Do California’s Paid Sick Leave Rules Apply to Independent Contractors?

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Do California’s Paid Sick Leave Rules Apply to Independent Contractors?

A Closer Look at Paid Time Off

California recently passed a new law mandating that employees receive paid sick leave, making California one of only a handful of states to require paid leave for workers. In an attempt to manage staffing costs while still ensuring their workforce has the resources it needs, many employers have considered working with independent contractors.

With the growing number of workers who operate remotely or as freelancers, this may seem like a relatively easy change to make for your business. Since independent contractors are not technically employees of your company, you shouldn’t be required to provide paid leave, right?

To answer this question, however, you’ll need to understand how California’s employment laws, including the new paid sick leave rule, apply to independent contractors.

Understanding California’s New Paid Sick Leave Law

California requires employees to start accruing paid sick leave time as of July 1, 2015, although employers can require employees to wait up to 90 days before using their accrued sick time. Employees must be able to accrue up to 48 hours of sick leave per year, or six eight-hour workdays. While employers can cap the amount of paid sick leave an employee takes during the year, they must also allow any unused time to “roll over” into the next year. Because calculating sick pay and determining how the time accrues can be subject to a wide range of variables, it is best for employers to consult with an experienced lawyer to determine which system will work best for their employees.

Employers who are considering working with independent contractors rather than conventional employees should also talk to a lawyer. Not only does the choice between employees and contractors have significant effects on your business, but it can also impact your employment law obligations and your tax obligations as well.

Sick Leave and Independent Contractors

California’s sick leave law does not require employers to provide paid sick leave to independent contractors paid on a 1099 basis.

However, if you work with independent contractors, it is essential to make sure that they are properly classified as contractors, not as employees. Because there is no “hard and fast” rule regarding when a worker falls into either of these categories, it is best to speak to a lawyer who can provide specialized advice about your particular situation.

Consult an Experienced California Employment Attorney

Operating a business can be challenging, confusing, and just downright difficult, but it can also be one of the most rewarding things you ever do with your life. Having the right attorney –  one who understands how the law applies to your business – can make the difference between being a bastion of economic growth in your community and serious legal ramifications.

Whether you’re concerned about the possibility of litigation or you want to ensure you’re starting or operating your business in compliance with the law, the attorneys at CKB VIENNA LLP can help you identify the core problems you face and find ways to address them. To learn more, call one of our offices today or use our online contact form to schedule a consultation.

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When It Comes to Cannabis, Your California County’s Rules Matter

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When It Comes to Cannabis, Your California County’s Rules Matter

Different California Counties Have Particular Requirements

Recreational marijuana use has been legalized in the state of California, and now anybody in the state can grow, process, sell, and use the plant for any purpose, right? Don’t go lighting up joints in on the steps of the county courthouse just yet. Where you live in the state might make a world of difference in the eyes of the law.

Although California recently passed a statewide ballot measure making the use of recreational marijuana legal for adults aged 21 and over, cannabis laws in the state are still focused heavily on the local level. Each of California’s 58 counties is permitted to make a wide range of rules regarding cannabis use, as well as to regulate businesses that provide medical or recreational marijuana.

To ensure you’re complying with every applicable rule when starting a cannabis business, it’s important to pay attention to county and local rules, as well as to state and federal ones. You can never be too cognizant of the law when dealing with a substance that is classified as a Schedule I drug at the federal level. Here are some points to keep in mind.

Cultivation, Manufacturing, and Retail May All Have Different Rules

California’s new state law allows adults ages 21 and older to use marijuana and to possess a specified amount for personal use. It also sets guidelines for regulating businesses that handle cannabis.

Businesses, however, may “handle” cannabis in a number of different ways:

  • by selling cannabis products to customers,

  • by processing marijuana plants into various forms for use,

  • by growing the plants,

  • by transporting plants, plant parts, or manufacturing results, or

  • by doing any or all of the above.

Some counties allow certain types of these activities, while banning others. Some allow all of them, while others have banned all of them. It’s important to know where you stand before you begin.

Check Local Ordinances Too

Even within counties that allow a broad range of cannabis-related activities, the county may have chosen to defer to local and municipal governments on particular points. For instance, even if your county allows retail sales of cannabis, your city or town may not.  These local ordinances can affect everything from where you set up your business to what you put on your signs – or even if you can run your business at all. Double-check to ensure you’re on the right side of local ordinances before you invest significant time or money into a particular location.

Speak to an Experienced California Cannabis Lawyer Today

The web of laws related to marijuana use, cultivation, processing, storage, and transport is a complex one. If you’re planning to enter this new and exciting business, it helps to have the guidance and support of an experienced attorney. At CKB VIENNA LLP, our lawyers seek to help clients realize their business goals while complying with applicable laws at every level. To learn more, contact us via our online form or call one of our offices. We have locations in Rancho Cucamonga County, San Bernardino County, and Los Angeles County to better serve our clients.

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Getting Licensed to Sell Recreational Marijuana in California: Points to Consider

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Getting Licensed to Sell Recreational Marijuana in California: Points to Consider

Taking a Closer Look at Getting Licensed to Sell Marijuana

Now that recreational marijuana use is legal in California for adults age 21 and older, and now that these adults may also possess small amounts of the substance for personal use –  many California businesses are looking for ways they can appeal to this new and growing market.

Just like substances such as alcohol or tobacco, however, marijuana is subject to tight regulations While California’s new recreational marijuana law does create a system for selling recreational cannabis, it’s important to understand the restrictions it places on businesses seeking to expand into this market.

And while the states in which recreational marijuana use has been legalized have yet to face any significant issues from the federal government, it is always important to note that marijuana is still classified as a Schedule I drug in the eyes of federal law enforcement.

