Legal Insights

certificate of incorporation

Earlier this month, news broke that Facebook is changing its certificate of incorporation to reflect important changes that directly affect both its long-term future and the current majority voting control held by Facebook cofounder and CEO, Mark Zuckerberg. As explained by Matt Weinberger on Business Insider, Facebook is in the process of altering its certificate of incorporation so that (1) “Zuckerberg’s majority voting control is good only while he is an executive at the company” and (2) he cannot “pass his majority control to his descendants—including his daughter (read more…)

doctor recruitment agreementPhysician recruitment agreements are utilized when a hospital, device-maker or other health care service or equipment provider wants to incentivize the relocation of a physician to a geographical area that is underserved in their specialty.

Such agreements typically include a guarantee of a minimum salary provided by the hospital or other health care service/equipment provider, as they start a new practice in a new locale, coupled with a requirement that the physician stay in the area for a certain amount of time. To accomplish this, the guarantee is structured as a loan (read more…)

trademark license agreementsAs we have explained on this site when we addressed the utility of license agreements in general, a trademark is a word, phrase, symbol, or design that signals to consumers the source of a good or service. While trademarks cannot be “baldly” licensed, meaning that they cannot be licensed to represent a good or service that differs markedly in quality from what consumers expect of goods or services labeled with that mark, trademark license agreements can allow for companies to earn additional revenue without incurring the costs of producing and distributing additional products. (read more…)

postnuptial agreementLike a prenuptial or premarital agreement, a postnuptial agreement is a legal contract that allows a married couple to define the ownership of their respective assets. However, as the name implies, postnuptial agreements are signed after a couple has already entered into marriage or a civil union. Like a prenuptial agreement, a postnuptial agreement can address spousal support (alimony) and clarify the division of all property or assets acquired individually before the marriage and all community property accumulated during the marriage. (read more…)

confidentiality agreement enforcementNon-disclosure or confidentiality agreements, which allow one party to legally protect trade secrets or other proprietary information exposed to third parties, can prove useful in a number of business contexts. For instance, in the event of a potential merger or sale of a business, both parties may find it useful to have a confidentiality or non-disclosure agreement in place that covers information learned in conducting due diligence. (read more…)

client servicesIn 2014, a group of current and former NFL players entered into individual client services agreements with Branch Banking and Trust Company (BB&T) to provide each player with specified services, including bill pay. As a result of allowing large, unauthorized withdrawals from these accounts by Pro Sports Financial Inc., a financial management firm and nonparty to the lawsuit, the players have filed a lawsuit seeking compensation from BB&T in part due to its breach of the client services agreement, alleging that the bank allowed withdrawals that did not fit those (read more…)

forming a startupWhen forming a corporation in California, shareholder agreements, which regulate the legal ownership rights of shareholders in a corporation and typically provide for restrictions on the transfer of shares and provisions that govern the shareholders’ management of the corporation, are commonly the most negotiated formation document. Though these are among the most common purposes behind formalizing a shareholder agreement, shareholder agreements are highly versatile and allow companies substantially more utility than provided in the brief description above. (read more…)

purchase and sale due diligenceNearly four years after having signed a purchase and sale agreement formalizing an approximately $2.4 billion acquisition by Marathon Petroleum of a Houston-area refinery from its previous owner, British Petroleum (BP), Marathon has filed a lawsuit alleging that BP breached terms contained in the 2013 purchase and sale agreement signed by the two companies. Specifically, Marathon’s stated position is that at the time of the transaction BP knew that its refinery was not in compliance with a number of environmental laws but had stopped trying to correct areas of non-compliance in the period leading up to the sale date, all of which was in violation of the terms set forth in the purchase and sale agreement. (read more…)

buyout provisions shareholder agreementsMars, the world’s largest candy maker, announced in early October 2016 that it will buy out the minority stake held by Berkshire Hathaway in Wrigley, a Mars subsidiary, as part of its long-term plan to integrate Wrigley with its Mars Chocolate operations rather than continuing to operate the two segments separately.

