Online Notary Public Alert

California's Secretary of State has issued an alert regarding online notary services, purporting to provide notarization for California residents over the Internet using a webcam. A webcam is not a permissible substitute for appearing before a notary in person (or having the notary travel to you, if you are not mobile). Notary license may be checked online here. The full text of the alert follows:

Online webcam notarization is invalid and illegal in the State of California.

A private company claims to have the first online notarization website and has sent misleading information and made false claims to California notaries public concerning a new online notarization service. The web-based platform purports to allow a person to submit copies of identification over the Internet and to use a webcam in lieu of a personal appearance in front of a notary public. Appearance via webcam does not meet the requirements for notarization in California.

California notaries public are authorized under current law to perform electronic notarizations as long as all the requirements for a traditional paper-based notarial act are met, including the use of a seal for all but two specific documents used in real estate transactions. California law requires a person to appear personally before a notary public to obtain notarial acts like acknowledgments or jurats. This means the party must be physically present before the notary public. A video image or other form of non-physical representation is not a personal appearance in front of a notary public under current state or federal laws. The technology solution offered by this private company does not comply with California law.

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

Nigerian Email Scam Targets Lawyers & Their Client Trust Accounts

Law.com reports that a new variation of the standard so-called Nigerian, 419, or advance fee email scam has been targeting lawyers. Phony clients allegedly seeking to collect funds from stateside customers contact a U.S. attorney seeking collections assistance. As soon as the attorney has accepted the representation, the customer immediately agrees to pay (how often does that happen!?), often in two partial payments to be timed one right after another. The check then received will usually be a forged cashier's check, payable to the attorney, and from which the attorney is told to deduct his fee (which the client may not be too concerned about the amount of, another red flag).

The author suggests that attorneys avoid becoming victims by:

• Researching clients using Google and other sources before accepting the matter
• Contacting any attorney or other party that has supposedly referred the matter to the lawyer
• Accepting overseas, especially Chinese, clients only if their story makes logical sense and upon the payment of a retainer
• Responding to any initial inquiries not known to be fraudulent, but which are suspected to be, making sure to point out clearly that an advance deposit against fees/costs is always required
• Taking any suspected fraudulent check to the issuing bank for analysis - they will often be able to identify small details that make the forgery obvious
• If a large payment is received upon behalf of a "client", even if by a cashier's check, holding the funds at least two weeks for clearance before disbursing the funds

A typical solicitation looks like this, and may even track this language precisely:

Dear ,

Request for Legal assistance


This is an official request for legal representation on behalf of XXX Co.Ltd.
We are a textile company with principal business in garment manufacturing and trading.
We are presently incapacitated due to international legal boundaries to exert pressure on our delinquent customers and we request for your services accordingly. We got your contact information from the Online Lawyers Directory as a result of our search for a reliable firm or individual to provide legal services as requested.
After a careful review of your profile as well as your qualification and experience, we are of the opinion that you are capable and qualified to provide the legal services as requested.
On behalf of XXX Co.Ltd, Please accept my sincerest appreciation in advance for your willingness to render your services as we look forward to your prompt response to our request.

Thank you.

Another example:

Attention Counsel,
XXX CO., LTD. is a manufacturing company with its head office in Japan, and branches all over Asia continent. The management of XXX CO., LTD. requires your legal representation for our North American delinquent customers. We are looking for a reputable attorney to represent us in North America in order for us to recover monies due to our organization by overseas customers, and as well follow up with these accounts. In order to achieve these objectives a good and reputable law firm will be required to handle this service.
We understand that a proper Attorney client agreement must be entered into by both parties.
Your consideration of our request is highly anticipated, and we look forward to your prompt response.
Yours Truly,

XXX

June 2009 update: The State Bar of California has issued a fraud alert to California attorneys on this topic:

STATE BAR ISSUES FRAUD ALERT TO CALIFORNIA ATTORNEYS

MEDIA CONTACT: Diane Curtis 415-538-2028 diane.curtis@calbar.ca.gov

San Francisco, May 29, 2009 —

The State Bar of California today issued a warning to attorneys to beware of international Internet scams purporting to hire U.S. lawyers to collect large debts.