With all that in mind, what do you need to consider before getting licensed to sell recreational marijuana in the state of California?

If You’re Not Already in the Business, You May Need to Wait

California’s cannabis laws set a soft deadline of January 2018 for the state to complete final regulations of recreational marijuana businesses and to open the process of applying for a license to sell marijuana products to adults 21 years of age and older. While the law does allow some businesses to continue selling cannabis if they were “in compliance with local zoning ordinances and other state and local requirements” before that date, if you’re still setting up, you’ll need to keep your eye on that January 2018 deadline.

Choose the License Type That’s Right for Your Business

California cannabis law provides for over a dozen different types of licenses for the cultivation, storage, transportation, and sale of marijuana, whether medical or recreational. These include separate licensing requirements and tiers for medical marijuana dispensaries, growers and cultivators, processors, testing laboratories, distributors, and transporters. To ensure you get the right licenses, have a clear plan for your business, including which tasks you’ll take on yourself and which you will outsource to other licensed parties.

Seek Help When You Need It

In many ways, opening a recreational marijuana business in California is similar to opening any other type of business – and in other ways, it’s uncharted territory. Start by creating a detailed business plan that outlines how you want your business to run and what tools and capabilities you’ll need to make that happen. Then, consult with professionals as needed. An experienced accountant can help you ensure your financials are in place, while a lawyer who understands California’s cannabis laws can help you comply with legal requirements and protect your investment.

Cannabis Questions? Speak to a Knowledgeable California Cannabis Law Attorney Today

The legal landscape is changing when it comes to marijuana, both in California and in neighboring states. To understand what your options are and where you stand under these new rules, talk to the experienced attorneys at CKB Vienna LLP today. Call one of our three offices to schedule a consultation, or contact us using this short online form.

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California Court Rules That Employers Don't Have to Take Back Employees That Rescind Resignations

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California Court Rules That Employers Don't Have to Take Back Employees That Rescind Resignations

California business law attorneys ensure compliance with local business laws

California employers should always remain vigilant about employee discrimination - and wrongful termination laws - in order to make certain that their employees are treated equally, and that they are complying with state and federal law. This includes following recent California court cases that rule on employment law cases that could be used in future court decisions.

Last month, the San Diego Union-Tribune covered the interesting CA employment law case of an employee who resigned while suffering the adverse side-effect of a medication she was taking. The woman rescinded her resignation, but the employer decided not to take her back. The court ruled that the employer had a right under the law not to rehire her.

Southern California Permanente Medical Group vs. Ruth Featherstone

The case involved an employee named Ruth Featherstone, who worked for Southern California Permanente Medical Group (SCPMG) in San Diego. Six days after she returned to work following a medical leave for sinus surgery, she called her boss and said that she was resigning because God had told her to do something else with her life. She also made a Facebook post saying that she was going to start doing God’s work.

While the employer thought that the resignation was “out of the blue,” they honored her request and processed her paperwork quickly as required under the law, which requires that resigning employees are issued a paycheck at least 72 hours after turning in a notice.

Another week after her resignation, Featherstone called SCPMG back and explained that her resignation was a result of a medication side effect following her surgery and that she wanted her job back. The HR department, however, refused to rehire her. She sued, arguing that not rehiring her was an “adverse employment action” related to her temporary disability.

The court sided with her employer. The employer had no obligation to investigate whether Featherstone was in her right mind when she resigned, and had no reason to believe or know that she was resigning due to a medication.

What Can Employers Learn From This Case?

The big takeaway from this case is that an employee can, in many scenarios, decline to rehire an employee who voluntarily resigns and then attempts to rescind their resignation. This is even the case if the employee was temporarily mentally unstable or disabled. However, if the employer is aware that the employee is temporarily mentally unstable at the time of the resignation, the outcome may be different.

Contact A California Employment Law Attorney Today

As you can see, California employment law is not always cut and dry. In many cases, a legal case is so unique that a similar case has yet to be tried. In other cases, a court decision might come almost solely from past court decisions. For this reason, it is vital to find a business law attorney that is not only familiar with California employment rules and regulations, but also with notable case results.

Whether you are facing possible litigation, or whether you would like to make certain your business is compliant with current law, we are here to help. Contact us today to ask a question or to schedule a consultation with an experienced, knowledgeable CA employment law attorney today.

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California Workplace Smoking Laws & E-Cigarettes

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California Workplace Smoking Laws & E-Cigarettes

California business law and compliance attorneys

Since e-cigarettes became widely available in the United States around 2008, they have become increasingly popular, especially among teens and those trying to quit smoking traditional cigarettes. In fact, according to the Centers for Disease Control and Prevention (CDC), about 9 million people use e-cigarettes regularly, and about 12.5 percent of the population has tried them at least once.

Since e-cigarettes are significantly different than traditional cigarettes, and since they are relatively new to the market, state and federal laws are rushing to regulate the product. Recently, though, California updated its state laws regarding smoking in the workplace and, as part of its update, clarified that “smoking” includes the use of any kind of e-cigarette or vaporizer.

California Workplace Smoking Restrictions

In June 2015, the California state government approved a package of six anti-tobacco laws. These laws included a number of changes, including raising the legal age for buying cigarettes to 21. Two of the laws affect California employers:

  • ABX2-6 added e-cigarettes and vaporizers to the list of tobacco products referred to in other smoking laws. Specifically, it expanded the definition of smoking to, “the use of an electronic smoking device that creates an aerosol or vapor, in any manner or in any form, or the use of any oral smoking device for the purpose of circumventing the prohibition of smoking.”

