I have known Mr. Anorga since September of 2008 and has made an enormous positive impact on my medical practice. Because of him it now runs on auto pilot.

I encountered two extremely difficult human resource issues with two high-profiled employees and because of his legal advice and wisdom a smooth resolution was the result.

Mr. Anorga also helped me with a problem with a fortune 500 company and again I “came out smelling like a rose”.

If you are a small business owner, as I am, challenging issues will inevitably take place. Unfortunately, many people prefer not to be an entrepreneur because of the “headaches” of running a business. I assure you, if you retain Mr. Anorga as your attorney, your experience as a small business owner will be much more pleasant. Mr. Anorga has to be a vital member of your team. You will sleep better at night!

Sincerely,

Victor Gonzalez Carabello, MD

The trip was an opportunity to travel to a new destination while at the same furthering my legal education and expanding my legal network onto a national level.  On my flight back to Los Angeles, I was able to reflect on my trip and I was happy that I was able to go swimming and snorkeling on some of the world’s nicest beaches, and also that I was able to meet and establish great contacts with talented young lawyers from states like: Michigan, New York, South Carolina, Virginia and Washington.

I am thankful to the American Bar Association for affording me the opportunity to see new lands and meet new people. It’s something that I enjoy very much.  Stay tune for on my travel adventures as I continue my participation in the Young Lawyers Division during the 2010-201 1 year.  I was appointed to the Vice-Chair for General Practice, Solo, and Small Firm Division committee; it will be a great honor to serve as Vice-Chair and I am especially looking forward to traveling to conferences in Santa Fe, New Mexico; Atlanta, Georgia, Las Vegas, Nevada; and Toronto, Canada.

VOTING AGREEMENTS

The shareholders of a corporation may want to allocate control of the corporation in a way that is disproportionate to the ownership of shares of the corporation. Toward that end, they may want to ensure that their shares will be voted in a certain way. For example, they may want to vote their shares for specified persons as directors, vote as a majority of shareholders in the group may decide, or vote to effect a particular corporate policy. Common devices to accomplish these purposes are (1) voting agreements (or pooling agreements), in which the shareholders agree to vote their shares as provided in a voting agreement, and (2) voting trusts, in which legal title to the shares is transferred to a trustee, to be voted as provided in a trust agreement.

Voting agreements may be used in a close corporation to permit the shareholders to control the management of the corporation. Several management alternatives to voting agreements and voting trusts exist. These include a close corporation shareholder agreement; or a provision in the corporation’s articles of incorporation for super-majority votes by the corporation’s directors or shareholders on various matters.  In addition, a corporation’s capital structure can be designed to give some shareholders control that is disproportionate to their dollar investment, either by providing for voting and nonvoting shares or shares with special voting rights. This result can also be obtained by issuing debt securities for a portion of the corporation’s initial financing, instead of issuing voting shares for that financing.  A group of majority shareholders in a close corporation can also use a holding company, instead of a shareholder’s voting agreement or voting trust, to consolidate their voting power. Further, shareholders may sometimes find it useful to create a partnership to hold their shares, or, on rare occasions, to cause the corporation to issue stock to several persons to be held jointly.

A voting agreement differs from a shareholder agreement in three significant respects. First, the use of a voting agreement is not limited to shareholders of a close corporation, as is a shareholder agreement.  Second, a voting agreement may be among less than all of the shareholders. Third, a voting agreement covers only the exercise of shareholder voting rights and does not change the role of the shareholders with respect to the directors. Thus, if the shareholders of a close corporation want to enter into an agreement that extends beyond how their shares will be voted, and controls functions that are traditionally within the realm of the directors (for example, appointing officers and setting corporate policies), a shareholder agreement, not a voting agreement, should be used.

SHAREHOLDER AGREEMENTS

A shareholder agreement is a written agreement among all of the shareholders of a statutory close corporation [see Corp. Code § 158 (“close corporation” requires provision in articles limiting shareholders to 35 and specifically identifying corporation as a close corporation)] relating to the affairs and management of the corporation.  If the close corporation has only one shareholder, the shareholder agreement is between the shareholder and the corporation.

