Israel Samuels LLP

A Law Firm for Businesses

The Consequences of Franchise Tax Board Suspension

By 1 Comment

The California Franchise Tax Board can suspend a corporation if it fails to pay taxes, penalties, fees or interest or fails to file a return. Such suspension can also befall a foreign entity qualified to do business in the State of California.

The consequences of suspension include the following prohibitions upon the business of the corporation. It may not:

  •  Legally transact business
  •  Bring an action or defend itself in court
  •  Receive an automatic extension of time to file
  • File a claim for refund
  • File or maintain an appeal before the Board of Equalization
  • Begin or continue a protest
  • Legally close or dissolve the business

Also note that a suspended corporation may lose its right to revive under its own name if another corporation appropriates its name during the period of suspension.

If your entity has been suspended by the Franchise Tax Board immediately contact legal counsel so that the entity can be revived and continue to legally transact business in California, protect its intellectual property rights and retain access to the Courts to prosecute and defend actions. Failure to revive the entity can result in personal liability for owners, directors, officers, shareholders and members.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

Can an LLC Maintain Its Records in The Cloud?

By Leave a Comment

California Corporations Code section 17701.13 requires limited liability companies to continuously maintain in California an office and an agent for service of process. It also requires an LLC to maintain specific enumerated company records in writing or “in any other form capable of being converted into clearly legible tangible form” at the limited liability company’s designated office. It is unclear whether records stored “in the cloud” or on a computer located in a different location, satisfy this statutory requirement.

Without judicial or legislative guidance on whether cloud or remote storage of the enumerated records that are to be maintained at the LLC’s designated office will comply with the statute, it makes sense to keep printed up-to-date print hard copies, or electronic copies on a resident computer or server in the LLC’s office.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

Are You an Officer or Director of a Dissolved Corporation?

By Leave a Comment

While you may think a dissolved California corporation no longer has officers and directors, that is incorrect. The California Corporations Code assumes that officers and directors exist for dissolved corporations. In fact, Corporations Code Section 2011(b) provides that summons and other process against a dissolved corporation “may be served by delivering a copy thereof to an officer, director or person having charge of its assets or, if no such person can be found, to any agent upon whom process might be served at the time of dissolution”.

In a least one Federal case interpreting California law it has been held that, under the statutory scheme that replaced the common law rule in California, “a corporation’s dissolution is best understood not as its death, but merely as its retirement from active business.” Thus, the Court held dissolved California corporations continue to exist as legal entities.

The continued legal existence of a dissolved California corporation raises the issue of who are the officers and directors. First, look at the Certificate of Dissolution. Section 1905(a) of the Corporations Code requires in the case of a non-judicial dissolution the certificate be signed by a majority of the directors then in office. This raises another issue that is unsettled in California, “Are the directors identified in the Certificate of Dissolution essentially directors for the rest of their lives?”

Since the Certificate of Dissolution is signed by a majority of the directors then in office, it also begs the question, can an officer or director resign after dissolution of the corporation? So far, there does not appear to be a definitive answer to this question. If you are an officer or director of a California corporation that is considering dissolution, we suggest that you consult your legal counsel to determine what you can do to insulate yourself from potential director liability after the dissolution is final.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

You Can’t See Clearly Now – California Law on Obstructed Views

By Leave a Comment

California law rigidly holds there is no right to have a view from your property. A recent case exemplifies the strict application of this doctrine.

The Boxers owned a gorgeous parcel in Beverly Hills. They filed an inverse condemnation action against the City of Beverly Hills claiming coastal redwoods planted by the City in a nearby park had grown so tall they obstructed their view of the hills of Beverly Hills, the Hollywood Hills, and the Los Angeles basin. As early as 2005, prior to filing suit, the Boxers first voiced their concerns to the City. The City, however, failed to take any action.

The Boxers failed to obtain any relief from the United States District Court as it held, as a matter of law in the State of California “inverse condemnation provides no remedy for alleged impairment of view from private property.”

The Boxers appealed. The Court of Appeals upheld the District Court’s determination. Based on a survey of California case law the Court of Appeals reasoned there must be something more, such as a physical invasion or a noxious smell emanating from a governmental source, to support loss of a view from private property and reaffirmed that, in California, nobody has a right to a view.

If you have a beautiful view in California and you want to maintain that view, seek legal counsel to help you obtain view easements and/or covenants to maintain a view with your neighbors, and hope the government does not decide to plant or build in a manner that obstructs your view.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

The Anatomy of a Compliant California Wage Statement

By Leave a Comment

Many employers are confused when it comes to information California requires on wage statements that accompany the payment of wages to their employees. California has many content requirements for employee wage statements, including new requirements for employees who are
paid based by a piece rate.