Despite efforts to publicize the scams over the last year, Bank of America Vice President Blossom Dunng said attorneys continue to be targeted. In four separate cases since the start of the year, Bank of America attorney customers lost hundreds of thousands of dollars from counterfeit checks.

"As bank officials say, 'Know who you're doing business with,'" said State Bar President Holly Fujie. "If you deposit a check for $500,000, you had better have a clear idea where that money is coming from."

The scammers often use the names of real companies to gain credibility and use e-mail addresses that seem to have a connection to the companies. The State Bar itself has received such bogus solicitations:

"This is an official requisition for your legal consultation services on behalf of _________," one e-mail sent to the bar said. "We are presently incapacitated due to international legal boundaries to exert pressure on our delinquent customers in USA and we request your services accordingly."

"We got your contact information from the state of USA lawyers Directory as a result of our search for a reliable firm or individual to provide legal services as requested. After a careful review of your profile as well as your qualification and experience, we are of the opinion that your [sic] are capable and qualified to provide the legal services as requested."

If an attorney responds, the process begins and at some point the attorney receives a legitimate-looking check - sometimes even what appears to be a cashier's check - for the supposed debt. The attorney is asked to subtract his retainer and then send a check for the rest to the client.

In 2006, one attorney had a $2 million loss. This year, Dunng said, checks from the attorneys to the phantom clients range from $75,000 to half a million dollars.

Dunng, treasury services manager who handles all 8,800 Bank of America Client Trust Accounts, said the customer, not the bank, is responsible because it is common practice for the bank to make deposited funds immediately available to good bank customers.

"Attorneys should be the last people to fall for these scams," said Fujie. "Be careful!"

Scott Wilson, FBI special agent in Cleveland, says scams change so quickly that it's very difficult to keep up with them. Still, law firms that have been victimized or contacted as part of what looks like a fraud scheme should report the incidents. If a law firm has lost money in a fraud scheme, contact the local FBI office, says Wilson. If firms or lawyers have not lost money but believe they have been targeted by scammers, they should make a report to the Internet Crime Complaint Center at www.ic3.gov.

To view a story in the California Bar Journal about attorney victims of Internet scams, go to www.calbar.ca.gov, and check the California Bar Journal archives for July 2008.

Founded in 1927 by the state legislature, the State Bar of California is an administrative arm of the California Supreme Court, serving the public and seeking to improve the justice system for more than 80 years. All lawyers practicing law in California must be members of the State Bar. By May 2009, membership reached more than 222,000.

Proper (Business Attorney Assisted) Set Up and Maintenance Crucial to Limited Liability Protection of Corporations and LLCs

Couldn't agree more with this excerpt from today's article by fellow Southern California WealthCounsel attorney Alexis Martin Neely:

You'll recall from last week, that I said the purpose of your business entity is to limit your liability as a business owner. This is to encourage business owners to take risks that they would not take if they had unlimited personal liability.

Here's the thing though, the shield is only intact if certain formalities are maintained, such as proper filings with the State, annual meetings of the shareholders (for corporations), and separation of all financial activities between you and the entity.

Far too often, I've come across business owners who used an incorporation service, a shoddy lawyer, or a CPA to incorporate their business and when I asked these business owners where their operating agreements, bylaws, annual meeting minutes and state filings were kept, they couldn't tell me.

Why is that? Because they didn't realize that merely filing articles of incorporation with the State does not provide liability protection.
Your corporate entity must be established correctly from the beginning with governing documents and then maintained on a yearly basis.

If you don't do that, you may come to find out too late that your business entity doesn't provide the protection you thought it did.

So, make sure that once you decide what kind of an entity to use, you set it up right and then maintain that entity.

While I'm open to a pleasant surprise one day, thusfar I have yet to review one corporation or limited liability company that was properly set up and maintained by a do-it-yourselfer (including those who used online incorporation services, paralegals, CPAs, non-business attorneys).

Holiday Parties: How Businesses Can Avoid Sexual Harassment Lawsuits

Guest Post by Jessica Hawthorne

As holiday decorations start to go up around the office and everyone is full of seasonal cheer, many businesses may find that work parties, along with a more relaxed environment, can lead to sexual harassment claims.

