Forming a Corporation or LLC

Anyone who operates a business, alone or with others, may incorporate or form a Limited Liability Company ("LLC"). Under the right circumstances, the owner of any size business can benefit!

Reduces Personal Liability
Incorporating or forming and LLC helps separate your personal identity from that of your business. Sole proprietors and partners are subject to unlimited personal liability for business debt or law suits against their company. Creditors of the sole proprietorship or partnership can bring suit against the owners of the business and can move to seize the owners’ homes, cars, savings or other personal assets. Once incorporated, the shareholders of a corporation or members of an LLC have only the money they put into the company to lose, and usually no more.

Adds Credibility
A corporate structure communicates permanence, credibility and stature. Even if you are the only stockholder or employee, your incorporated business may be perceived as a much larger and more credible company. Seeing “,inc.” or “corp.” at the end of your business name can send a powerful message to your customers, suppliers, and other business associates about your commitment to the ongoing success of your venture.

Tax Advantages – Deductible Employee Benefits
Incorporating usually provides tax-deductible benefits for you and your employees. Even if you are the only shareholder and employee of your business, benefits such as health insurance, life insurance, travel and entertainment expenses may now be deductible. Best of all, corporations usually provide an increased tax shelter for qualified pensions plans or retirement plans (e.g. 401K’s).

Easier Access to Capital Funding
Capital can be more easily raised with a corporation through the sale of stock. With sole proprietorships and partnerships, investors are much harder to attract because of the personal liability. Investors are more likely to purchase shares in a corporation where there usually is a separation between personal and business assets. Also, some banks prefer to lend money to corporations.

An Enduring Structure
A corporation is the most enduring legal business structure. Corporations may continue on regardless of what happens to its individual directors, officers, managers or shareholders. If a sole proprietor or partner dies, the business may automatically end or it may become involved in various legal entanglements. Corporations can have unlimited life, extending beyond the illness or death of the owners.

Easier Transfer of Ownership
Ownership of a corporation may be transferred, without substantially disrupting operations or the need for complex legal documentation, through the sale of stock.Centralized ManagementWith a corporation’s centralized management, all decisions are made by your board of directors. Your shareholders cannot unilaterally bind your company by their acts simply because of their investment. With partnerships, each individual general partner may make binding agreements on behalf of the business that may result in serious financial difficulty to you or the partnership as a whole.

Corporation vs. LLC
Many clients ask which is better, a corporation or an LLC. This is a complex issue and must be addressed on a case-by-case basis with the your attorney and your tax consultant. In California, some businesses such as contractors or attorneys cannot do business as an LLC.

The purpose of this article is to provide general information on the law, which is subject to change. If you have a specific legal problem, you should to consult a lawyer.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Renewing a California Judgment Lien

Question: Does an abstract of judgment have a 10 year life just like a judgment and do you need to renew an abstract of judgment every time you renew the judgment?

Answer: Filing an application for renewal extends the judgment created by the abstract. However, you must record a certified copy of the application for renewal at the county recorders office in order to perfect the extension. Recording a new abstract may give you a lower priority to liens recorded after your original abstract.

You should also check to see if the debtor's property has changed hands since the time you recorded the original abstract. There are additional procedures you need to follow to extend the lien with respect to the new owner if a transfer has taken place. Failure to follow the proper procedures to notify the new owner could invalidate your judgment lien.

In most cases, it should not take the full 10 years to collect the judgment. If you need assistance in collecting an old judgment, please feel free to contact our office at (619) 448-2129 for a complimentary consultation.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Update on Landlord & Tenant Rights

The Legislature has reinstated the requirement that a landlord give a tenant 60 days’ advance written notice to end a periodic tenancy in some circumstances. Most periodic tenancies are month-to-month or week-to-week.

Beginning January 1, 2007, the landlord must give the tenant 60 days’ advance written notice to end the tenancy if every tenant and resident have lived in the rental unit for a year or more.

However, the landlord can give the tenant 30 days’ advance written notice in either of the following situations:

• Any tenant or resident has lived in the rental unit less than one year; or
• The landlord has contracted to sell the rental unit to another person who intends to occupy it for at least a year after the tenancy ends. In addition, all of the following must be true in order for the selling landlord to give the tenant a 30-day notice –
  • The landlord must have opened escrow with a licensed escrow agent or real estate broker, and
  • The landlord must have given the tenant the 30-day notice no later than 120 days after opening the escrow, and
  • The landlord must not previously have given the tenant a 30-day or 60-day notice, and
  • The rental unit must be one that can be sold separately from any other dwelling unit. (For example, a house or a condominium can be sold separately from another dwelling
  unit.)

A tenant who wants to end a periodic tenancy must give the landlord the same amount of written notice as there are days between rent payments (for example, 30 days’ notice if the tenant pays rent monthly). This is true even if the landlord has given the tenant a 60-day notice, provided that the amount of the tenant’s notice is at least as long as the number of days between rent payments, and the tenant’s proposed termination date is before the landlord’s termination date.

Do I Need an Attorney?

I get this question a lot from potential clients that are concerned about the cost of legal fees. While there are some instances where a party to a lawsuit must have an attorney such as a corporation or a person subject to a conservatorship, most individuals have the right to represent themselves and conduct their own legal affairs. The question is whether or not you SHOULD represent yourself.

I compare representing yourself to changing your own oil in your car. When I was in high school, I learned to change my own oil. I even remember that you are supposed to lubricate the gasket on the new oil filter to get a better seal. But I do not change my own oil.

If I change my own oil, I will spend half my Saturday morning underneath my truck and then still have to figure out how to dispose of the used oil. On the other hand, I can take my truck to the local EZ Lube and know that it will get done right, pay someone else to do it for $25 and get a free car wash while I read the paper at the local Starbucks. In other words, I don’t change my own oil.

Are you comfortable with your legal knowledge and skills? Then maybe you can represent yourself, but it never hurts to at least call a qualified attorney for a complimentary consultation.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Wage Garnishments and the Employer's Duties

Question: I am in California and I just received a wage garnishment for one of my employees. What are my duties?

Answer: When the Sheriff's Department serves an Earnings Withholding Order ("EWO") on an employer, it will contain detailed instructions on how to proceed. If the employee works for you, you must give the employee a copy of the EWO as well as the Employee Instructions within 10 days after receiving the EWQ.

You were also provide with a document called an Employer's Return. You must complete this form and mail it the Sheriff's Department within 15 days after receiving the EWO, whether or not the employee works for you.

If the employee still works for you and there are no other wage garnishments in place, you must begin withholding money from the employee's paycheck. Count 10 calendar days from the date when you received the EWO. If your employee’s pay period ends before the tenth day, do not withhold earnings payable for that pay period. You should withhold from earnings that are payable for any pay period ending on or after that tenth day. You must also continue withholding for all pay periods until you withhold the amount due.

The Employer's Instructions will tell you how to calculate the amount of money to be withheld form each paycheck. You must pay the money to the Sheriff's Department by the 15th of the next month after each payday. Be sure to mark each check with the case number, the Sheriff's file number, and the employee's name so the money will be applied to the correct account.

You should continue to withhold money form the employees patch until you receive a written notice form the Sheriff; (2) receive an EWO of higher priority (i.e. for child support); or (3) a court order terminating the EWO such as a bankruptcy filing.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.