Employees paid by piece rates must be separately compensated for rest and recovery periods and, where the employee does not earn at least minimum wage in addition to the piece rate, must be separately paid for non-productive time. The amount of time for these periods, the applicable rates of pay, and gross wages for these periods are required to be noted on the wage statement.

A wage statement is generally a detachable part of the paycheck or a separate writing containing the necessary disclosures. Failure to comply with the disclosure requirements can result in substantial penalties and other damages.

The following information is required to be on itemized statements:

  • Gross wages earned;
  • Net wages earned;
  • Total hours worked (not required for salaried exempt employees);
  • All applicable hourly rates in effect during the pay period, and the corresponding number of hours worked at each hourly rate by the employee;
  • The number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece rate basis;
  • New for 2016 employees paid a piece rate:
    • the total number of hours of compensable rest and recovery time, the rate of pay for that time, and gross wages earned for that time; and;
    • the total number of hours of compensable non-productive time, the rate of pay for that time, and gross wages earned for that time (not applicable if the employee is paid at least minimum wage for all hours worked which is in addition to the piece rate).
  • The inclusive dates of the period for which the employee is paid;
  • The name of the employee and the last four digits of his or her social security number or an employee identification number other than a social security number;
  • The name and address of the legal entity that is the employer; and
  • The amount of paid sick leave an employee has available. If the employer provides unlimited sick leave the statement must state “unlimited.” If an employer is eligible to use a Paid Time Off program to comply with the paid sick leave law, the amount of PTO
    available must be listed on the wage statement.

Take the time you review the information on the pay stub of your employee paychecks and make sure the disclosures comply with the law.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

Dissolution of a California Corporation or LLC Waives the Corporate Attorney Client Privilege

By Leave a Comment

The United States District Court for the Northern District of California in Virtue Global Holdings Ltd. v. Rearden LLC recently considered the issue of what happens to the attorney client privilege when the corporate client is dissolved.

The District Court found its answer in California Corporations Code section 1905(b): When a corporation ceases to exist, “the corporate powers, rights and privileges of the corporation shall cease.”

Thus, upon dissolution no entity holds the attorney-client privilege and the dissolved corporation is not entitled to assert the attorney-client privilege.

Although the District Court referred to astatute applicable to corporations, the actual entity involved in the case was a dissolved Limited Liability Company. Therefore, it would appear the applicable law should have been the California Revised Uniform Limited Liability
Company Act (RULLCA). However, the correct law, may not have changed the result. RUCLLA, under Corporations Code Section 17707.08(b)(2)(C), contains substantially similar provisions to those contained in Corporations Code Section 1905, providing that upon filing a certificate of cancellation of an LLC, the LLC’s “powers, rights, and privileges shall cease.”

So what does this mean to you? If your entity has been dissolved or canceled and sues or is sued, it is essential to revive the entity if at all possible to protect communications between the entity and its legal counsel from disclosure in the litigation. Having read the prior article, we have outlined the steps to revive a suspended corporation.

We strongly recommend that you speak with your corporate attorney as soon as possible if your dissolved corporation or limited liability company is named in a legal action in order to take steps to ameliorate the potential loss of the attorney client privilege.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

“It’s Alive (Again)” Reviving a Suspended California Corporation

By Leave a Comment

The California Franchise Tax Board can suspend a corporation’s rights, powers, and privileges to conduct business in California for delinquent returns, failure to pay taxes and a variety of other reasons. Suspension, however, is generally reversible, although it can be an expensive, difficult task.

In order to revive a suspended corporation, the Franchise Tax Board requires all delinquent tax returns to be filed and all delinquent tax balances, including penalties, fees, and interest to be paid. The corporation must also be in good standing with the California
Secretary of State. Good standing requires the timely filing of the Statement of Information with the California Secretary of State along with the applicable fees.

Once all returns are filed, tax balances have been paid and the corporation is in good standing, the corporation must then file an Application for Certificate of Revivor. The Application can be submitted “by any stockholder or creditor, by a majority of the surviving trustees or directors thereof, by an officer, or by any other person who has interest in the relief from suspension or forfeiture.”

Revivals often occur when the corporation is in escrow or involved in litigation in which corporate status becomes an issue. In such cases the Franchise Tax Board permits “walk through” revivals. However, absent an escrow, litigation, have pending loans or a pending
federal grant, the process will not be fasttracked and can often take months.