Much too often – especially if the event is off-site and the alcohol flows freely – the office holiday party becomes a breeding ground for this sort of behavior. It seems that some employees can get the impression that professional behavior isn’t necessary at the festivities.

But that’s not the case. If it’s a work-sponsored event, workplace etiquette applies. And unfortunately for employers, liability can be the unexpected Christmas delivery if things aren’t handled properly.

Every year, claims and lawsuits over sexual harassment problems cost companies millions of dollars. In 2007, for example, the Equal Employment Opportunity Commission received nearly 25,000 sex-discrimination complaints and fined businesses more than $135 million for violating these workplace protections, the highest level since 2002.

But businesses can protect employees against legal turmoil by taking simple steps to prevent harassment from occurring at the office holiday party – or anywhere else:

• Advise employees of all relevant policies, such as harassment, dress code and appropriate workplace behavior.
• Make sure all supervisors have received sexual harassment training.
• Make sure everyone knows how to report unwanted or unwelcome behavior.
• Remind all employees that the company's sexual harassment policies will be in full force and effect during the event.

Despite training and preparation, sexual harassment claims could arise, so employers should also be aware of how to mitigate the situation. It’s important to act swiftly if there are any complaints to determine what happened and how best to deal with the claim. That way, you will have done your harassment prevention due diligence if any legal situation arises later.

The best way to accomplish this – and follow California law – is to conduct proactive employee training and awareness against all forms of harassment.

All organizations, and that includes businesses, government agencies and non-profits, with 50 or more employees are required to train all supervisory personnel in sexual harassment prevention. Employers must prove that all of these employees take an interactive, two-hour harassment prevention course within six months of hire and every two years thereafter.

So keep in mind that while sexual harassment prevention is relevant all year round, now is a good time to give your office a refresher course. Your business should enjoy this festive time of year by keeping employees aware and preventing sexual harassment before it starts.

Jessica Hawthorne is an employment attorney the California Chamber of Commerce. More information on sexual harassment prevention training and many other workplace issues can be found at www.CalBizCentral.com.

Layoffs Can Lead to Unlawful Termination Claims

Down Economy: Layoffs Can Lead to Unlawful Termination Claims
What Businesses Need to Know to Protect Against These Lawsuits

By Jessica Hawthorne, Special to California Business Law Blog

By any measure, it’s a pretty rough economy out there and inevitably, there have been and will continue to be layoffs – a process that’s an emotional and complicated procedure, and no less so than during tough economic times.

So what do employers need to know to protect themselves from wrongful termination lawsuits before they are forced to lay off members of their workforce?

The truth is that no one procedure guarantees businesses freedom from exposure to wrongful discharge liability or, even in the absence of liability, prevention of the filing of a wrongful termination action by an employee. But there are a number of things that can be done to mitigate potential issues:

• Businesses should have all new employees sign agreements at the very beginning of employment that protects their status as an at-will employee.
• Standardize termination procedures in a way that maximizes company protection from wrongful termination suits, and ensures that the procedures are consistently applied.
• Train supervisors thoroughly in the area of protecting the at-will nature of employment and to follow all company policies especially related to terminations and layoffs.
• If your company is considering a layoff, be sure to establish objective, nondiscriminatory criteria for selecting the employees to layoff.
• If termination of an employee becomes necessary: do not make the employee's situation so miserable that he or she resigns just to get away.

If an employee feels singled out during a layoff or was unaware of performance issues before being terminated, they may also file a suit for wrongful discharge in violation of an express state or federal government public policy.

Further, be careful and consult with legal counsel before laying off employees with actual or perceived disabilities, those who have just returned from a protective leave of absence, and even those who have reported inappropriate activity such as harassment or safety violations. These employees may have or believe they have more rights than other employees. And angry employees or ones who feel wronged are more likely to sue.

In addition, the federal Worker Adjustment and Retraining Notification (WARN) Act and comparable state law require businesses to provide written notice to employees before laying off a significant portion of their workforce.

Unfortunately, there are literally layers of laws that deal with layoffs and terminations, which can make navigating this area of employment law a potential minefield. But if employers act in good faith, make their policies clear and offer ample notification of pending action, the likelihood of a wrongful termination lawsuit succeeding is minimal.