  • ABX2-7 added a number of previously excluded workplaces to the list of workplaces where cigarette smoking is prohibited, including hotel lobbies, small businesses, break rooms, banquet rooms, bars, taverns, warehouses, and tobacco retailers.

Previously, smoking in the workplace laws made exceptions for businesses with five or fewer employees. Now, however, the only type of business that can allow smoking in the workplace is an owner-operated, single-employee business that does not have visitors or in-person clients.

Old workplace smoking laws also made exceptions for places like tobacco shops or hotels, but those exceptions are no more.

In all cases, any workplace that bans smoking traditional cigarettes should now also be banning e-cigarettes.

Finally, it’s important to note that these new laws override local laws and are meant to standardize tobacco laws across the state.

Some legislators opposed the new e-cigarette laws, arguing that vaporizers are healthier and may help users of traditional tobacco products kick their habit. Others opposed the new e-cigarette laws because the vaporizer industry has boosted job creation and helps the economy.

In addition to expanding the definition of cigarettes to include e-cigarettes, the new package of tobacco laws also now requires e-cigarettes to have tamper-proof packaging.

Consult With A Knowledgeable California Employment Attorney Today

Whether you want to make certain that your business is compliant with current California law, or whether you are facing the possibility of litigation, CKB VIENNA LLP is here to help. We have experience with all sizes and types of establishments, from Fortune 500 companies to small family-run businesses. If you would like to speak to an attorney or schedule a consultation, please call one of our offices today or contact us using this short online form.

We have offices in the following California counties:

 

  • Rancho Cucamonga County  

  • San Bernardino County

  • Los Angeles County

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Preparing for California’s Minimum Wage Increases

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Preparing for California’s Minimum Wage Increases

business law attorneys assisting california business owners

Starting in January 2017, California increased its minimum wage, sending shockwaves through a number of industries. The plan calls for yearly increases in the minimum wage from 2017 through 2022 for employers with more than 25 employees. Employers with 25 or fewer employees get a one-year grace period, but must meet yearly minimum wage increases from 2018 through 2023.

Here’s what you need to know to be prepared for California’s minimum wage increases.

What increases are on the horizon:

Currently, the expected step increases start with an increase from $10.00 to $10.50 an hour in 2017 for employers with 26 or more employees and in 2018 for smaller employers. The following year, the increase is to $11.00. Each year after that, there’s a dollar per hour increase in the minimum wage, until a total of $15.00/hour is reached in 2022 for larger businesses and 2023 for smaller ones.

What happens after the $15.00 per hour limit is reached?

After the $15.00/hour minimum is attained, the minimum wage will be adjusted each year based on inflation, using the national consumer price index for urban wage earners and clerical workers (CPI-W). If the CPI-W is negative in any given year, the minimum wage will stay the same. The minimum wage will not be raised more than 3.5 percent in any one year, even if the CPI-W is higher.

Does this new rule override local (city or county) minimum wage rules?

California cities and counties are allowed to have a higher minimum wage for employees within their jurisdictions. For instance, several California cities currently have “tiered” minimum wage requirements, based on the number of people a business employs. All California businesses are required to pay the highest minimum wage that applies to their business, whether it is imposed by a federal, state, or local rule.

Are any businesses exempt from the new rules?

Certain employees are exempt from the new minimum wage rules. These include outside salespersons, employees who are the parent, spouse, or child of the employer, and apprentices who are subject to the State Division of Apprenticeship Standards.

Making the right business decisions requires careful planning and forethought, but it does not require you to work alone. By connecting with the experienced California business lawyers at CKB VIENNA LLP, you gain the assistance of a knowledgeable legal team that can provide insight and direction in the face of business challenges. To learn more, contact us today via our online form or by calling 909.980.1040.

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Empty Nest? Consider Updating Your Estate Plan

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Empty Nest? Consider Updating Your Estate Plan

california estate planning attorneys helping protect family assets

When your children leave for college, marriage, employment, or simply to travel, the house may seem unusually quiet and empty. You may wonder what to do with the extra time on your hands. While “reviewing and updating our estate plan” isn’t always the first activity that springs to mind, it is a valuable step to take when your children have left home.

Why update your estate plan now?

If you created your estate plan when your children were young, chances are good that you included provisions for your children’s guardianship, for protection of their inheritance until they reached a responsible age, and for other matters specifically pertaining to their status as legal minorities. While these provisions were essential at the time, they have become outdated now that your children have reached adulthood.

As your children venture into the world, you may have a new set of concerns. If something were to happen to you, would your children squander their inheritance? Would they stop going to college or working, losing these precious opportunities to build their future? Will people try to take advantage of them in a vulnerable state?

What changes would help our children and family at this stage?

Working with an experienced California estate planning lawyer like the team at CKB VIENNA LLP can help you make the changes that will allow your estate plan to accurately reflect and implement your wishes in this new phase of your life. While the best plan for your particular family will require specific consideration, popular options include:

  • Creating a trust. A trust can distribute income over time, providing financial support for a child’s schooling or other plans while reducing the risk of extravagant spending or being taken advantage of by unscrupulous others. It can also help protect assets from creditors, preserving more of your estate for your children.

  • Updating powers of attorney and other parties. Now that your children are adults, you may wish for them to have more power in decision-making if you become incapacitated or pass away. By updating your estate plan, you can name your child or children as your personal representative or grant one or more of them power of attorney to make medical, legal, or financial decisions if you are unable to do so.

The transition between having your children at home and watching them take their place in the world, like many life transitions, can be bittersweet. At each turning point, is is wise to review your estate plan and update it if needed. The experienced estate planning attorneys at CKB VIENNA LLP can help you make these periodic reviews and choose the revisions that best reflect your wishes and the needs of those you love. To learn more, contact us today at 909.980.1040, or fill out our online form if it is more convenient for you.