The General Corporation Law [Corp. Code § 300(b)] provides that no shareholder agreement that relates to any phase of the corporation’s affairs will be invalid as between the parties to it on any of the following grounds:

•            It relates to the conduct of the affairs of the corporation so as to interfere with the discretion of the directors;

•            It is an attempt to treat the corporation as if it were a partnership; or

•            It is an attempt to arrange relationships among the shareholders in a manner that would be appropriate only between partners.

Thus, in practice, a shareholder agreement permits shareholders to do the following:

•            Manage the close corporation informally, according to the provisions of the agreement, without observing corporate formalities related to director and shareholder meetings; and

•            Make decisions in areas usually reserved for the board of directors, such as dividend policy, distribution of assets on liquidation, selection of officers, and determination of their compensation and tenure

Unless otherwise provided in the shareholder agreement, the agreement may not be modified, extended, or revoked by less than unanimous agreement of the parties. A shareholder agreement terminates when the corporation ceases to be a close corporation, or on the original issuance of shares by the Corporation to a new shareholder who does not become a party to the agreement, unless the agreement provides that it will continue to the extent it is enforceable apart from Corp. Code § 300(b).

Shareholders in close corporations frequently want to manage the corporation in a partnership-like manner, determining among themselves who will manage the corporation’s business and how that management will be exercised, while retaining the limitation on personal liability and the other benefits of the corporation form. An important objective in many shareholder agreements is to protect a minority shareholder from the majority’s power by giving the minority shareholder a voice in the corporation’s management, either as a member of the board of directors or otherwise. Other shareholder agreements protect shareholder-employees by ensuring continued employment, and protect shareholder-investors by assuring a specified return of capital through dividends. A shareholder agreement may provide a mechanism requiring the corporation to buy back a shareholder’s shares on the occurrence of certain events such as the shareholder’s death, disability or termination of employment. The price for the buy back can be determined by a formula set forth in the shareholder agreement.

BUY-SELL AGREEMENTS

A buy-sell agreement (also known as a buyout agreement) is a contract, particularly important in the case of a close or closely held corporation, under which the shareholders or owners of a business agree to purchase the interests of a withdrawing or deceased shareholder [Black’s Law Dictionary (5^th ed. 1979). At 181]. The agreement describes the conditions (usually death, disability, or termination of employment) and the terms under which shareholders may or must transfer their shares [Black’s Law Dictionary (5^th ed. 1979, at 181].

A buy-sell agreement is merely an executory contract to buy and sell personal property (that is, an employee’s shares) if and when a particular event such as termination of employment occurs. A shareholder under such an executory contract is entitled to the benefits of ownership until delivery is made or tendered to the buyer, unless the buy-sell agreement specifies or implies a different intention.

Generally, a buy-sell agreement provides the corporation and the shareholders with the certainty of a legally binding transfer plan well in advance of the actual events, facilitating agreement on the terms and manner of transfer. It ensures the uninterrupted continuation of the business entity in the event of the death or withdrawal of a participant, prevents “outsiders” from becoming transferees of corporate shares upon a shareholder’s death, disability, or retirement from the corporation, and enables the shareholders to sell their shares for a fair price despite the lack of a public market.  Further, if the agreement is properly shareholder’s interest in the corporation, and ensures that his or her estate will receive the liquid assets it may need for taxes, creditor’s claims, or probate expenses. An agreement may also give the remaining shareholders an option to dissolve the corporation upon the death of a major shareholder.

I hope this was a good summary of important shareholder documents for California corporations. That’s all for today.

For more information on the matter, please contact the Law Offices of Omar S. Anorga at 213 489-1271.  Thank you.

By using this blog site you understand that this information is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice. This blog site should not be used as a substitute for competent legal advice from a licensed attorney in your state.