Jessica Hawthorne is an employment attorney the California Chamber of Commerce. More information on terminating employment and many other workplace issues can be found at www.HRCalifornia.com.

IRS Increases Standard Mileage Rate

The IRS has announced that, effective July 1, 2008, the standard mileage rate will increase from 50.5 cents per business mile to 58.5 per business mile. The change is in recognition of higher gasoline costs.

The medical and moving rate also increases, from 19 to 20c per mile, but the charitable purposes rate of 14c remains unchanged.

The 2009 mileage rate has yet to be determined and announced.

To those Californians that wonder, if - given the higher gas costs here - the rate varies state by state, the answer is no, although, for some taxpayers in certain instances, using actual automobile operating expenses rather than the standard mileage rate is an option that should be discussed with their accountant. Employers typically reimburse employees for business miles at the IRS standard rate.

What to Know About Hiring New Employees… And What to Avoid

What to Know About Hiring New Employees…And What to Avoid

By Jessica Hawthorne, Guest Poster

Due to the complexities of California employment laws, when the time arises to hire a new employee it’s a good idea to eliminate the guesswork.

Many large companies with skilled human resource personnel typically understand where the pitfalls lie in the hiring process. Smaller business owners may also have a solid grasp of the necessary hiring techniques, but grey areas still remain for both.

The hiring process involves three key areas – recruiting, interviewing, hiring.

Recruiting: Creating a job description is sometimes an overlooked facet of the hiring process. It will not only help supervisors more readily define what they are seeking in a new employee, but can later be used to show that person their areas of responsibility.

A thorough description can also be the basis for creating a job advertisement for newspapers, industry publications, professional journals, and online sites such as Craigslist. Don’t overlook an internal job posting as well.

Be careful to avoid any inappropriate terms or discriminating language when posting a job advertisement. The rule is don’t include references to race, sex, religion, age, medical condition, marital status, sexual orientation, and disability or any other protected class.

Below is an example of an unsuitable ad.

Gal Friday Needed: Community newspaper is seeking a woman to answer phones, greet visitors to the office with a smile, and handle faxes and incoming mail. Must possesses lady-like appearance and speak clear English.

This ad is sexist and ethnocentric and should not be used.

Interviewing: It’s always a good practice to conduct a preliminary interview by phone, providing one gives the applicant some advance notice. The phone interview serves as a screening process and will narrow the field of applicants.

Creating a test for applicants is a suitable action that will help provide an accurate measuring stick for a person’s job skills and aptitude. Beware that a reasonable accommodation must be given to a disabled person when they take the same test.

Preparing a core set of questions that will be used for all applicants is another suggested step to follow. Ideally, many of the questions are derived from the job description. Be sure to ask questions that elicit lengthy responses.

Below is an example of an inappropriate question.

"I see your last name is Gonzalez. Does that mean you speak Spanish and are comfortable interacting with Hispanic people?"

The question is discriminatory because its function is to determine the applicant’s national origin and ancestry.

Hiring: On the first day of work, have the new employee review and fill out all the legally required and company-related forms. Be prepared to explain.

To get a new employee properly acclimated, an orientation program is recommended so the person understands the job responsibilities and any safety procedures that accompany the position. Introduce them to the company handbook and review all important policies.

Neglect during the new employee training can lead to various problems, like this one below.

Inadequate training: An employee for a road repair company shows up for his first day of work and is immediately assigned to a crew that morning. No safety instructions are provided and the worker spills hot tar on his uncovered forearm, causing a severe burn that requires medical care.

If an employee suffers an injury that could have been avoided through proper safety training, the company may be liable.

Jessica Hawthorne is an employment attorney with CalBizCentral, a division of the California Chamber of Commerce. This column was excerpted from a series of five booklets called "What Every Manager Needs to Know About", now available from www.calbizcentral.com.

Dangers of Internet Legal Research: Misinformation Aplenty

A client recently was conducted some legal research on the Internet, and came across the following, which he then showed to me and asked me about:

Subject: Re: Closing down a california S-corp
Answered By: taxmama-ga on 31 Jan 2005 14:38 PST
Rated:
Dear Yarbles,

The State of California would like you to believe that you must file each back year and pay the annual $800 fee AND all the penalties and interest related to that fee. They also will want all the fees and penalties for not keeping up with the annual report of officers taht the Secretary of State requires. (That's a $20 fee if you file it on time; $250 penalty if you don't.)