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Leaving California With Marijuana? Understand How Neighboring States Handle Cannabis

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Leaving California With Marijuana? Understand How Neighboring States Handle Cannabis

california litigators helping marijuana users avoid felony charges

California’s Proposition 64, passed in November 2016, allows adults 21 years of age or older to possess up to one ounce of marijuana plants or 8 grams of cannabis concentrates for personal recreational use.


The initiative tracked the overall changing attitude toward marijuana use in the United States and made California one of seven states that legalize marijuana for recreational use (as does the District of Columbia).

Now that recreational use is an option, many Californians wonder whether it’s possible to take their cannabis with them when they travel for vacations. Of the states that share borders with California, only Arizona has not legalized recreational marijuana use--Arizona residents must have medical permission to use marijuana.

Nevada and Oregon, however, permit recreational use. They also permit adults 21 years of age and older to carry up to one ounce of marijuana plant matter for personal use: the same amount and age limits imposed by California law. So is it safe to drive across state lines into Nevada or Oregon with your recreational marijuana on board?

Legally speaking, the answer is no.

Understanding the State Lines

In the United States, each state has broad powers (except those specifically given to the federal government) to set laws within its own borders. This means that, on California land, the state of California can make a number of decisions--including whether or not to allow recreational cannabis use. Oregon and Nevada may make similar decisions within their own territory.

Once a state line is crossed, however, the activity in question becomes a question of interstate law. The federal government has jurisdiction over interstate matters.

Currently, federal law has no provision for legal marijuana use. While the federal government cannot force the states to pass state laws banning marijuana use, federal law enforcement can punish individuals for possessing marijuana on federal property (such as in a National Park or on a military base), and they can punish individuals for breaking the federal law banning the transportation of marijuana across state lines.

Under federal law, transporting marijuana across state lines can often be charged as a felony, with a maximum sentence of 5 years in prison and a $250,000 fine.

Some U.S. states that allow recreational marijuana have also passed laws banning the importation of marijuana into the state. Oregon, for example, passed HB 4014, which forbids carrying marijuana either into or out of the state. Penalties depend on the amount of marijuana involved and range from a fine to a felony conviction. California and Nevada also included statements in their laws forbidding transport in and out of the state. Attempting to travel out of California with recreational cannabis could easily put you on the wrong side of state and federal law.

Contact Us Today

At CKB VIENNA LLP, our experienced California cannabis law attorneys focus on providing clear, thorough legal advice concerning cannabis use and businesses in California. With offices in Rancho Cucamonga, San Bernardino, and Los Angeles, we’re prepared to help you solve your business problems. Contact us by calling 909-980-1040, or complete our online form.

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4 Things to Know About Using Recreational Marijuana in California

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4 Things to Know About Using Recreational Marijuana in California

California litigators explain legal aspects of recreational marijuana use

In November 2016, California voters approved the legalization of recreational marijuana use. Now, adults 21 years of age and older may use recreational marijuana regardless of medical need without facing state law repercussions.

What does this change in state law mean for you? Here’s what you need to know about using recreational marijuana in California.

1. You don’t need a medical reason to use marijuana--but you do have to be over age 21.

Like alcohol, marijuana has a legal age limit of 21 years in California. However, Proposition 64 expanded legal marijuana use to everyone 21 years old or older in California, not only to those with medical clearance to use cannabis.

2.  You can carry or grow marijuana in limited amounts (pay attention to local ordinances).

Under the new law, adults 21 and older may possess up to one ounce of marijuana buds or 8 grams of cannabis concentrates. They may also grow up to six marijuana plants. Local governments are allowed to ban outdoor cultivation, however, so check your county or city rules to determine whether or not you must grow your plants indoors.

3.  Consuming marijuana in public spaces is still prohibited.

While the new law allows adults 21 and over to consume marijuana, it sets some limits on where you are allowed to do so. Marijuana may be consumed anyplace smoking is allowed--which means it can’t be consumed in public parks, on sidewalks, or any other place smoking is banned. Breaking this rule may result in a fine of up to $250. Possession of marijuana is also banned in schools and youth centers.

Adults may, however, consume marijuana in private clubs or events that are licensed for on-site marijuana users. Find out whether an event or venue is licensed so you know what the rules are.

4.  You cannot buy recreational marijuana (yet).

Although the initiative included a system for creating retail licenses for recreational marijuana, the program is still in the implementation phase. Marijuana dispensaries catering to medical users may apply for temporary state licenses to sell recreational cannabis in 2017, but it is unlikely that stores will open for full recreational sales until 2018.

Facing a question regarding cannabis law in California? The experienced attorneys at CKB VIENNA LLP can help. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or by filling out our online contact form, whichever is more convenient for you.

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California Cannabis Businesses May Face Difficult Income Tax Issues

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California Cannabis Businesses May Face Difficult Income Tax Issues

Business Litigation Attorneys Helping California Businesses with Cannabis Tax Issues

Business startups often face a host of challenges. Inadequate capitalization, lack of credit, attracting qualified employees, and difficulties in the supply chain are some of the common hurdles that must be scaled to achieve success. For the business owner who hopes to build a successful business as a California recreational marijuana retailer, there are additional issues that must be considered. One such issue relates to federal income taxes. How will “pot shops” be treated by the IRS?

Friction Between the Feds and the Golden State Law

Most California business owners are aware of the fact that although the state’s Adult Use of Marijuana Act allows the purchase and sale of recreational cannabis products (subject to licensing and a host of state and local restrictions) beginning in January 2018, marijuana is still a scheduled substance under the federal Controlled Substances Act (“CSA”). Under federal law, therefore, marijuana use is illegal, even for medical purposes. Therein lies the rub.

