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CSLB Finally Allows Licensing of LLC’s

One of the first decisions a new business will make is deciding between an LLC and corporation.  One of my first questions to these business owners is “Will this entity require a license from a California state agency?”

Most California state agencies in my experience will not issue licenses to limited liability companies, but will license corporations without a problem.  LLC’s were a relatively new business entity that came into existence in California in 2000; although corporations have been an acknowledged business entity since California became a state. 

The issue of licensing an LLC comes up often with clients, but I see it the most with contractors.  Effective January 1, 2012, Senate Bill 392 authorizes the Contractors State Licensing Board (CSLB) to issue contractors licenses to LLC’s. 

Applications are now being accepted.  This is great for companies that plan to enter into a joint venture with another company and cannot elect to be taxed as an s-corporation.

It has taken a while for the various state agencies that issue licenses to catch up to the changes in business entity formation, but it appears to be slowly making adjustments to accommodate this structure. 

The requirements for LLC’s to obtain a license are similar to those required of corporations….

To read more, please click here.

Posted in Articles, Brooke M. Pollard, General | Leave a comment

California Supreme Court Sides With Employers In Highly Anticipated Brinker Decision

The California Supreme Court issued a unanimous Opinion in Brinker v. Superior Court siding with California businesses in the battle over meal and rest periods. Most importantly, the Court held that “relieving an employee of all duty . . .transforms what follows into an off duty meal period, whether or not work continues.” Further, the Court clarified: “If work does continue, the employer will not be liable for premium pay. At most, it will be liable for straight pay, and then only when it ‘knew or reasonably should have known that the worker was working through the authorized meal period.’” This clarification of law will result in millions of dollars in savings to California employers, and counteract the explosion of wage and hour class action lawsuits that has occurred in recent years…”

Prior to the Court’s opinion in Brinker, the law in California was unsettled with regard to an employer’s duty in providing meal periods. Some courts had previously held that an employer had an affirmative obligation under California law to ensure that employees actually took their breaks, by literally forcing employees to stop work if they refused or facing legal culpability. This is significant because California is one of the few states that imposes penalties for failure to comply with the meal break requirements—employees in California are entitled to one hour of “premium pay” for each missed thirty minute meal period, and with employers that have hundreds of employees working every day, these hours can quickly add up resulting in daunting class action lawsuits with the potential for hundreds-of-thousands or even millions-of-dollars in damages. However, the California Supreme Court made it clear that there is no requirement that employers do anything beyond provide employees with the genuine opportunity to take a meal break. “Bona fide relief from duty and the relinquishing of control satisfies the employer’s obligations, and work by a relieved employee during a meal break does not thereby place the employer in violation of its obligations and create liability for premium pay . . .” In holding such, the Court affirmed that employees that choose to work through their meal period, as long as they are not coerced or forced into doing so by their employer, will not result in any liability for the employer.

In addition to illuminating the law with regard to an employer’s duty to permit meal periods, the Court also gave keen insight into additional requirements involving meal and rest periods. Specifically, with regard to rest periods, the Court found that “[e]mployees are entitled to 10 minutes’ rest for shifts from three and one-half to six hours in length, 20 minutes for shifts of more than six hours up to 10 hours, 30 minutes for shifts of more than 10 hours up to 14 hours, and so on.” In addition, “[e]mployers are … subject to a duty to make a good faith effort to authorize and permit rest breaks in the middle of each work period, but may deviate from that preferred course where practical considerations render it infeasible.”

With respect to the timing of meal periods, the Court concluded: “Under the wage order, as under the statute, an employer’s obligation is to provide a first meal period after no more than five hours of work and a second meal period after no more than 10 hours of work.” These required meal breaks must occur at the start of the sixth and eleventh hours of the employee’s shift, respectively. In addition, the statute provides that the first meal period can be mutually waived if an employee’s shift is less than six hours and the second meal period can be mutually waived provided that the first was not waived and the total shift length is less than 12 hours…

To read more, please click here.

Posted in Articles, General, Ryan P. Murray | Leave a comment

Why You Should Be Interested in the Harsh Penalties for Charging Too Much Interest

A Note on California’s Usury Interest Laws for Consumer and Non-Consumer Loans

It’s not news that while the economy as a whole has tightened its belt, banks and other institutional lenders have become more reluctant to approve loans for individuals and small businesses.  In turn, the need to borrow money has only increased, forcing many of these individuals and small businesses to seek out loans from other individuals and companies in order to ride-out the economic downturn.

Before considering lending or borrowing money, it is important to know that California holds some of the harshest and strictest penalties on lenders of consumer loans who charge interest in excess of the maximum legal rate.  This includes treble damages, a felony charge, and jail time –even if the borrower knowingly enters into a written contract to pay interest at the higher rate and pleads with the lender to do so.

This article will give a brief overview of California’s usury interest laws and outline steps to take to avoid legal action.

What is California’s Usury Interest Law?

In California, there is a cap on the amount of interest that can be charged on a consumer loan. California’s usury law limits the interest rate on consumer loans to a maximum of 10% per year (equaling a maximum of .833% per month).  ”Usury” is the charging of interest for a loan or forbearance on money in excess of the legal maximum.  ”Interest” could be defined as anything of value that the lender receives directly or indirectly from the borrower, including fees, bonuses, commissions, and other miscellaneous charges.  “Forbearance” generally describes an agreement by the lender to extend the due date on an existing loan and refrain from taking legal action in return for an increased interest rate or a bonus.

