

 #4:  Employers are required to update the notice to employees setting forth the employee’s rate of pay. 

California employers are required to provide non-exempt employees with certain information upon hire as required by the Wage Theft Protection Act.  The law became effective in 2012 and is codified at Labor Code section 2810.5.  Many employers use the Labor Commissioner’s template to meet this notice requirement.

However, employers who pre-populate the form will need to revise the forms to ensure that the wage rates comply with the increased minim wage rate in 2018.  Likewise, it is a good practice to review the notices mid-way through the year to ensure compliance with  the various local cities and counties (such as Los Angeles and Santa Monica) that typically increase their minimum wage rates in July each year.

 #5: Employers still need to comply with local city or county minimum wage requirements if those laws provide a higher minimum wage rate. 

Employers need to review any applicable local city or county laws that may provide for a higher minimum wage than the state minimum wage requirement.  Employers must comply with the highest minimum wage rate applicable to their workforce.  It is also important to review the local minimum wage ordinances as many ordinances differ in how to determine if the employer is small or large, and usually contain their own notice requirements.

Food For Thought, Journal, Writing

A Challenge

“Why should I read your stuff? What do I get for giving up my time to read your story? Where are you going to submit your stuff?” Recently a friend asked me these questions, and I kind of hemmed and hawed my way out of answering of them. But the questions lingered, but not for their content but their assumption. I have never written for others The fact that I am blessed enough that others read me has never entered into my equation into the things that I write about.

My writers critique group sometimes has asked me to write fiction better (namely because I am not good at it), but their gist is the same as any writer. It’s a lonely field, namely because of many of us write for ourselves. I use writing to make sense of my world, emotions or thoughts. I haven’t thought about publishing or putting my work out there, yet.

2018 will be the year I finish some works that have been long in the making, and I commit to begin submitting pieces to contests and periodicals each quarter. My goal is to finish one essay a month. Wish me luck!

Happy Monday!

Food For Thought, Inpsiration, Journal

Wrapping up January 2018

It feels as if I just celebrated the end of last year and now one month in 2018 has passed. More and more often, the months go by and I struggle to maintain or create new habits and it hits me that as long as I strive to be the best version of myself, I cannot worry about what is pending. It is a constant reminder to love the moment, and not allow my mind to make up a story of how things really are. It is easy to slide into negativity or despair, or take each moment for what it is and keep working at it.

It is easy to criticize and berate myself that I didn’t eat as healthy as I wished, didn’t work out as many times or failed to get more clients, or allow myself breathing room and accept that so much of life is out of my control and that all I can do is be the best version of myself, put my foot forward and take a step towards being myself. In these quiet moments, when I slow down, my mind also slows and does not barrage me with how much I am NOT getting done.

I breathe. I contemplate. I make to do lists. I put it all in a physical form, and then I feel myself loosen, and instead of dread I meet the week with anticipation.

Happy Monday all!

Legal

Why Partnerships Should Have an Operating Agreement;Legal Reasons #65

Operating Agreements are necessary for businesses partnerships as they establish the management and operations of the partnership. This is a necessary legal document for your business to get future protection if the partnership breaks down for some reason.

An Operating Agreement is different from Bylaws  which are necessary for Corporations  that set out the basic rules for operating one’s corporation.

Bylaws are not filed with the state and your corporation is not legally required to have corporate Bylaws, but you should have Bylaws because it establish your corporation’s operating rules, and help show banks, creditors, IRS, and others that your corporation is legitimate.

An Operating Agreement defines each member’s rights, powers, and entitlements. Operating Agreement includes capital accounts, membership interest, distributions of profit and allocated tax responsibility, etc.

This internal document is an agreement set by the members that contains provisions for important items and rules that run the company. Operating agreements can be changed at any time by the company members or managers.

While you can find templates of Operating Agreements online, these templates do not reflect any specific agreements that you have with your partners and may often be missing sections that will act as great protection for you long-term.

Most template Operating Agreements are really not comprehensive. If you have partners, you want something that is customized to your business and your needs because this document can be very crucial in case one of the partners wants to sell his or her shares or dies. This document will also come in handy if you have disputes with your partners.

If you’re starting a business, my office drafts Operating Agreements and makes sure that they are customized to exactly what you need and I also ensure that you understand this agreement.