Blog Post Cited in Orange County Register Article on Annual Minutes Mailings

This blog's most popular entry, posted in January 2007 but updated continually since, concerning misleading corporate and LLC annual minutes mailings was recently cited in a small business advice column in the Orange County Register:

Old scam reappears in O.C.:

Burbank attorney Jonas Grant gives a good explanation of the law on his California Business Law Blog, based on problems his clients reported to him in 2007. The post has gotten dozens of comments from people who received these solicitations, some from other states.

(One even accuses Grant of sending the letters, thus the red-letter disclaimer at the top of his post. Talk about shooting the messenger.)

By Jan Norman, March 29, 2009

2008 Standard Mileage Rate

The IRS' standard mileage rate for calendar year 2008 business miles has been increased to 50.5 cents per mile driven, up from 48.5 cents per mile in 2007.

See below for more complete information:

WASHINGTON — The Internal Revenue Service today issued the 2008 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning Jan. 1, 2008, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

50.5 cents per mile for business miles driven;
19 cents per mile driven for medical or moving purposes; and
14 cents per mile driven in service of charitable organizations.
The new rate for business miles compares to a rate of 48.5 cents per mile for 2007. The new rate for medical and moving purposes compares to 20 cents in 2007. The rate for miles driven in service of charitable organizations has remained the same.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile; the standard rate for medical and moving purposes is based on the variable costs as determined by the same study. Runzheimer International, an independent contractor, conducted the study for the IRS.

The mileage rate for charitable miles is set by law.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously.

IRS Announces 2007 Standard Mileage Rates, irs.gov, posted November 27, 2007

Online Incorporation Services Review

Mark Stafford's review of online incorporation services, reprinted with permission:

Thinking about incorporating? DON'T waste your time with those online companies that claim to incorporate you. Unless of course you just have a bunch of money laying around. I am sharing this with you because of the lesson I learned the hard way.

I'll start by saying I know pretty much nothing about business when it comes down to all of the legal issues, tax, and accounting mubo jumbo and so forth. I like to just
concentrate on doing the work at hand. For example, if you mow lawns, then you should do just that. Why should you have to have a business degree, learn to be a tax whiz, and be a legal expert right? While all of these are great occupations, and their great to know about, if you mow lawns, then that would really put you out of a lot of time and energy, when you could concentrate on getting accounts and getting the work done.

I made the mistake of starting a business jumping in head first, and with the best intentions of course, but I ended up in a mess. I fell into the hype of all of those
"incorporate now" websites, and I'm not mentioning names (there are a ton of them), as they seem to all be very similar.

Most of them will ask you if you would like to incorporate, what type of corporation package would you like- as if you were ordering at a drive- thru. They are not
allowed to and won't give you any sort of legal advice, as they just sell the "package." It's really up to you to do ALL of the homework and research about the LLC's, S corps, C-corps, etc. They will in most cases be your "registered
agent," in which you will be represented in the event you are sued. And they will send you a VERY nice notebook with stock certificates and numerous other forms. In my case I got that and a nice library of five books (you would have to
be a lawyer to understand them), which if you were not already confused - you get the picture.

Ah, then the price. This can be from $600 and up. This is when I found a lawyer to be the best way in the first place, as they will know what type of corporation would best suit you. (No pun intended). In my case I had purchased the wrong type of corporation, and my lawyer had to fix it. In the end he charged me $400 to undo one corporation, and fix me up with the right corporation. AND he was also my registered agent. He also informed me that if you really wanted to put in the time, you could do the whole thing online in most cases for about $75. Wow.

Here in higher-cost California, the costs payable to state government of a properly done incorporation are a minimum of $150 - something to keep in mind when certain paralegal services on craigslist and elsewhere offer the entire package, including their 'service', for $125!