Today let’s briefly talk  about general partnerships -

Definition

A partnership is defined by the California Uniform Partnership Act of 1994 [Corp Code § § 16100 et seq.] as an association between two or more “persons” to carry on as co-owners a business for profit formed under Corp. Code § 16202, or a comparable law of another jurisdiction. The term “persons” is used in the Act to mean an individual, corporation, business trust, estate, trust, partnership, LLC, LP, LLP, association, joint venture, government, government subdivision, or any other legal or commercial entity. [Corp. Code § 16101(9)]

A “business” includes every trade, occupation and profession. [Corp. Code § 16101(1)]

General Partner’s Duties

Partners owe fiduciary duties such as:

• Duty of Loyalty – refrain from dealing with a party whose interest is adverse to the interest of the partnership and refrain from competing with the partnership for personal gain
• Duty of Care – refrain from engaging in negligent or reckless conduct
• Duty to act in good faith and fair dealing

Liabilities of a Partnership

Each general partner is deemed an agent of the partnership and has the authority to bind the partnership to an agreement with a third party. [Corp. Code § 16301(1)]

The partnership is also liable for any loss or injury caused to a person by the conduct of a partner acting in the ordinary course of business of the partnership. [Corp. Code § 16305(a)]

Liabilities of Partners

All general partners are jointly and severally liable for all partnership obligations unless otherwise agreed to. 16306(a) In a limited partnership, there is a general partner responsible for partnership obligations, and a limited partner responsible to the extent of his/her ownership interest in the partnership.

A person admitted to an existing partnership is not responsible for obligations existing prior to his admission. 16306(b)

If a general partner represents himself as a partner of an existing partnership to a third party, he is also personally liable to that party.

That’s all for today.  We’ll talk more partnerships in the foreseeable future. Take care.

For more information on the matter, please contact the Law Offices of Omar S. Anorga at 213 489-1271.  Thank you.

By using this blog site you understand that this information is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice. This blog site should not be used as a substitute for competent legal advice from a licensed attorney in your state.

The California Corporations Code §§ 16100, 1602 et seq., (“Act”) provides rules to determine whether a partnership exists.  If a partnership does exist, it will be governed by both the partnership agreement and the Act.  Under the Act, the partnership agreement is defined as the agreement, whether written, oral, or implied, among partners concerning the partnership, including amendments to the partnership agreement.  The relations among the partners and between the partners and the partnership are governed  by this agreement, whether oral or written.  In addition, the Act will govern the relations among the partners and between the partners and the partnership, to the extent the partnership agreement does not provide otherwise.

While the partnership agreement may vary most provisions of the Act, it may not do any of the following (non-exhaustive list):

• Vary the rights and duties under the Corp. Code § 16105 regarding the statement of partnership, except to eliminate the duty to provide copies of statements to all of the partners.

• Unreasonably restrict the right of access to books and records granted by Corp Code § 16403(b) or the right to be furnished with information concerning the partnership’s business and affairs as granted by Corp Code § 16403(c)

• Eliminate the duty of loyalty under Corp Code §§ 16404(b) and 16603(3), although, if it is not manifestly unreasonable, the partnership agreement may identify types or categories of activities that do not violate the duty of loyalty, and may provide that all of the partners or a specified percentage may authorize or ratify, after full disclosure of all materials facts, a specific act or transaction that otherwise would violate the duty of loyalty.

• Unreasonably reduce the duty of care under corporation code.

• Eliminate the obligation of good faith and fair dealing under the corporation code, but the partnership agreement may prescribe the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable.

A well-drafted partnership agreement will enable the partners to clarify their respective rights and obligations before the commencement of the partnership business.  This may eliminate ambiguities and areas of doubt that might result in future disputes and controversies.  The existence of an oral joint venture or partnership agreement must be established  by a preponderance of evidence.  Thus, where the agreement is not in writing, the intention of the parties must be determined from their language and conduct, and misunderstandings may escalate into litigation.