Mars’ move to buy out Berkshire Hathaway comes as no surprise in Wrigley’s original shareholder agreement, which was put in place after Berkshire Hathaway facilitated Mars’ $23 billion takeover of Wrigley in 2008, (read more…)

california employment agreementsEffective January 1, 2017, Section 925 will be added to the California Labor Code as a result of California Governor Jerry Brown signing Senate Bill 1241 in late September 2016. It is critical for both employers located in California and employers who employ workers in California to understand that, once in effect, Section 925 will preclude employers from stipulating in employer agreements that employees arbitrate or litigate employment disputes outside California or under the laws of a state other than California, though employees who negotiated their employment agreement with the assistance of an attorney are not subject to this change. (read more…)

term sheet vs letter of intentYour Contract Lawyer fields inquiries on a regular basis about drafting or reviewing a term sheet or letter of intent, and there is inevitably a discussion of whether or not such agreements are legally binding. The short answer is that they are not – at least not generally in the ways that are expected by the client.

Term sheets and letters of intent are often seen as a quick way to get the terms of a transaction down on paper and agreed upon, without having to labor over and negotiate a more substantive agreement. (read more…)

llc manager and membersLLCs can be managed by all members (owners) or one or more managers. Much of the time, in a small business context, you will see all members managing the LLC. Our preference, and the way we organize most LLCs that we form, however, is to have the LLC managed by one or more managers rather than all members. This is an important decision to make at the outset, as even though the nature of the LLC’s management is set forth in its operating agreement, in many states, including California, this is the one organizational choice you have to make in the LLC’s formation document – the Articles of Organization – which gets filed with the state at the very outset. (read more…)

settlement agreementIt is important to document when a partner or co-owner leaves a business or when a business must be closed or shut down entirely. Even if there is no compensation offered, you will need to document the withdrawal of a partner or an owner of your company; otherwise there will be no record of the partner or owner actually leaving the business and you can be exposed to claims that it never happened, which as outlined below, can only have negative consequences. It is important here to remember that withdrawing from an ownership position is different than withdrawing as an (read more…)

asset sale or company saleWhen buying or selling any business, the first question to ask is what kind of entity is currently operating the business and what is being sold: the entity itself or just the business’ assets? If the business is currently being operated as a sole proprietorship or partnership, the purchase will be from the individual owner or owners, and essentially it will be an acquisition of the “business”, meaning all the assets of the business. This can include a DBA (“doing business as”) or fictitious business name, which is the right to use a trade name in the county. If there is a formal entity operating the business, such as a corporation or LLC, both the buyer and seller have to consider (read more…)

review premarital agreementBecause prenuptial agreements are viewed very skeptically by judges, due to the penchant for abuse by one spouse (with a higher income or asset base) taking advantage of the other spouse, it is always advisable to have an attorney review a prenuptial agreement before it is signed. The attorneys for each party will sign an acknowledgment that they have discussed the agreement with their client and that their client fully understands the agreement. This acknowledgment will help a family court judge enforce the prenuptial agreement, as it may foreclose arguments that a party was unaware of what they were signing or were pressured into signing the agreement without having the opportunity to review and negotiate it. (read more…)

dissolving business after bankruptcyThough we have discussed in previous posts that purchase and sale agreements can be used either to purchase some or all of the assets of a business or acquire an entire company, one context in which either kind of sale commonly takes place is after a company has filed for bankruptcy. After a company has filed for bankruptcy, potential buyers may seek to purchase the entire company at a lower liquidation price or they may find it preferable instead to purchase only portions of the company or its assets. In the case of the April 2016 bankruptcy filing of SunEdison, one of the world’s largest renewable energy developers, significant debate (read more…)