See also:

Online incorporation review article

Business Licenses and Online Incorporation Services

I recently received an email notification announcing a new service offered by a popular online incorporation and document filing service. For $75, they will email you the appropriate business license forms for you to complete and file. While this information may be helpful to some new business owners in locating the appropriate regulatory agencies and their respective forms, my flat fee full service incorporation and LLC formation packages have included this service for years (except that we complete the forms for you and when possible, file them for you on your behalf, and answer any questions you may have about the filings before and after they are made). Unforunately, it is hidden fees and add-ons like these that make online incorporation services much less of a bargain than they might initially appear to be.

FAQ: How much to form a corporation? Review a contract? Draft a living trust?

As an attorney, I am frequently asked by potential clients some variation of the following question:

How much to form a corporation, to review this contract, or to draft a living trust?

Usually, the honest answer is, it depends (although this tends not to be what the questioner wanted to hear). Legal services are professional services more akin to those offered by doctors or even automobile mechanics than to purchasing a fungible item like a television. With a TV, you know what you're getting before you buy, and you can price shop amongst competitors, because you know the product is going to be the same regardless of where it is purchased. Conversely, when you visit the doctor, you know you need a check-up or aren't feeling well, but until you get in there and the physician runs some tests, you aren't going to know how much it will cost. Asking an attorney, 'How much to fix X problem?' is often times akin to asking a doctor, 'How much to make me better?' or your mechanic, 'How much to fix my car?' You could ask what a doctor's visit costs, but one doctor's visit may not cure you. Likewise, you can ask me about my flat rate incorporations, but you may also need contract, employment, trademark, or other legal work, and in fact, a corporation may not be the best entity for you, so the number quoted must be put into context.

For contract negotiation, drafting, review, and counsel, my rates are hourly, and the final fee will depend on a host of factors. The fact that an agreement to be reviewed is five pages long is only one of these factors; the others will remain unknown until you sign on with me and I actually dig into the issues. (Just as your mechanic won't be able to determine what labor and parts are needed to repair your vehicle until you have paid him to look under the hood.)

Further, clients may not realize what they need. The question, 'How much for a living trust?' ignores that a living trust may not be needed at all, one living trust alone may not be sufficient, and that proper estate planning involves more than just drafting a revocable living trust (and even that is customized for each client's needs).

In summary, just as with the doctor and mechanic, some small leap of faith is required of the potential client. You must hire an attorney to analyze your circumstances and advise you; the component parts of the solution may have flat fees knowable in advance, but some legal work may additionally be recommended or even required to get where you want to go. After all, part of what you are hiring the lawyer to do is identify legal issues of which you might not be aware. Seen in this light, calling around to attorneys to compare prices for an LLC or a trust may give you an idea of the fee level, but the answers will rarely be precise, and others questions may be at least as useful. As a last resort, of course, you can always take your legal business elsewhere if your first choice for an attorney proves unsatisfactory, or you feel you are being overbilled.

California Tax Burden Among Worst in Nation

According to an article published last year, California ranks among the worst of the states in terms of its tax burdens on businesses and individual residents. The article points to last year's election results in which California voters approved additional taxes, as adding to the state's already high tax burden:

California may be back on its way to becoming Taxifornia – and that's before voters give their verdicts on Propositions 86 (cigarette tax), 87 (oil tax), 88 (property tax) and 89 (corporation tax). California was rated as having the 45th-worst tax climate among the 50 states in 2007, down from 42nd in 2005, according to the Tax Foundation's State Business Tax Climate Index, released this week.

The index measures five tax rates: corporate, individual income, sales, unemployment and property. The best states are, in order, Wyoming, South Dakota, Alaska, Nevada and Florida. After California, the worst states are Vermont, New York, New Jersey, Ohio and, worst of the worst: Rhode Island.

Curtis S. Dubay, an economist at the foundation and co-author of the report, told us that California's drop in the listings was not major, down just three spots, and was due to slight improvements in other states more than any worsening in California, where tax rates pretty much held steady the past year, except for the passing of some local school bonds. "It's possible to drop in the rankings just by standing still," he said. "The states tightly clump up at the bottom of the rankings. So any small change could make a difference."