As with all other contracts, competency of the parties, consideration, the nature of the agreement, and a meeting of the minds are elements necessary of the validity of a partnership agreement.  A partnership agreement must be free from fraud.  Where a party has been induced to enter into a partnership by the fraudulent representations of a copartner, the agreement may be rescinded.  Similarly, the agreement must not have as its object an illegal purpose or be contrary to public policy if it is to be enforced.

A partnership being drafted with respect to a specific enterprise should include provisions reflecting the type of business engaged in and the particular circumstances that may be unique  to that partnership.

That’s all for now on partnership written agreements.  Stay tuned until next week when we will discuss certain types of partnerships – general, limited, etc.

For more information on the matter, please contact the Law Offices of Omar S. Anorga at 213 489-1271.  Thank you.

By using this blog site you understand that this information is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice. This blog site should not be used as a substitute for competent legal advice from a licensed attorney in your state.

Fraudulent Misrepresentation

Fraudulent misrepresentation, known also as fraud or deceit, protects economic interests and the right to fair and honest treatment. For a fraud claim, a plaintiff must establish that the defendant intentionally misrepresented a material fact and the plaintiff relied on and was harmed by the misrepresentation. For example, if a business submits materially misleading financial statements to a bank in an attempt to secure a loan and the bank, relying on such statements, lends money to the business, the bank will have a fraud claim against the business if the business later defaults on the loan. A fraud claim may also arise from the failure to disclose a material fact if a defendant owed a duty to speak on account of a special relationship. For example, a financial advisor representing both a buyer and seller of real property may be liable for fraud if he knows that the property contains toxic chemicals and fails to tell this to the buyer.

Interference with Contractual Relations

The tort of interference with contractual relations permits a plaintiff to recover damages based upon a claim that a defendant interfered with the plaintiff’s contractual relations. The elements of an intentional interference with contractual relations claim are (1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.

To be considered tortious, a defendant’s actions must substantially exceed fair competition and free expression, such as persuading a bank not to lend a competitor any more money.

Interference with Prospective Business Advantage

The tort of interference with prospective business advantage protects economic interests that have not yet been formalized into contract. The elements of that tort are (1) an economic relationship between the plaintiff and some third person containing the probability of future economic benefit to the plaintiff, (2) defendant’s knowledge of the existence of the relationship, (3) defendant’s intentional acts designed to disrupt the relationship, (4) actual disruption of the relationship, and (5) damages to the plaintiff proximately caused by the acts of the defendant.

Unfair Competition

In California, the tort of unfair competition includes “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” California Business and Professions Code § 17200.

Copyright 1999 FindLaw Inc.

The seminar focused on practical pointers for conducting workplace investigations. The following are some important highlights from the seminar:

• The investigation should be conducted upon actual or constructive notice of alleged wrongdoing;
• When selecting an investigator, consider neutrality, objectivity and knowledge of the Law pertaining to the subject matter of investigation;
• During the investigation, the employer should take necessary steps to avoid contact between complainant and alleged wrongdoer;
• The investigation should be conducted thoroughly by obtaining complete stories and facts, interviewing all witnesses and documenting all processes;
• Employers should be aware of the special circumstances in which a victim delayed the complaint or has a lack of direct evidence;
• All steps and processes of the investigation should be properly documented;
• When a discrepancy exists between both sides of the story, the investigator should weigh the credibility of both parties;
• The investigator should conduct face-to-face interviews in order to observe demeanor and credibility
• The investigator should not offer any opinion or supposition during interviews;
• All information gathered during an investigation should be confidential;
• The final report should make a determination as to whether the wrongdoing occurred;
• The employer must take appropriate and immediate action depending on the outcome of the report;
• The employer should monitor the workplace for 6 month to a year after the investigation to ensure no retaliation or further wrongdoing occur; and
• Employer should always adhere to company policies and procedures.

For more information on the matter, please contact the Law Offices of Omar S. Anorga at 213 489-1271.  Thank you.

By using this blog site you understand that this information is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice. This blog site should not be used as a substitute for competent legal advice from a licensed attorney in your state.