Ordinary and Necessary Business Expenses

Generally speaking, Internal Revenue Code (“IRC”) § 162 allows a business to deduct its “ordinary and necessary expenses” paid or incurred during the taxable year. Accordingly, salaries, travel expenses, rent, and other payments may be offset against business income when computing the tax liability of the enterprise. The ability to deduct business expenses under § 162 is limited, however, to those types of expenses that are not expressly excluded.

IRC § 280E is a Stinger!

Unfortunately, expenses incurred in a retail marijuana operation may be excluded under IRC § 280E, which states:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted. [Emphasis added.]

Ninth Circuit and Tax Court Decisions May Disallow Business Expense Deductions

IRC § 280E has been construed in at least two important decisions that affect California businesses. In Olive v. Commissioner of Int. Rev., 792 F.3d 1146 (9th Cir. 2015), the Ninth Circuit Court of Appeals affirmed the Tax Court’s decision that § 280E precluded the taxpayer, a medical marijuana dispensary, from deducting any ordinary or necessary business expenses associated with trafficking in a controlled substance that was prohibited by federal law. The court disagreed with the taxpayer’s argument that in enacting § 280E in the early 1980s, Congress did not intend for it to apply to marijuana dispensaries currently allowed by law in many states. Ultimately, only one type of business expense deduction was allowed under IRC § 280E: cost of goods sold.

In Canna Care Inc. v. Commissioner, 2015 Tax Ct. Memo 215, the Tax Court again found that under IRC § 280E, no deduction could be allowed for operating expenses due to the fact that marijuana is a controlled substance and, at the federal level, is considered trafficking in the sale of narcotics. In Canna Care, the taxpayer offered various health services in addition to dispensing marijuana. It could deduct expenses related to those legitimate health services.

Federal Tax Issues Affect Different Business Models in Different Ways

Recognize that there are always a number of variables at play in determining the tax liability of any ongoing enterprise. Because of the complexity of the issue involved, it usually pays to seek sound, solid, experienced counsel by legal experts. Prudent business owners turn to experienced commercial attorneys like CKB VIENNA LLP for assistance. For years now, we have represented all sorts of businesses in many types of legal and regulatory environments. We have researched the technical requirements of Prop 64 and the myriad of other regulations that will have an impact on the sale of recreational marijuana in California. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone—909.980.1040—or complete our online form.

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California Lawmakers Consider Edible Medical Marijuana Regulations

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California Lawmakers Consider Edible Medical Marijuana Regulations

California Litigators Discuss Edible Marijuana legalities

As the January 2018 date for legal recreational marijuana sales approaches, California lawmakers are considering various regulations to help manage the anticipated multi-billion-dollar legal cannabis market within the state. One primary concern relates to regulations for edible marijuana products. Among the areas of concern, two jump out immediately: labeling requirements and “eye appeal” (i.e., Will children view the edibles as candy?).

Labeling Edibles

While medical marijuana suppliers contend that labeling accuracy has improved, California lawmakers are concerned with potential problems that can arise through the mislabeling of edible cannabis products. For example, according to a 2015 Journal of the American Medical Association study, fewer than one in five edible marijuana products analyzed were accurately labeled with the proper THC level. Particularly alarming was the fact that of the 75 medical marijuana products purchased and tested in the study, JAMA researchers found that the greatest likelihood of obtaining “under-labeled” product was in Los Angeles.

Not only must THC levels be appropriately labeled, other labeling information must advise as to proper dosage. Many will recall New York Times’ columnist Maureen Dowd’s less than wonderful experience with a cannabis-laced food bar that she purchased legally at a Denver medical marijuana dispensary in 2014. The item came with no dosing directions. As she later related in her Times column, at first she experienced no effects at all, but after an hour, because she consumed far more than a “single serving,” she was “panting and paranoid.”

Inadvertent Appeal to Children

Marijuana edibles come in many forms and sometimes mimic the look and texture of regular sweets. Dosage issues in adults are, of course, compounded when the edibles are inadvertently ingested by children. Accordingly, California lawmakers have introduced Assembly Bill 350, which would prohibit marijuana products that are designed to be appealing to children or easily confused with commercially sold candy or foods. The proposal specifies that a marijuana product is deemed to be appealing to children or easily confused with commercially sold candy if it is in the shape of a person, animal, insect, fruit, or in another shape normally associated with candy. A similar bill has also been introduced in the state Senate. It remains to be seen what exact form the regulations will take.

Edible Cannabis Preferred for Many Patients

Many medical professionals say edible cannabis is the preferred method of delivery for patients who suffer from chronic pain, post-traumatic stress disorder, and other long-term illnesses. While it takes longer to feel the effects of the marijuana when it is ingested, instead of smoked, the sensation generally lasts much longer. Ingested marijuana also does not damage the lungs. If sales data in states such as Washington and Colorado are any indication, the sale of edibles is likely to skyrocket after January 1, 2018, when recreational marijuana becomes truly legal in California.

CKB Vienna LLP—Experienced Commercial Law Attorneys and Advisors

Numbers of business owners are currently trying to determine if they can take legitimate advantage of California’s legalization of recreational marijuana. The regulatory framework for any cannabis business is tricky and it is in flux. Navigating through a sea of regulations can be difficult. Prudent business owners turn to experienced commercial attorneys like CKB VIENNA LLP for assistance. For years now, we have represented all sorts of businesses in many types of legal and regulatory environments. We have researched the technical requirements of Prop 64 and the myriad of other regulations that will have an impact on the sale of recreational marijuana in California. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone—909.980.1040—or complete our online form.