LLC operating agreementThe internet abounds with countless instances in which business arrangements have come to an end as the result of disagreements, particularly when friends or family members are both owners of a business, whether it is a partnership, a limited liability company, or a corporation. Even when all parties have the best intentions, owning and/or managing a business with a friend or family member can become unexpectedly complicated and lead to disagreements that can be exceedingly difficult to resolve without the proper framework in place. (read more…)

bank transactionBBCN Bancorp, Inc., the holding company of BBCN Bank, a Los Angeles headquartered bank with approximately $8.1 billion in assets and 50 branches nationwide, and Wilshire Bancorp, Inc. jointly announced in July 2016 that each company’s shareholders have voted to approve a proposed merger agreement that schedules the merger transaction for completion by the end of July 2016. Pursuant to the merger agreement, once the merger transaction has been completed, the combined company will be named “Hope Bancorp, Inc.” and it will operate a (read more…)

non compete clauses in dissolution of businessGenerally speaking, non-compete provisions are invalid in California, though they are valid in many other states. California is a labor-friendly state and does not want employers to be able to restrict former employees’ ability to earn a living. So in most cases, non-compete clauses are invalid and unenforceable in California. There are three exceptions, however, which mostly deal with selling or dissolving a company or partnership.

• The three exceptions are: (read more…)

diabetes technology licensingTandem Diabetes Care, Inc., a medical device company based in San Diego, California, that develops and manufactures products for people with diabetes who use insulin, recently entered into a license agreement with TypeZero Technologies LLC, a “digital health and personalized medicine company,” that will allow Tandem to “integrate TypeZero’s artificial pancreas (“AP”) technology into a next-generation t:slim® Insulin Pump.”

The terms of the license agreement between the two companies outline the (read more…)

joint ventures for real estate developmentJoint ventures, which allow companies and individuals to combine resources for the purpose of pursuing a specific business project, are distinct from partnerships which conversely provide for an ongoing business enterprise. Furthermore, in joint ventures, each party has the ability to operate independent businesses without violating fiduciary duties to the party involved in the joint venture.

Admittedly, the difference between joint ventures and partnerships can be a bit confusing and there is no bright-line distinction between the two. (read more…)

reseller agreementsOn July 26, 2016, Systems Applications Products (SAP) and Ricoh Innovations Corporation (RIC), a technology company headquartered in California’s Silicon Valley, announced that the two companies had signed a global reseller agreement to allow SAP to resell RIC’s image recognition platform as an image intelligence add-on as part of its SAP Hybris Cloud for Customer solution. (read more…)

equity to service providerA common consideration for business owners, especially for owners who have just started their business or are still in the startup phase of development, is whether or not to give a service provider equity in the business as opposed to paying them a salary or fee for the provided service.

In general, when a client wants to give equity to a service provider, the first question Your Contact Lawyer asks is, “Do you really have to give the service provider equity?” (read more…)

representation for drafting founding documentsMany people do not realize that an attorney would have a conflict of interest in representing all or even some of the owners of a company in drafting or reviewing the founding document(s) for a company. It is perfectly acceptable for one attorney to represent a company in later transactions, such as engaging or hiring independent contractors and employees or entering into a strategic partnership with another entity; in such cases, the attorney represents the interests of all the owners by representing the company as a whole. In the drafting of a company’s founding document(s), however, the owners, rather than the company itself, are the parties to those agreements and each of those parties has different interests. (read more…)

beverage distribution agreementsIf you are a manufacturer or supplier and want to work with a reseller or retailer to sell your products, a distribution agreement is a necessary tool that can allow you to control the path of your products to market. For instance, if a company has only been selling products in one area but is looking to expand geographically into other markets, a distribution agreement can clarify territorial restrictions so that sellers or retailers can be restricted to selling in specified geographies to avoid overlap and competition between sellers and retailers. (read more…)

car startupOn May 13, 2016, General Motors officially acquired self-driving car startup Cruise for approximately $1 billion, however, the sale almost fell through because the company failed to document properly the scope and involvement of an alleged co-founder, Jeremy Guillory. On May 8, just five days before the official date of purchase, Cruise CEO and founder, Kyle Vogt, sued Guillory to obtain a ruling that Guillory possessed no equity whatsoever in Cruise, and therefore, would not be entitled to any proceeds from GM’s looming acquisition. (read more…)

technology confidentiality agreementsConfidentiality agreements in the context of employer-employee relations can prove to be most beneficial after an employee’s employment with a company has come to an end. For instance, SolarCity Corp., a company based in California, recently filed suit against a former employee and her new employer, SunPower Corp., a direct competitor of SolarCity Corp., alleging that she stole confidential and proprietary customer information and trade secrets, which she then used in her new position with SunPower Corp. SolarCity’s position is that its former employee’s actions are plain violations of the employment and confidentiality agreements she signed with SolarCity Corp. while an employee. (read more…)