However, under the Ralite case, where the owner of the corporation was permitted to walk away from all these liabilities, by simply doing nothing. Do NOT file the closure paperwork with the State Franchise Tax Board or Secretary of State. Do nothing.

You can read the particulars here. http://www.boe.ca.gov/legal/pdf/90_sbe_004.pdf

You may want to have your tax professional review the case and make sure that you qualify. In fact, they may be happy to see this for their files. It's a very valuable piece of information that most people don't seem to know.

Just be patient. The notices will stop. Someday.

Best wishes,

Your TaxMama-ga

Google Answers: Closing down a california S-corp

My response to the client, who had hoped this answer proved that dormant California corporations would be dissolved automatically and that the corporate veil could never be pierced to provide for personal liablity to the shareholders for California corporate tax obligations:

Dear [Client]:

1 – There is no indication that the answerer is an attorney or accountant. What are their qualifications to be giving legal or tax advice? There are reasons why attorneys and accountants have to meet certain educational, training, and licensing standards.

2 - The annual report fee referred to in the answer is actually $25, not $20.

3 – While not invalidating the law as precedent, it is worth nothing that the case refers to tax year 1980, and to a California code section that no longer even exists (R & T Code Section 25701(a)).

4 – The answerer does not claim the corp. will be dissolved automatically by the state, only that the back taxes won’t have to be paid.

MOST IMPORTANTLY, THOUGH…

5 - Contrary to what the answerer, who apparently did not read or understand the case, the shareholders of the corporation in the cited Ralite case were found personally liable and ordered to pay the franchise taxes. See paragraph 2 of page 29 of the case cited: “the shareholders are liable for Ralite’s [the corporation’s] tax.”

However, this result was because of fraudulent transfers by the shareholders; otherwise, the case does indeed provide that shareholders will not be personally liable for corporation franchise tax non-payment. But (A) without the assistance of an attorney and tax advisor, fraudulent transfers may inadverdently be made by shareholders closing down a corporate business and (B) it is possible California's legislature will change the law on this at some point. Until that time, it is true that many shareholders walk away from their corporations and allow them to become suspended and continue to accrue franchise taxes, penalties, and interest. This is not the proper or legal way to do things, however, and I believe the majority of business attorney or tax advisors would not routinely counsel a client to do this.

6 - Note that the person asking the question comments at the bottom of that they consulted their tax professional, and their tax advisor told them to pay the tax and dissolve the corporation properly.

7 - A tax clearance certificate is no longer required to dissolve a corporation, so there is little reason not to dissolve the corporation, to stop the tax clock from ticking, even if taxes are owed and cannot or will not be paid by the corporate shareholders.

This is a perfect example of the legal misinformation and half-truths that are all over the Internet and a good reason why you should take “advice” like this with a grain of salt and consider its (unknown) source, as well as the the fact that the law may have changed, or the one person's circumstances may not match yours....

California Minimum Wage for 2008 Increases to $8.00 Per Hour

As mentioned here last year, California's minimum wage increased to $8.00 per hour, effective January 1st, 2008. The 2008 rate represents a 6.7% increase over the old (2007) minimum wage, which was $7.50 per hour.

Some employees are exempt from the minimum wage law.

Others are covered by a higher wage law: San Francisco increased its minimum wage to $9.36, also effective January 1, 2008.

The federal minimum wage for those employees not covered by state or local minimum wage laws, remains at $5.85, until July 24, 2008, at which time it will increase to $6.55, and then $7.24 a year later.

Updated California work place posters for employers can be found here: http://www.dir.ca.gov/wpnodb.html

New 2008 California Notary Block

Effective today, January 1, 2008, all legal documents to be notarized in California must use the following notary block:

State of California
County of ___________

On ______________________ before me, (here insert name and title of the officer), personally appeared __________________ who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature ____________________________ (Seal)

Reference: California Civil Code Section 1189
California notary block PDF format; California Secretary of State

California power of attorneys also now require a thumb print upon execution.