The bottom line is that California's ranking was low, and remains low. Most jolting for Californians should be the comparison with neighboring states. In the overall tax index, Nevada ranks fourth, Oregon, 10th; Washington state, 11th; Utah, 16th; and Arizona, 28th.

The study offers an example from 2005 of how businesses make decisions based on tax rates: When Intel decided "to build a multibillion-dollar chip-making facility in Arizona due to its favorable income tax system. California struggles to retain businesses within its borders because Nevada provides a low-tax alternative." The study concludes that "taxes matter to businesses, and those places with the most competitive tax systems will reap the benefits of tax-friendly tax climates."

Taxifornia, Here We Come, Orange County Register (California), October 26, 2006

Likewise, California-based Countrywide Financial's CEO told shareholders employees that don't need to be in California will increasingly be hired in or relocated to Arizona instead, as a result of the tax and regulatory environment in California, which he characterized as out of control.

For most California small businesses, however, it makes little sense to form a corporation or LLC out of state (e.g., in Nevada or Delaware), which in most instances ends up costing more in initial and ongoing legal and accounting expenses, and saving nothing in taxes. If the business' owners are willing to relocate, then indeed California is, as the article points out, due to its political climate, among the least attractive for businesses, and Nevada is certainly preferable. But for those Californians not willing to move out of state and take their business with them (as many have in recent years), California remains the logical choice for incorporating a California business in most instances.

California Employees Granted Three Years to Sue Employers for Compensation for Missed Breaks

The California Supreme Court today ruled that employees have up to three years to pursue claims that their employer failed to provide required breaks, not one as was previously assumed by many employers. The stakes are high, because California law provides that, upon filing a claim, employers must pay to an employee one hour of pay for each rest or meal break that was not provided to the employee in accordance with California employment law. The law, enacted in 2000, has spurred numerous class action law suits.

California employers should take this opportunity to have an employment attorney review their employee manual and employment practices to ensure compliance and to assist in avoiding many of the legal land mines that exist in this area for unwary employers. Those without an employee manual or a knowledge of California employment law are especially vulnerable and should take heed of this warning.

The case in question is Murphy v. Kenneth Cole Productions, Inc., 07 C.D.O.S. 3958. More details on the ruling can be found at Law.com

Los Angeles Business License Tax Errors

Some new or small businesses in the City of Los Angeles who filed their business tax renewal on time, and qualified for exemptions from tax, are receiving Notices from the Office of Finance indicating they owe tax, interest, and penalties. If you believe you have received such a notice in error, contact your business lawyer, accountant, or the City of Los Angeles Office of Finance directly for resolution:

http://www.lacity.org/finance/

Jonas Grant, Jonas M Grant law lawyer attorney

Revised, updated lawyer biography -

Jonas Grant bio

Los Angeles, California

California business lawyer

California business attorney

Los Angeles business lawyer

Los Angeles business attorney

Jonas M Grant, Attorney at Law Bio

Jonas M. Grant, Attorney at Law bio - revised, updated lawyer biography - Los Angeles, California

FAQ: California Fictitous Business Name

A fictitious business name, also referred to as FBN, doing business as, DBA, dba, D/B/A, or trade name is a name other than your own legal name, or the official name of your corporation, LLC, or other business entity.  To use such a fictitious business name in California, you must file with your local government, usually at the county level and then publish a notice of this fact in a local newspaper of general cirulcation to put the public on notice of your assumed name.  One person or company may have multiple fictitious business names.

A fictitious business name is not the same thing as a trademark or service mark.  Firstly, because a DBA is only searched and registered on a local, rather than state or federal, level, and secondly, because registering a DBA does not in itself grant any trademark rights.  A fictitious business name is generally not a subtitute for trademark registration.

FBN is sometimes mispelled "ficticious business name".

FAQ: Advantages & Disadvantages of Online Business Incorporation Services

On a legal message board on which I respond to user's questions with user name Calif Business Lawyer from time to time, a question concerning online business incorporation was posted, to which I responded, and which I'm reprinting here, because I get frequent questions about the advantages and disadvantages of online incorporation services:

I am using an online service to create the S-corporation, and one question asked by the website is to check off a box if it is a "personal service corporation". Examples of such corporations are health and attorney industries, etc. I don't know if a beauty salon is classified as such.