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Making Sure Your Charitable Donations Are Tax-Deductible

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Making Sure Your Charitable Donations Are Tax-Deductible

Business Litigation Attorney Helps Families Get Tax Deduction for Charitable Giving

Giving to charity is a wonderful way to help others as well as a wonderful way to feel great about how you are spending your extra funds. But it’s also important to note that giving assets to charitable organizations often results in significant tax deductions. Smart, sophisticated giving can not only help others, it can also help you manage your wealth.

While there are many strategies to sophisticated giving, the best place to start is simply by making certain that the donations you are making are tax deductible and then making certain that your donations are deducted on your taxes.

Determine That Your Organization is Eligible For Tax-Deductible Donations

Most nonprofit organizations can receive tax-deductible donations from individuals. However, the best way to determine if the cause you are giving to will result in a tax deduction is to visit the IRS’ Exempt Organizations Select Check website and using the search function. This search function will also tell you if the organization in question has had their exempt status revoked for some reason.

Note that some organizations that are eligible for tax-deductible donations are not listed in this database. This may include religious organizations (such as churches, temples, and mosques) as well as organizations that do business under a different name than the one they file taxes under.

In addition, note that donations to private individuals are not tax-deductible. This includes money you might give privately to someone in need or money you donate to many online fundraisers for individuals who need financial help. This doesn’t mean you shouldn’t make these donations, but keep in mind that you can’t deduct what you give in these circumstances.

Keep Organized Records of Your Donations

Often, a person will make charitable donations and then never list the donations on their taxes. Why? Simply because they did not ask for a receipt or they did not put the receipt in a safe place.

Whenever you make a donation of any size, make absolutely certain to get a receipt. This receipt should include the amount donated, the name of the organization, and the date. While you do not need to submit these receipts with your taxes, you should keep them on file in case of an audit and simply for organizational purposes. Consider making digital scans of your receipts to cut down on clutter and paper waste.

In some cases, you may make a charitable donation through your employer that is taken directly out of your paycheck. In these cases, make sure that hold on to your pay stubs or W-2 so that you have proof of your donations.

Optimize Your Charitable Giving: For Yourself & For Others

At CKB VIENNA, we have helped hundreds of individuals and families give smarter, from optimizing how much they give and how much they save on taxes, to creating sophisticated, meaningful donation plans for those who want to give after they are gone.

To learn more about how you can give smart, please contact us today to schedule a consultation with one of our knowledgeable, experienced California estate planning attorney.

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Choosing the Right Successor For Your Family Business

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Choosing the Right Successor For Your Family Business

Business Litigator Helps Family Businesses with Financial Planning

For many small businesses owners, their business is their biggest asset, and the most important thing that they will pass on after they are gone. But even though their business can mean everything financially - and even emotionally - many people don’t engage in the succession planning that will save their business in the case of an accident, illness, or untimely death.

One of the most important aspects of succession planning is choosing the person or people who will run your business after your time is over. It used to be that a business was passed from parent to oldest child, but a less traditional option may be better for your family and for your business, such as:

  • A sibling

  • A niece or nephew

  • A more distant relative

  • A close family friend

  • An unrelated employee

Questions to Ask When Choosing A Successor for Your Family Business

  • Who is passionate about your business? It’s normal to want to pick your oldest child, but you must keep in mind that the best person for the job is not necessarily the person who wants the job most. Who has shown interest in the business, and who is passionate about your products and/or services?

  • Who has the skills to lead and manage? Your choice doesn’t have to know everything about your business yet, but he or she must have a love of learning and a certain set of base skills to be successful. Can they manage others? Are they independent? Can they think outside of the box when necessary?

  • Who wants to stay in the area? You might have a child, sibling, or niece/nephew who has all of the right skills and who is passionate about the business, but who has other interests or goals. They might not want to stay in town and devote their life to what you have built. Choose someone who is comfortable choosing to carry on tradition.

Don’t choose a successor based on who you like best or who treats you best. Also don’t make a wishful choice, hoping that your successor will change or mature once the business is in his or her hands.

Involve Others in Your Choice

In a family business, it is common that family politics and emotions will be involved in your choice. In some cases, multiple people will want to fill your shoes, while in other cases, your family members may only agree to take the job out of a sense of obligation.

The best way to navigate all of these problems is to communicate openly and honestly about your business’ needs and your own wishes for the future. Your successor should not be surprised by his or her new role in the event of your incapacitation, death, or retirement. Rather, your successor should be told about your succession plans and educated in the months or years before the business is turned over.

Business Succession Planning for Family Businesses of All Sizes

Having a plan is always good for business. Having a business succession plan is vital to the survival of your family business and the financial security of your loved ones who are supported by that business.

It’s never too early to start planning, and it’s never a bad idea to have a plan in place in case of an emergency or accident. At CKB VIENNA, our California business attorneys can make sure that your family business is prepared for change, whenever it comes. To schedule an appointment or to speak to a lawyer, please please contact us today.

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Before You Sign A Non-Disclosure Agreement, Ask These Four Questions

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Before You Sign A Non-Disclosure Agreement, Ask These Four Questions

Did you sign an nda? Business attorneys Weigh in on the matter

Non-Disclosure Agreements (NDAs), also known as confidentiality agreements, are increasingly common, especially at startups and tech companies. While many people make the mistake of quickly signing the documents without reading them (or after a quick skim), it is vital to closely read these documents. Not reading NDA contracts closely could mean not understanding the terms correctly and stumbling into litigation down the road.

Here are four questions you should ask as you are reading - and before you sign - an NDA.

Who does this confidentiality agreement involve?

Who is giving the information and who is receiving it? Or are both parties exchanging sensitive information? You can usually find this information under the parties of the agreement section. The party giving the information may be called the disclosing party, while the party receiving the information is the recipient.

