5 LEGAL MISTAKES TO AVOID WHEN FORMING A BUSINESS

Opening a business can be one of the most exciting undertakings of your life, but it can also be one of the scariest.  There are many aspects of a business that need to be considered and individuals often put off some of the important legal issues that should be addressed.  We’ve compiled a list of the five most common legal mistakes people make when forming businesses to help people avoid trouble down the road.

1.      Not Choosing the Correct Entity Type:  The most common types of business entities are sole proprietorships, corporations, limited liability companies (LLCs), limited partnerships, and general partnerships.  Some types of businesses or professions have restrictions on the types of entity available.  Each entity type has its own advantages and disadvantages; for example, some business structures (such as sole proprietorship) do not offer the personal asset protection of other types (such as a corporation).  We strongly encourage all new business owners to become familiar with each type of entity before deciding what business structure is right for their venture.  It can be difficult to change the business structure at a later date, so setting it up correctly from the beginning is imperative.  Further, once the type of entity is chosen, it is critical to follow all necessary formalities for that entity type.

2.      Failing to Document Business Partners Rights & Responsibilities: No matter how well you get along with your business partners, who may even be family or longtime friends, it is important to have a written agreement that addresses each party’s contribution (both financial and efforts), what each partner owns, and what will happen in the event of a buyout or fallout between the partners.  Another common mistake that can lead to problems is creating a 50-50 partnership because this can lead to deadlocked decisions and put the company into limbo when action is needed.  A 51-49 split usually ensures that executive decisions can always be made in a timely manner.

3.      Failure to Get a Business License.  Most businesses, no matter how big or small, are required to have some type of business license whether local, city, state and/or federal.  Generally business licenses are relatively inexpensive but the fines if it is discovered that your business is operating with the correct license(s) can be quite costly.

4.      Failure to Prepare Necessary Contracts.  Written agreements should be prepared any time that you deal with an employee or independent contractor, and with most company vendors or suppliers.  For many businesses it is critical that employees or contractors keep certain business information confidential; a written nondisclosure agreement can help to protect such information.  Basic terms and payment details should be in writing for any vendor or supplier used by your company.

5.      Ignorance of Business Law.  As the saying goes, ignorance of the law is no excuse.  Every entrepreneur should know basic contract rules such as how to protect intellectual property through patent, trademark and copyright law, basic employer-employee law, and governmental regulation of his/her business type.  Being familiar with these types of issues and how they will affect your business may prevent litigation which can destroy a small business.

If you are starting a California business and would like to talk to an attorney about any of the above, or if you need help forming a business entity, please contact Suzuki Wuori, LLP at 619-462-0995.

The materials appearing on this blog are provided for informational use only, and are in no way intended to constitute legal advice or the opinions of Suzuki Wuori, LLP  or any of its attorneys. Transmission or receipt of any information from this website does not create an attorney-client relationship, and you should not act or rely upon any information appearing on this website without seeking the advice of an attorney.

Divorce & Estate Planning

When going through divorce, most people think of child custody, division of assets, or support payments; estate planning is an area that is often overlooked.  If you were to die before your divorce was finalized, the following would occur:

•  If you do not have a will, then your spouse will be entitled to at least 50% of your assets if you have children.  If you have no children, the person you were in the process of divorcing would receive 100% of your estate.
• If you have a will, or other estate planning documents, such as a trust, your spouse will probably serve as executor or trustee and will be a beneficiary entitled to a large portion of your assets.
• If you have life insurance, your spouse is likely the named beneficiary and would receive the entire life insurance payout.
• If you have any real property held in joint tenancy, or as community property with right of survivorship, your spouse will automatically become the sole owner of such property upon your death.

Further, if you have documents such as an advance health care directive or medical power of attorney naming your soon-to-be former spouse as your agent, they will be able to make medical decisions on your behalf should you become incapacitated or temporarily unable to make such decisions yourself.

As soon as you file for divorce in California, you should consider:

• Revoking your will and creating a new will.
• Revoking your living trust.  You can create a new trust, however, due to an automatic restraining order the new trust cannot be funded; the restraining order will also prevent you from modifying your existing trust without your spouse’s consent or a court order until the divorce is finalized.
• Severing real property held as joint tenants with right of survivorship or as community property with right of survivorship.
• Changing your nominations for primary agent under both financial powers of attorney and health care powers of attorney or advance health care directives.
• Life insurance beneficiary designation changes are prohibited under the automatic restraining order, but these should be reviewed either prior to filing for divorce or as soon as the divorce is finalized.

Any changes to your estate planning documents should be discussed with and reviewed by an attorney to ensure that required formalities for both revocation and execution of documents are followed and that you are not violating the automatic restraining order in place under California law. 

The materials appearing on this blog are provided for informational use only, and are in no way intended to constitute legal advice or the opinions of Suzuki Wuori, LLP  or any of its attorneys. Transmission or receipt of any information from this website does not create an attorney-client relationship, and you should not act or rely upon any information appearing on this website without seeking the advice of an attorney.

What is an Advance Health Care Directive?

An advance health care directive is a written document which informs your physician, family, and friends about your medical treatment preferences.  You may have heard of living wills and medical powers of attorney – California allows these documents to be combined into a single document known as an advance health care directive.  If you become unable to communicate your desires for your treatment, are suffering from a terminal illness, or are unconscious, the advance directive will make your wishes known.  It will specify the types of treatment that you want or do not want, including everything from your desire to stay at home rather than a nursing facility, to the insertion of feeding tubes, the use of heart and lung bypass machines, or cardiopulmonary resuscitation.  Your advance health care directive can also explain your preferences regarding organ donation and your burial wishes.

An advance health care directive allows you to clearly describe what quality of life it is important for you to maintain, while also ensuring that your loved ones will not have to speculate about your wishes or make stressful medical care decisions for you during what will already be an emotional time.  You may wish to discuss your end-of-life decisions with your family and your doctor, or to ask your physician or attorney any questions you may have.

An important part of creating an advance health care directive is selecting an agent, the person who will carry out your wishes as described in the document and will make medical treatment decisions on your behalf.  It is usually best to name at least two back up agents in case your first nominated agent is unable to serve.  Most times, people choose their spouse or another relative to act as agent.  It is also strongly recommended that, in addition to the written document, you have a conversation with your physician and family members about your wishes.

Other things you should know about advance health care directives:

• You should keep a copy of your advance health care directive in a safe place, along with your other estate planning documents (such as your will or trust), and also give a copy to your doctor and your named agent(s).

• Advance health care directives do not expire, they remain in effect until they are changed.  However, if you complete a new advance health care directive, it will render the previous directive void. 

• Advance health care directives are governed by state law, a directive valid in one state will not necessarily be valid in another state.   If you have recently moved or if you spend a considerable amount of time in more than one state, you should complete an advance health care directive for each state in which you spend a significant amount of time.

• Emergency medical personnel cannot honor advance health care directives.  Once emergency personnel have been called to your aid, they must do what is necessary to stabilize you for transfer to a hospital, even if the treatment goes against your directive.  Only after a physician examines you and fully evaluates your condition can advance directives can be implemented.

• You should review your advance health care directive at least every five years to ensure that it still reflects your wishes. If you want to change anything in an advance directive you should complete a whole new document, rather than crossing out or trying to handwrite a change on the directive, since such changes may not be valid.

If you have any questions or would like assistance in creating or updating an advance health care directive, please call 619-567-4443 today to speak with an estate planning attorney at Suzuki Wuori LLP’s La Mesa office.