California EDD Free Tax Compliance Seminars for Employers

The California Employment Development Department (CA EDD), offers free seminars for California employers, to assist them in complying with payroll, unemployment insurance, and disability reporting and deductions for their employees. For many, your business attorney, accountant, and payroll service will handle these issues for you; for those without such assistance, these seminars may be a good place to learn the basic of complying with the numerous laws applicable to any employer.

Some upcoming Southern California seminars are as follows:

Avoiding State Payroll Reporting Errors Tax Seminar, Huntington Beach 1/17/08;

Employee or Independent Contractor Tax Seminar, Anaheim 12/20/07, Huntington Beach 1/1/7/08, Santa Fe Springs 1/4/08;

How to Manage Unemployment Insurance Costs Tax Seminar, Goleta 12/5/07, Oxnard 1/25/08;

State Basic Payroll Tax Seminar, Huntington Beach 11/29/07, Santa Fe Springs 12/6/07;

State Payroll Workship Tax Seminar, Goleta 1/29/08, Huntington, Beach 12/19/07, Oxnard 1/8/08, Santa Fe Springs 11/28/07.

For a full list of EDD seminars offered throughout the year, see
http://www.edd.ca.gov/Payroll_Tax_Seminars/

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.

California LLC Quotes in Today's Los Angeles Times:

LLCs provide key financial benefits:
The owners receive tax and liability advantages. Such registrations have risen, but the format is not for everyone.
Cyndia Zwahlen: Small Business Report
July 25, 2007

To be an LLC or not to be an LLC? That is the question for a growing number of small businesses.

Whether to adopt the relatively new limited liability company format or to set up under the more traditional form of a corporation, partnership or sole proprietorship is a key decision for a small-business owner.

"An LLC is an important option for small businesses," said Jonas M. Grant, a business attorney based in Burbank. Interest in the format is high, he said.

The benefits of an LLC seem almost too good to be true.

The owners, or members, have the personal liability protection that shareholders of a corporation do, with far less paperwork and fewer regulations.

That means — barring illegal, unethical or irresponsible activity — their personal assets are not on the line when it comes to covering the company's business debts or legal claims against it.

At the same time, the owners avoid the double taxation on profit to which shareholders in a regular corporation face.

Limited liability companies pass profits to the members, who pay taxes at their individual income rates, as in a legal partnership. In California, where this type of company has been legal since 1994, there are 409,619 limited liability companies, according to the secretary of state's office.

The number of companies registered under this format has jumped each year since 2000, when the state finally allowed limited liability companies to be set up by single-person businesses. More than 73,000 LLCs registered with the state last year, compared with about 31,000 in 2000, the secretary of state's office said.

That growth doesn't surprise LLC expert Anthony "Tony" Mancuso, a Berkeley attorney who wrote the new edition of "Nolo's Quick LLC: All You Need to Know About Limited Liability Companies" (Nolo, 2007). "It was obvious to me that LLCs would become the next big thing in business entities because of the combination of benefits," said Mancuso, who has written several books on limited liability companies and other corporate structures for Nolo, a self-help legal publishing house based in Berkeley.

The newest version of his "Quick LLC" book lays out the basic features of limited liability companies, explains important exceptions to owners' limited liability and compares the LLC with other business formats.

He also discusses converting an existing business to an LLC, as well as tax and management issues. And he devotes a chapter to the paperwork involved in setting up a limited liability company. There is also a sample operating agreement and a checklist to help you determine whether forming an LLC makes sense for your business.

Considerations include whether your type of business is one in which business debts and claims could threaten your personal assets. Another consideration is whether you have assets, such as equity in a house, that could be at risk without the protection of an LLC.

"Anyone a little bit nervous about the adequacy of their insurance coverage" could be a good candidate, Mancuso said.

Existing sole proprietorships or general partnerships and anyone thinking of forming an S corporation, an entity that generally pays no taxes, he writes, could benefit.

Those who aren't good candidates include existing regular corporations, also known as C corporations. And in California, some professionals such as lawyers and architects may not form an LLC.

If you want to raise money from venture capitalists or by selling stock, an LLC probably is not the business form you need.