California’s usury law is primarily codified in Article XV Section 1 of the California Constitution, but is further detailed in 10 different code sections which provide for a plethora of exceptions, mostly in favor of those institutions that are in the business of lending money.  Pursuant to the California Constitution, these code sections and case law, non-exempt lenders such as individuals and most small businesses can charge a maximum of 7% interest per year on a consumer loan not expressed in writing, and up to a maximum of 10% interest per year if memorialized by written contract.  A “consumer loan” is an amount of money, goods or things lent to a borrower primarily for personal, family or household purposes.  For all other loans, including those for home improvement, home purchase, business purposes, etc., a lender can charge the greater of 10% per year, or 5% plus the Federal Reserve Bank of San Francisco’s discount rate on the 25th day of the month preceding the earlier of the date of the loan is contracted for, or executed.  (The current discount rate as of March 16, 2012 was .75%.)

The compounding of interest, that is the charging of interest on interest that has already accumulated, is prohibited in California unless both parties have agreed to it in writing.  Otherwise, the interest must remain as simple interest on the outstanding balance only, over the life of the loan.  Also, for a loan to be usurious, it must be expressed in writing.  Without a sufficient written contract, the courts have held that there is no valid expression or consideration, and therefore there is no obligation on the borrower to pay the usurious interest.  If interest is collected in this manner above the maximum legal rate when there is no written contract, the interest is simply allocated to the principal.

Although “intent” by the lender to charge a usurious interest is an element of usury, intent will simply be presumed if the court deems the loan to be usurious, and the borrower need not prove actual intent or even knowledge by the lender.  The lender’s mistake of law or ignorance of the law is no defense, even if the borrower drafts the agreement and proposes the higher interest rate.

A specific exception may exist as some courts have held that the lender is not subject to the penalties in certain extreme cases of borrower misconduct during the formation of the agreement…

To read more of this article, please click here.

 

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Understanding the Real Property Landscape

Whether in the market for buying or selling property or in the unfortunate circumstance of being embroiled in a real estate dispute, it is more important than ever in today’s economic climate to fully understand the legal ramifications surrounding real estate transactions.

MANNER OF HOLDING TITLE

When taking title to property with one or more persons, consider what form of ownership serves the interests of all parties involved. California Civil Code section 682 sets forth the different types of joint interest in real property, which can be: (1) of joint interests, (2) of partnership interests, (3) of interests in common, or (4) of community interest of husband and wife. Be mindful that what works now may not necessarily work in the future.

PITFALLS TO AVOID

For example, a common mistake for people taking title in joint form is to take ownership in joint tenancy. A distinguishing characteristic of joint tenancy is the right of survivorship—meaning, when one joint tenant dies, the surviving joint tenant takes title to the whole estate.  This can be a surprising pothole for those anticipating an inheritance from the deceased joint tenant.  On the other hand, a joint tenancy can easily be terminated by a conveyance of interest from one joint tenant to himself or a third party. This can be done even without the consent of the other joint tenant. A severance of joint tenancy results in a tenancy in common, and unlike joint tenancy, this form of co-ownership does not carry a right of survivorship. To read more of this article, please click here.

Posted in Articles, General, Roy J. Jimenez | Tagged | Leave a comment

CPAs Beware: The Advice You Provide to Employers Could be Costly

CPAs, like attorneys, face a litany of circumstances in which their position is adversarial to that of the client. These include fee disputes, collections efforts and audits. The state of California has now given CPAs another circumstance in which interests will diverge. It comes in the form of joint and several liability with clients for misclassification of workers as independent contractors.

New Labor Code Section 226.8

A new 2012 law is Labor Code Section 226.8. This law, among other objectives, makes CPAs jointly and severally liable for willful misclassification of employees as independent contractors.

The purpose of Labor Code Section 226.8 is to increase fines and penalties to those companies who willfully misclassify employees as independent contractors. In general, businesses utilize the classification of a worker as an independent contractor because it is significantly less expensive. The business does not have to set up payroll, pay into unemployment and FICA, etc. However, this willful misclassification can put a company out of business. Both California and the federal government have programs to target misclassified workers, and the penalties for intentionally classifying a worker incorrectly can be HUGE.

Extraordinary Fines

For example, assume an individual is paid $20,000 in wages in 2011. If that individual is classified as an employee, the employer will be required to pay about $1,800 out-of-pocket costs toward the employee’s withholdings, unemployment insurance, FICA, etc. If the individual is paid as an independent contractor, the out-of-pocket cost above and beyond the wages is zero, which may seem like a great cost-savings to the employer.  However, if that employer is audited by the EDD, which determines that the independent contractor should have been paid as an employee, the additional cost to the employer will be $10,865 – before penalties. Clearly, the cost of willful misclassification easily can bankrupt a company.

Willful Misclassification Fines

New fines for willful misclassification are $5,000-$15,000 for each violation.  If there is a pattern or practice of misclassifying workers, the fine increases to $10,000-$25,000 per violation.  These new penalties are in addition to existing fines and penalties set forth above.

To read more of Brooke M. Pollard’s article, please click here.

Posted in Articles, Brooke M. Pollard, Financial Corner, General | Leave a comment

The John Wayne Problem and the Bing Crosby Solution

In this video, I give a thorough explanation of what I call the “John Wayne Problem and the Bing Crosby Solution.”  If you have any questions on the following video feel free to contact me through my bio page.

 

Posted in Articles, W. Bailey Smith | Tagged | Leave a comment