If a corporation is revived, it is recommended that the corporation consider pursuing relief from the voidability of contracts permitted by Section 23305.1 of the Revenue & Taxation Code so that interim contracts will not be rendered void by the prior suspension or forfeiture. We suggest that you involve your attorney as soon as possible if it becomes necessary to revive a suspended corporation or, alternatively if you have claims against a suspended corporation.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

Are You Sure Your Salaried Employees Are Exempt?

By Leave a Comment

The California minimum wage increased to $10 per hour as of January 1, 2016.

This increase required California employers to pay more to keep exempt workers exempt. California employers who classify workers as salaried exempt must meet the Duties Test (that the employees’ duties fall within a statutory category that permits them to be exempt from the Minimum Wage law) and the Salary Test. The Salary Test requires the employee’s salary to equal or exceed double the minimum wage for full time work.

A full-time minimum wage earner now makes $20,800 per year (or more depending upon local county and city specific ordinances that require a minimum wage higher than $10 per hour). For example, the minimum wage in San Francisco, Oakland, and Emeryville presently is $12.25 and in Palo Alto it is $11.00. Thus, a salaried exempt worker not subject to a local ordinance that raises the minimum wage must be paid at least $41,600 annually ($10 per hour x 40 hours per week x 52 weeks per year, doubled).

If an employer fails to pay a salaried employee this standard the employee will be considered misclassified as exempt and will be required to pay the employee overtime wages. For example, a misclassified employee who works an extra 45 minutes a day, at $40,000 a year, would accrue an overtime liability of $5,625 per year. Employees have the ability to recover back wages for four years under California’s statute of limitations, so the amount would be $22,500 over four years, for just one worker. Imagine a staff of 45 misclassified employees and the employer’s liability exceeds seven figures.

If you are uncertain whether a salaried employee qualifies as exempt check with your legal counsel and get the numbers right so you don’t potentially fate a large liability for misclassification of an employee.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

Employers Can Require Employees to Repay Educational Expenses

By Leave a Comment

In USS-POSCO Industries v. Case, the California Court of Appeals considered whether an employer was entitled to employee reimbursement of educational costs when the employee terminated his employment two months after he completed a voluntarily three-year employer-sponsored educational program. The program required the employee to reimburse the employer for his education, on a pro-rated basis, if he quit within thirty months of completing the program.

The employee, Case, argued that the California Labor Code, the Business and Professions Code and the National Labor Relations Act all prohibited employee reimbursement. The Court disagreed and held the agreement valid and enforceable.

As a result, Case was required to reimburse USS-POSCO Industries for the educational program on a pro-rated basis.

The Court of Appeals distinguished a similar series of cases that prohibited reimbursement of training costs to the government by government employees and placed special emphasis on the voluntary nature of the USS-POSCO’s program and on the pro-rated nature of the reimbursement.

This decision provides a road map for employers to ensure their educational investment in willing employees will be realized or reimbursed. If you offer an employee educational program for job advancement consult with your legal counsel so that you do not end up providing former employees with free educations that can only benefit your competitors.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

What Vote Do You Need to Dissolve an LLC?

By Leave a Comment

The California Revised Uniform Limited Liability Company Act (RULLCA) provides three ways to dissolve a California LLC:

  • A triggering event requiring dissolution as set forth in a written operating agreement or in articles of organization;
  •  When Ninety consecutive days has passed during which the limited liability company has no members; or
  •  When a majority of the members vote to dissolve the LLC.

The California Corporations Code defines a “majority of the members” to mean “more than 50 percent of the membership interests of members in current profits of the limited liability company.”

Based on these statutes it appears what the articles of organization and operating agreement have to say about voting rights of members is irrelevant if the question is dissolution. This should not be of little moment if voting rights in the articles of organization or operating agreement are tied to a member’s interest in current profits. However, under new proposed legislation confusion on what is needed to dissolve will be pervasive if voting rights are not tied to current profits.

The newly proposed legislation, AB 1722, seeks to change the required vote to dissolve to “the vote of 50 percent of the voting interests”. However, this bill could further muddy the waters. It requires a vote of 50 percent” of the voting interests, not more than 50 percent. Also, the RULLCA does not define “voting interests.” Rather, it provides voting by members may be on a per capita, number, financial interest, class, group, or any other basis. Thus, if the articles of
organization or operating agreement do not provide for voting, then the default rule is that members vote in proportion to their interests in current profits.

We suggest you keep an eye on this new legislation. If it passes many LLCs will need to restate their articles of organization or amend their operating agreements to assure a vote of more than 50% of the those entitled to vote vote for voluntary dissolution of the California LLC.

In addition, where voting rights are not coextensive with the interests in current profits the language of the operating agreement will likely need to be revamped to assure an effective basis for voting rights that is not based on interests in current profits.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

Call Now Button