Students to Startups: Be Your Own Boss Legal Issues For Start Up Businesses Kring & Chung, LLP 38 Corporate Park I

1. Students to Startups: Be Your Own Boss Legal Issues For Start Up Businesses Kring & Chung, LLP 38 Corporate Park Irvine, California 92606 (949) 261-7700

2. Overview of Presentation • Entity Formation • Contract Basics • Dispute Resolution • Choosing an Attorney • How to Handle a Legal Claim

3. Choosing a Business Entity • Choosing a Business Entity Factors for Consideration: • Liability • Formalities • Control • Transferability

4. Types of Entities • Types of Entities • Sole Proprietorship • General Partnership • Limited Partnership • Corporation • Limited Liability Company • Limited Liability Partnership

5. Sole Proprietorships • Sole Proprietorships • Unlimited personal liability for losses • Management • No formalities • Net profits taxable to owner • Fictitious Business Name filing

6. General Partnerships • General Partnerships • Form of co-ownership by several persons • Can be sued in partnership’s name • Partnership Agreement outlines operation (can be oral or written) • Unlimited personal liability • Each partner has management and control • Consent required to transfer interest • Partnership is not a taxpaying entity (profit and loss passed through to partners)

7. Limited Partnerships • Limited Partnerships • At least one general partner and limited partner • Governed by California Revised Limited Partnership Act • Purpose to encourage passive investors (limited partner) • Joint and several liability to general partner • Limited role of Limited Partner • Formalities required (must file LP1 Certificate of Limited Partnership with Sec. Of State) • Written Partnership Agreement optional (can be oral or written)

8. Corporations • Corporations • Separate and distinct legal entity from owners • Continuity of existence despite death (Buy/Sell Agreement) • No personal shareholder liability (only corporation will be liable for debts) • Formalities (must be formed with Sec. Of State by filing Articles of Incorporation, preparation of Bylaws and Minutes) • Limitations (cannot appear in pro per in court except Small Claims actions) • Alter Ego/Piercing Corporate Veil Issues

9. Structure of Corporations • Structure of Corporations • Shareholders owners of corporation voting rights • Board of Directors elected by Shareholders on annual basis management and control policy and major decisions • Officers (President, Secretary, Treasurer) elected by Board of Directors on annual basis responsible for daily operations

10. Types of Corporations Corporations are separate taxable entities “C” Corporation • Every corporation starts out as C corporation • No limit on number of shareholders • No limitations on residency requirements of shareholders • Taxed at corporate level and shareholder level (no pass-thru taxation = double taxation) • No limit on classes of stock (common/preferred) • future services not adequate capitalization

11. Types of Corporations “S” Corporation • Starts out as C corporation – must file “S” election with IRS and FTB • 100 maximum shareholders • Shareholders limited to individuals, estate and certain trusts (ie. cannot be other entities) • No non-resident aliens as shareholders (must be resident aliens or U.S. citizens) • Only one class of stock Professional Corporations • Law, medicine, dentistry and accountants • Shares can only be issued to licensed

12. Limited Liability Company • Hybrid between corporation and partnership • Combines “pass through” tax treatment of partnership with limited liability of a corporation • Structure: centralized management is optional and may be by managers and/or members • Liability: alter ego liability • Lack of formalities not a factor for alter ego • Each member can bind LLC • Creation: Must file Articles of Organization with Sec. Of State; parties enter into Operating Agreement • Taxes: Not a separate taxable entity but must pay annual minimum franchise tax fee of $800.00

13. Limited Liability Partnership • Lawyers and accountants only • Pass through tax treatment with corporate liability shield • Registered with Sec. Of State • General Partnership with shield from liability • No vicarious personal liability for partnership acts • Annual franchise tax fee (same as LLC)

14. Corporation vs. LLC • Formation: costs about the same • Structure: LLC is more flexible • Corporation requires Board of Directors, Officers, Shareholders and Minutes • Taxes: must be “S” corporation to get pass through tax treatment; however, there are restrictions imposed on “S” corps • No annual franchise tax fee ($800) imposed on corporations for first year • LLCs more limited in ability to use ownership as employee incentive • (ie. stock options in a corporation)

15. Government Requirements for Businesses • Business Licenses - Cities • Fictitious Business Name - County • Resale Number - Board of Equalization • Workers Comp - Insurance Agent • Taxpayer ID Number - IRS • State Payroll Taxes - EDD

16. Intellectual Property Protections • Guidance on selecting a name/brand (infringement investigation) • DBA • Corporate Name • Trade Name/Trademark • Licensing • Pre-meeting confidentiality – • Non-Disclosure Agreement

17. Insurance Coverage for Businesses • Directors & Officers Liability • Workers Compensation • Credit Insurance – Bad Debt Insurance • Other Insurance

18. Why A Written Contract? • Almost always advisable • Complexity of Transaction and Contract • Allows you to clearly document terms • Helps ensure you address relevant issues • Damage Limitation Provisions • Binding Arbitration • Liquidated Damages • Lease Agreements • Ability to bring suit • Contracts Between Companies • Business “Partnerships”

19. Important Contract Terms • Liability Limitations • Product Warranties • Indemnity Provisions • Intellectual Property Protections • Venue • Attorneys Fees

20. Human Resources • Employee Handbook • At-Will Acknowledgments • NDA/Non-Disclosure Agreements/Confidentiality • Harassment Compliance Seminar • Hiring Procedures • Termination Checklist • Wage & Hour Issues - Independent Contractor vs. Employee - Exempt vs. Non-Exempt Issues - Overtime, Rest and Meal Break Claims

21. Selecting an Attorney • Referrals • Phone Books, Radio and TV • Proper Expertise • Fees Charged by Attorney • Personal Fit • Check the California Bar Website

22. How to Handle a Legal Claim • Comply Promptly with Imposed Deadlines • Consult with an Attorney • Determine Whether to Tender to Carrier • Prepare Chronology of Events While Memory is Fresh • Identify Evidence and Witnesses • Exercise Caution When Communicating With Adverse Party • Attorney-Work Product Privilege • Organize and Index Files

23. Q & A Thank you for your time! Legal Issues For Start Up Businesses