It’s imperative to understand that other parties might also be involved. Are you able to share the information you learn with certain other parties, such as colleagues, affiliated businesses, or certain clients?

What information does this confidentiality agreement involve?

Obviously, not every word that the disclosing party says is confidential. What specific information is deemed confidential, and why? Is it a certain document, a specific project, or a company secret? Is certain oral information confidential?

Be aware that the entity creating the NDA will make terms as broad as possible to benefit their cause. Don’t be afraid to ask them to be more specific regarding what information is involved in the confidential agreement and what is free to share.

In most cases, an NDA excludes information that is public knowledge, information that the recipient figures out for themselves, or information that the recipient finds out from a third party who did not sign an NDA.

How long does the confidentiality agreement last?

If the NDA does not mention the terms of the agreement, you may wish to add them. With issues related to technology, most confidential information will be outdated in a few years. With new products, information will likely not need to remain confidential after the product launch. Don’t be afraid to ask for specific terms and to explain why you’d like them.

Is this confidentiality agreement appropriate?

Confidentiality agreements are becoming more common. In fact, in addition to having to sign NDAs when you begin work or when you are partnering with another business, don’t be surprised if you are also handed a confidentiality agreement before a big meeting or an interview. When are these agreement appropriate? That’s up to you to decide. But never forget that you can always ask for the details of the contract to be changed before you sign.

Contact A California Business Attorney Today

When it comes to important confidentiality agreements or NDAs, you may wish to review the contract with your attorney before signing. It can mean the difference between a smart business deal and a poor choice that could cost you time, money and your reputation.

To speak to a business attorney in Southern California about writing or negotiating an NDA, please contact CKB VIENNA today.

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Understanding the New Changes to California's Fair Pay Act

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Understanding the New Changes to California's Fair Pay Act

California Labor and Employment Lawyer  and the Equal Pay Act

After multiple studies found that women make significantly less money than men do, equal pay has been a deep concern for many California residents, from working women to economists to legislators. Although a number of state-level equal pay laws have been on the books for many years, starting as early as 1949, a number of new laws have been passed recently in order to make certain that employers of all sizes are compensating their female employees fairly.

Let’s take a brief look at the history of equal pay laws in California as well as the two big changes that California Governor Jerry Brown signed into law in September and which went into effect in January 2017.

The California Equal Pay Act of 1949

California has taken steps toward equal pay for almost eight decades. In 1949, lawmakers created the California Equal Pay Act of 1949, which stated: "No employer shall pay any individual in the employer's employ at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work on jobs.”

While this was a good start, the law was not specific enough to actually result in equal pay for women. In fact, as of 2015, women in California were still only being paid on average 80 cents for every dollar that men were. It was soon clear that the state’s equal pay laws would have to become more specific to garner the needed results.

Fair Pay Act Expansion in 2016

Since 1949, a number of changes have been made to better ensure equal pay for equal work. In 2016, two big changes were passed by lawmakers and took effect in 2017:

First, employers can no longer use prior salary as a reason to pay women less than men. This is because using prior salary to determine current salary simply propels unfair wages for women further into the future, and gives businesses an excuse to offer less. From now on, different pay rates can only be based on factors like:

  • Different levels of experience.

  • Different levels of education.

  • Different levels of knowledge and/or training.

  • A difference in output quality.

  • A difference in output quantity.

The second change is that all of the principles of the Fair Pay Act have been applied to cover salary or payment rate differences between members of different races or ethnicities. This change took place after research showed that women of different races, such as African-American women, were paid on average less than white women.

Consult With A Southern California Employment Attorney Today

We should note that not all equal pay issues are due to the conscious bias of employers; rather, many equal pay issues are due to unconscious biases that are hard to correct without policies in place. For this reason, it is important that fair pay laws are in place and that employers comply with these laws completely.

At CKB VIENNA, we can make certain that your business is following every aspect of California’s equal pay laws, or that you are well-represented if faced with litigation related to an equal pay or fair pay issue. To learn more about our legal services, or to schedule a consultation, please contact us today.

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Accommodating Medical Marijuana Use in California: Is it Required for Employers?

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Accommodating Medical Marijuana Use in California: Is it Required for Employers?

business litigators discuss employee use of marijuana 

Discussion surrounding California’s legalization of recreational marijuana has been intense since the passage last November of Proposition 64. A related issue – medical marijuana – has received much less attention, in spite of the fact that its use has been permitted, at least under some conditions, since 1996 when the California Legislature passed the Compassionate Use Act (CUA). One issue that comes up quite often is the extent to which an employer must accommodate an employee’s use of medical marijuana.

The Ross Decision

Generally speaking, under a 2008 decision by the Supreme Court of California (Ross v. RagingWire Telecommunications, Inc.), California employers need not accommodate a worker who has been prescribed medical marijuana. The Ross Court stressed that the CUA did not grant marijuana the same status as a legal prescription drug. After all, said the court, in spite of legalization for medical purposes in California, marijuana is still a Schedule I drug under the federal Controlled Substances Act. Its use and possession remain illegal under federal law.

The Court added that nothing in the text or history of the CUA suggested the measure was intended to address the respective rights and duties of employers and employees. The employer could take illegal drug use into consideration in making employment decisions. Under Ross, while an employer must consider the feasibility of making reasonable accommodations to a prospective employee with a disability, it need not go so far as accommodate a person’s medical marijuana use, even when the use was consistent with professional medical advice.

Random Testing for Safety-Sensitive Employment

Proposition 64 explicitly allows public and private employers to enact and enforce workplace policies pertaining to marijuana. When it comes to random testing, courts have generally upheld such testing regarding employees who work in safety-sensitive positions (e.g., transportation, heavy equipment, some construction work). Regarding employees whose duties place them in no particular peril, the courts have sometimes invalidated random testing.