It's probably not critical to classify the corporation as a personal service corporation except when filing taxes, right?

My reply:

Unfortunately, this illustrates one of the problems of using online incorporation services - if you don't know the answers to the question being asked (which in this case doesn't make a lot of sense anyway - only a C corporation need be concerned with personal service corporation [PSC] classification), you need to obtain legal and/or tax (accounting) advice prior to or in conjunction with - or instead of - incorporating online. Of course, by the time you pay to consult an attorney and/or accountant, then pay the document preparation services, most or all savings will have evaporated. Also, such services don't usually start from square one, and ask you, Are you forming in the right state? Have you considered an LLC instead of a corporation (or vice versa)? Why or why not?

Most of the online incorporation services include disclaimers like this one I found in small print at the bottom of one popular site:

"[Company] is not a law firm and is not a substitute for the advice of an attorney."

And this on another leading site: "[We] cannot provide information as to whether a person should incorporate or form a limited liability company or a partnership. If you are contemplating forming any of these entities you should consult with private counsel regarding your individual fact situation."

For those who know exactly what they want, and can explain it to someone else in plain English in a few sentences, the disadvantages of online incorporation services may be overcome by the one big advantage of cost savings. In my experience, however, this is a minority of those who are using such services. And savings up-front sometimes ends up in more expenses later, when I am hired to resolve business disputes the corporation bylaws and LLC operating agreements should have covered, or would have covered, had they ever been adopted, or to dissolve or merge entities, and replace them with better-suited ones.

You are correct that the personal service classification is largely tax-related. Some regulated professions are prohibited from forming certain types of business entities in some states (e.g., California does not permit professional LLCs - to test out your favorite online incorporation service, try starting the process of forming a California professional LLC online, and see if the system warns you or rejects it before you get to the submit order stage).

Don't forget state and local licensing and registration requirements.

Personal service corporation defined:

"A type of C-Corporation that is owned and operated by individuals performing personal services in such fields as health, law, engineering, architecture, accounting, actuarial science, performing arts and consulting.

The requirements for a PSC are:

The corporation is a C-Corporation.
The corporation's principal activity during the year is the performance of personal services.
The personal services are primarily performed by the employee-owners of the corporation.
Employee-owners own at least 10% of the corporation's stock.

PSC's must generally use a calendar year as their fiscal year and are taxed at a flat rate of 35% on all of their taxable income."

See also:

Zoom Past Legal Zoom and
LegalZoom - Why We Love It

California Corporate Compliance Annual Minutes

READ THIS FIRST AND BEFORE TELEPHONING OR EMAILING: Neither this blog, nor its sponsor law office or attorney is connected in any way with the companies and services discussed below. Please take the time to carefully read the ENTIRE blog post and comments before telephoning the law office. This warning is being posted because numerous people have searched for a corporate minutes company's name or address, landed on this web page, and wrongly assumed that they have found the web site of that company. Thank you, and apologies for the ugly but effective red letters.

Note that this blog post, and many of my other blog posts are updated with new information on an ongoing basis; scroll to the bottom of this post for the most recent additions.

Some of my business incorporation and LLC formation clients report recently having received in the mail official-looking documents regarding their corporations from organizations such as Corporate Compliance Recorder, California Corporate Compliance Business Division, Minutes and Compliance Affairs, Compliance Annual Minutes Board, Corporate Headquarters, and the like.  These notices at first glance appear to require the filing of annual minutes or a shareholders and directors report with a government agency, along with the annual filing fee of $125-$150; a filing deadline is usually also listed.  These letters are by no means new, or limited to California, but appear to be ubiquitous at the present time for California corporations.

California Corporations Code sections 600, 1500, and 9510(a) are also sometimes cited:

Section 600 provides in pertinent part, "An annual meeting of shareholders shall be held for the election of directors on a date and at a time stated in or fixed in accordance with the bylaws."