Mancuso makes it clear that despite the potential benefits of an LLC, they have to be weighed against the cost, especially in California. Although it costs just $70 and takes a one-page form to set up a limited liability company in California, ongoing annual fees and taxes could cost more than 10 times that amount. There is a minimum annual tax of $800, payable to the state Franchise Tax Board.

And once gross receipts hit $250,000, additional annual fees kick in, which range from $900 to $11,790.

There have been several challenges to the constitutionality of the state's LLC fees, but the issue is still working its way through the courts.

Although Wyoming, in 1977, was the first state to authorize limited liability companies, it wasn't until 1997 when helpful new Internal Revenue Service rules kicked in that the format began to gather steam among business owners

Limited personal liability protection does not apply if you personally guarantee a business debt or bank loan for the company. Then your personal assets are on the line. That will probably happen more often when a company is young and has not yet established its credit history.

And as is the case with all other business entities, an owner can be held personally responsible for financial losses caused by their negligent or careless actions, Mancuso said.

Mancuso recommends three steps to safeguard the protection against personal liability offered by an LLC.

Act fairly and legally, including disclosing important facts or financial information to members or outsiders such as vendors.

Put enough money into the LLC to properly fund it. Otherwise, a court may not consider it a legitimate business and yank the personal liability protection.

Separate personal expenses from LLC expenses. Aside from making good business sense, that is another way to show that the company is legitimate, especially if you will be a single-member LLC.

The limited liability format isn't available or appropriate for some business entities. In addition to a number of professions, banks, insurance companies and other financial service firms are not usually candidates for a limited liability company.

Even if you qualify for an LLC, you may not need the protection. In his book, Mancuso gives an example of a freelance proofreader working from home as a business that may not need the extra protection from lawsuit claims and business debt.

And if you decide to end your California limited liability company, it must be formally dissolved. For more details, go to the California secretary of state website at http://www.sos.ca.gov/business/llc/llc_faq.htm or call its business programs division at (916) 657-5448.

Important tax information for California limited liability companies can be found in the Franchise Tax Board's Form 3556, available online at http://www.ftb.ca.gov . Just type "Form 3556" in the search box.

Armed with the facts, you can decide whether LLCs have real benefits or not.

"Sometimes I get a new client who tends to believe an LLC is manna from heaven," Grant said. Of course that's not always the case, although, he said, "it certainly has its place and should always be considered."

(C) 2007 Los Angeles Times

Online Incorporation Services Review Article

I recently published an article that reviews the pros and cons of online incorporation services and other non-attorney corporation and llc formation options:

http://ezinearticles.com/?Online-Incorporation-and-LLC-Formation-Services-Advantages-and-Disadvantages,-Pros-and-Cons&id=628630

I don't expect this to be too popular with either the online incorporation services, or with the general public, because the article doesn't say what people want to hear ('quick', 'easy', 'do it yourself', 'save money', 'no lawyers', etc.), but I see the results of not using an attorney to protect one's self and do things properly the first time on an almost daily basis.

Just today, for example, a potential client called me to discuss representation and after a short initial consultation, agreed that a legal mess she was currently in that was likely to cost her $100,000 in losses could have been greatly reduced or, more likely, avoided entirely, with $2,000 - 5,000 worth of legal planning.

Many of my comments and opinions on online incorporation services also apply to storefront legal assistance clinics, paralegal and document preparation services, and accountants. Clients who have used these services to incorporate a corporation or form an LLC before they began working with me often show me corporate books with missing or inappropriate documentation, odd organization, wrong entity used, and the like. An accountant using a form is not giving you state of the art, custom documents; an accountant attempting to modify or draft legal documents is engaged in the unauthorized practice of law (UAL), a misdemeanor in California.

See also:

Is Legal Zoom a Good Idea? Do the Documents Work? by fellow WealthCounsel estate planning attorney Alexis Martin Neely;

LegalZoom.com reviews; and

Online incorporation service review.

[This post updated August 2008.]

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

Jonas Grant, Jonas M Grant law lawyer attorney

Revised, updated lawyer biography -

Jonas Grant bio

Los Angeles, California

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California business attorney

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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".