international contract enforcement and disputesWhile it is always important to have a well-drafted contract, complications with enforcement of a contract can arise when one party is not based in the United States. In California you often see this come up where a party is working with a company based in another country, such as China. There could be a manufacturing arrangement, whereby a California business is having a product made by a Chinese company for distribution either in the United States or elsewhere abroad. Or it may be a more direct license or distribution agreement where a company not based in the US is both making and selling a good designed or conceived in America. (read more…)

client services variable termsIf you are in client service, it’s always a good idea to have a contract with your clients. In the contract, you can establish key terms of your relationship with your client, such as compensation, how either party may terminate the services and what happens if there is a dispute, among other considerations. And since you are always at risk of problems with your clients, such as client dissatisfaction or misunderstanding about the extent of the services provided, a contract can help to limit your liability in relation to these services.

But first, what exactly is a client (read more…)

readable client agreementsQuite often we have clients whose primary goal is to have a contract that is “readable” to the other party, and does not scare them off. This comes up quite frequently with client agreements for businesses we represent, as businesses don’t want to scare or alienate potential clients with a long and inscrutable contract with tons of legalese. This kind of approach often leads to sacrificing protection of a business, and can ultimately result in an ill-suited or even non-binding agreement.

This tension between protectiveness and readability came up recently with a client who was the buyer entering into a purchase transaction. The buyer, our client, had arranged what he felt was a great deal to purchase the remaining portion of a business of which he already owned part. (read more…)

Startup Joint VenturesOn a number of occasions, we have been asked to draft a partnership agreement for a real estate venture. The typical setup is one party, who we’ll call the “Investor Party”, invests the capital necessary to build or renovate a property with another party, who we’ll call the “Developer Party”, who has the expertise to manage the construction or renovation (and may even be a licensed general contractor).

A lot of the variables in this type of arrangement hinge on how “silent” a partner the Investor Party wants to be. Sometimes the Investor Party trusts the Developer Party (read more…)

purchasing a restaurantWhen buying a business, regardless of type, how the purchase price is paid is of paramount importance. If it is paid in a lump sum at Closing, then there is no issue presuming the ownership of the business transfers at Closing. However, if the payment is made over time, it will be structured as a loan (with interest) and you will need to determine whether that loan is secured with collateral – typically the business assets being sold – or not. If the buyer defaults on the loan, and it is secured by the business assets, the seller can take back the business more directly. (read more…)

Prescription

When you’re thinking about selling or buying a professional practice – meaning a business requiring a license to practice, such as a medical, law, dental, chiropractic or optometry practice – the first thing you need to do is determine whether you are selling or buying an entity that owns the practice or simply the assets of the practice. If you are selling or buying an entity, such as a professional corporation, you will enter into a stock purchase agreement with the other party. Alternatively, if you are (read more…)

purchase business assetsAs Your Contract Lawyer has explained previously (here and here), in addition to being utilized for the purchase of a company, a purchase and sale agreement can be used for the purchase of some or all of a company’s assets. These assets can be as simple as office furniture and equipment from a small business or can be as complex as onshore oil and gas facilities as was the case when Freeport-McMoRan Inc. agreed to sell all of its onshore oil and gas properties located in the state of California to Sentinel Peak Resources California LLC. In addition to setting the purchase price as both a lump sum of $592 million at closing and $50 million per annum from 2018 through 2020, the purchase and sale agreement signed by both companies provided that Sentinel will assume “future abandonment obligations associated with the properties, which had a book value of approximately $0.1 billion at June 30, 2016.” (read more…)

san franciscoIn episode 23 of HBO’s ‘Silicon Valley,’ Erlich and Big Head agree to form an “incubator” called Bachmanity as a general partnership, with each character pouring all of his personal cash and assets into the partnership, save for Erlich’s shares in Pied Piper. With Erlich attempting to take advantage of Big Head’s gullibility, he pushes for a general partnership agreement to be drafted and signed, with his contribution of $36,000 paling in comparison to Big Head’s estimated contribution of $20 million. (read more…)

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