Section 1500:  "Each corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, board and committees of the board and shall keep at its principal executive office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Those minutes and other books and records shall be kept either in written form or in another form capable of being converted into clearly legible tangible form or in any combination of the foregoing. When minutes and other books and records are kept in a form capable of being converted into clearly legible paper form, the clearly legible paper form into which those minutes and other books and records are converted shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper record of the same information would have been, provided that the paper form accurately portrays the record."

Section 9510(a) relates to record-keeping requirements for non-profit corporations.

What these services are offering is the preparation of corporate minutes.  Annual meeting minutes for California corporations should indeed be prepared, as the mailings suggest, but neither you nor these companies file such minutes with the Secretary of State (unlike the annual Statement of Information, which is filed - along with a $25 fee - with the Secretary of State) and these minutes are best prepared either by corporate officers/directors, if they know how to do so, or by a business attorney (who can also review the corporations's prior meeting minutes and bylaws for potential areas for improvement, changes, and the like).

Unfortunately, while the mailings usually contain fine print that indicate "this is not a government document" and that the fee and service offered is not mandatory, many have been confused or misled by the mailers, resulting in a negative review for one of these companies by the Los Angeles Better Business Bureau.

The senders of these letters offer to assist California corporations with something that they indeed should be doing, preparing and filing with the corporate records annual meeting minutes, but their fees are high in relation to the limited service offered, and their advertising methods are questionable.

10/2007 update: Latest mailings for my clients are most frequently coming from sender and return address Corporate Compliance Center, 2740 Fulton Ave., Ste. 203, Sacramento, CA 95821-5183; Corporation Compliance Recorder, Administrative Clerk Division, P.O. Box 66186, Los Angeles, California 90066; and California Corporate Services: Business Division, 3308 El Camino Ave., Suite 300-609, Sacramento, CA 95814, all with the additional legend, "THIS IS NOT A GOVERNMENT DOCUMENT", and Corporate Business Bureau, Corporate Business Division, 8939 S. Sepulveda Blvd., #110-727, Los Angeles, CA 90045.

12/2007 addition: Board of Business Compliance, Annual Minutes Division, P.O. Box 93069, Los Angeles, CA 90093-0069 ("Business mail - Important Notice Enclosed; This is Not A Government Document").

2/2008 addition: Compliance Services, P.O. Box 1265, Studio City, California 91614-0265.

7/2008: Some readers have asked what they can do to thank me for the information provided here. While always appreciated, no thanks is necessary. Of course, if you or your friends, relatives, or colleagues are in need of the legal services I offer, please let them know about me and my website, bookmark the site, and keep me in mind for your future legal services; having you or them as my next client is the best thanks I can receive. And if your California corporation is in need of actual customized and attorney-drafted corporate minutes or attorney assistance with ongoing maintenance of your business entity, those are services we offer.

Note that some or all of these addresses may be postal or private mail box (PMB) facilities, so that other businesses may share the same address(es), and that the opinions expressed in the comments below are those of their respective authors and in general do not identify a specific company.

September 2008 update: Complaints may be filed with the California Attorney General by mail, telephone, fax, Internet, or email, as follows:

Attorney General's Office
California Department of Justice
Attn: Public Inquiry Unit
P.O. Box 944255
Sacramento, CA 94244-2550

TELEPHONE: 1-800-952-5225 (Toll-free in CA) or (916) 322-3360

FAX: (916) 323-5341

WEBSITE: http://ag.ca.gov/consumers

EMAIL: piu@doj.ca.gov

=============================

I was quoted in a Santa Monica Daily Press newspaper article on this topic earlier this year:

While there is nothing inherently wrong with the service that the AMCB is allegedly offering, the deception of business owners lies in the marketing tactic, according to Jonas Grant, a Burbank attorney who has represented a client who filed a lawsuit against one of the suspect companies.

Corporations are required by law to keep a record of minutes from the annual meeting of shareholders when officers are elected. The problem with the form is it implies that the corporation is required to file the minutes, when it actually just needs to make sure it has one on record, Grant said.

Grant noted that one of his clients who paid the fee to the compliance board did receive back the meeting minutes, though it was written in an unprofessional manner, he said.

When receiving similar types of letters, one of the warning signs that businesses can watch out for is the price of the fee, which should never be more than $25, Grant said.

Business owners should also always keep an eye out for the fine print.

The tip off in the letter sent to the Westside Economic Collaborative was the fine print at the very bottom, which states that the product or service being offered is not endorsed by any government agency. The fine print also adds that the service is not a “statement of account due,” but rather a solicitation.

“If you look at the fine print, you’ll know for sure if it’s garbage,” Grant said. “If it’s over $25, it’s probably not the right thing.”

October 2008 update: California Corporate Documentation Services, 1146 North Central Avenue #443, Glendale, CA 91202, "BUSINESS MAIL - IMPORTANT NOTICE ENCLOSED, THIS IS NOT A GOVERNMENT DOCUMENT"; CCDSquestions@aol.com; operated by CALIFORNIA CORPORATE DOCUMENTATION SERVICES, INC. Sadly, a member of the State Bar of California, Romel Ambarchyan, whose address of record with the State Bar is the same as California Corporate Documentation Services, Inc.'s, appears to at the very least be acting as the agent for service of process for this company.

November 2008 update: Department of Business Minutes, 4470 W. Sunset Blvd., #380, Los Angeles, CA 90027 ("Business mail - important notice enclosed; this is not a government document").

February 2009 update: New Annual Review Board mailing targets LLCs with Statement of Information related letter, 333 S. Grand Ave., 25th Floor, Los Angeles, California 90071, 213-943-1320; requests $228 payment - the actual Secretary of State Statement of Information filing costs $20 and is filed every two years.

California's Secretary of State has issued a customer alert regarding what it terms "misleading solicitations".

March 2009 update: The U.S. Postal Service is interested in hearing from any consumers who have actually filed and paid for any of the above reference minutes services; if you have relevant information, please contact:

Mr. Mike McCarthy, Postal Inspector
U.S. Postal Service
281 E. Colorado Blvd.
Pasadena, CA 91101-9998
626-405-1359

April 2009 update: State Bureau of Corporations, Annual Minutes Filing for Corporations and LLCs, P.O. Box 5909, Sacramento, CA 95817.

June 2011 update: Annual Business Renewal Center (ARBC), LLC Filing and Renewal Department, P.O. Box 27265, Los Angeles, CA 90027. Charging $175 to file a $20 Statement of Information. A not particularly well chosen name considering that LLC Statements of Information are due biennially, rather than annually.

New Year, New Look at Your Business Entity

With a new year comes a good time to reevaluate your business entity (or lack thereof).

Business owners with an existing corporation should make sure that they have held and documented at least their annual meeting; if this hasn't been done for a while, this should be corrected as soon as possible. Ignorning this required corporate maintenance means you are failing to follow the corporate formalities and may be one step toward negating the limited liability of the corporation ("piercing the corporate veil").

Also for existing shareholders, members, officers, and directors of California corporations and limited liability companies (LLCs), required Secretary of State filings and Franchise Tax Board tax filings should be brought up to date if in arrears. If the business entity is no longer being used, and perhaps has been neglected as a result, to avoid further tax liability (which keeps accruing, whether the entity does business or not), it should be dissolved.

If a change from C corporation to S corporation tax status is being considered for a corporation, an accountant should be consulted.

For those without a current business entity, who are either starting up a new business venture, or still filing a Schedule C as a sole proprietor, it may make sense to think about the potential benefits of incorporating or forming an LLC (which, depending on the circumstances, may include limited liability, avoiding disputes with business partners, better image for clients, self-employment tax savings, and/or decreased tax audit exposure). For a free consultation by phone or email, or for assistance with the other legal issues discussed in this post, please click here.