Post-Injury Testing

Employers must be particularly careful with mandatory post-injury drug testing. Last year, the federal Occupational Safety and Health Administration (OSHA) published a final rule related to the tracking of workplace injuries and illnesses. While OSHA has indicated that nothing in the rule should be read to prohibit post-injury drug testing, the rule clearly states that mandatory post-injury testing can only be done where the testing can accurately identify impairment caused by drug use. Current testing methods regarding marijuana do not indicate the person’s level of impairment; they only show the presence of marijuana metabolites within the body. So, despite OSHA’s words to the contrary, most employers are being cautious regarding testing, except where there is an actual evidence of impairment.

Governor Brown’s Efforts to Clarify Law

Recently, Governor Brown released an extensive proposal to resolve the many differences between the state’s existing medical marijuana laws. Legal experts predict this will be an active area of discussion and legislation in coming months. As they say, “May we live in interesting times.”

Do Your Drug Policies Need Review?

Have you reviewed your policies regarding medical marijuana use? Do you employ drug testing of job applicants who receive offers of employment? Do you utilize random drug testing to test for the use of marijuana or other drugs among your employees? Do you maintain a zero-tolerance rule for drug use? Many prudent employers are currently reviewing their existing drug policies to ensure that they comply with the law. A number have sought the counsel of experienced commercial and employment attorneys like CKB VIENNA LLP. Our firm has represented all sorts of businesses over the years. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

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Home Grown Marijuana: What are the Rules Following Prop 64?

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Home Grown Marijuana: What are the Rules Following Prop 64?

Business Attorneys discuss legalized marijuana and its implications

Questions continue to spiral in California following the passage last November of Proposition 64, which generally legalized non-medical, recreational marijuana. The Adult Use of Marijuana Act (“AUMA”) does not allow businesses to grow, distribute, or sell non-medical, recreational marijuana until they get a state license. State issuance of such licenses won’t begin until 2018. In the meantime, is it ok to grow marijuana at home?

Home Cultivation is OK, With Some Limitations

Home cultivation is generally ok under the new law. California residents (who are 21 years old or older) can grow – without the need to obtain a license – up to six living marijuana plants indoors in a private residence that you own (e.g., home, apartment unit, mobile home, or other similar dwelling), subject to local laws relating to public health and safety. Those who want to grow marijuana at home should be aware of additional issues, such as the following:

•  Indoor cultivation can include plants grown within a greenhouse, so long as the structure is fully enclosed, secure, and not visible from a public space

•  Any marijuana produced in excess of 28.5 grams must be kept in a locked space not visible from a public place

•  Tenants may grow marijuana under the same conditions as owners, but a landlord does have the right to ban indoor cultivation of non-medical, recreational marijuana on the leased premises

•  Cities and counties may reasonably regulate indoor cultivation inside a private residence to reduce potential health and safety risks

•  Cities and counties may completely ban outdoor cultivation

Is a Hodge Podge of Local Regulation Ahead?

In spite of the fact that the AUMA legalizes recreational marijuana on a statewide basis, some Golden State residents are worried that they will become subjected to a hodge podge of local regulations. For example, according to one recent report, Montebello, Aliso Viejo, Fontana, Indian Wells, San Jacinto, and San Juan Capistrano have already approved laws regulating marijuana cultivation in their cities.

Some cities and towns may want to cash in on home grown marijuana with licensing fees. For example, Montebello’s ordinance requires a $249 fee for a permit to grow marijuana plants within a residence. Other municipalities claim they have safety issues in mind. For example, Whittier city council members have asked the city’s staff to draft an ordinance prohibiting marijuana home cultivation inside homes with small children.

Some proponents of Prop 64 are crying foul. They argue that the idea behind both the proposition and AUMA is to allow cultivation of up to six marijuana plants without restrictions, just as homeowners have the right to grow tomatoes or strawberries.

CKB VIENNA LLP – Experienced Commercial Law Attorneys and Advisors

Many individuals and businesses are intrigued by California’s roll-out of legalized recreational marijuana. They are concerned with the barriers and hurdles that lie ahead, particularly when it comes to taking commercial advantage of Prop 64. Navigating through a sea of regulations can be difficult. Prudent business owners turn to experienced commercial attorneys like CKB VIENNA LLP for assistance. For years now, we have represented all sorts of businesses in many types of legal and regulatory environments. We have researched the technical requirements of Prop 64 and the myriad of other regulations that will have an impact on the sale of recreational marijuana in California. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

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Zombie Foreclosure Numbers Decrease, Yet They’re Still a Problem for HOAs and Community Associations

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Zombie Foreclosure Numbers Decrease, Yet They’re Still a Problem for HOAs and Community Associations

Real estate attorneys discuss foreclosures and Home Owner Associations

National real estate experts indicate the number of “zombie” foreclosures – properties still in the foreclosure process that have been left vacant – is down, particularly when compared to a few years ago. Experts in states like California point to the decline in zombie foreclosures as further evidence that the housing market has weathered the storm of the subprime crisis.

Yet, in those situations in which the distressed property is part of a homeowner’s association (HOA) or other community maintenance group, problems remain. Unpaid assessments continue to mount and the property often deteriorates. What can be done? While generalizations are always difficult when discussing real estate, some common points can be offered.

Zombies Are Often the Product of Extreme Caution

For HOAs and other groups, a first step in dealing with zombie foreclosures is to understand their origin. Zombies are most often the product of caution on the part of the lender. After being criticized for moving homeowners through the foreclosure process too quickly, some lenders have taken the opposite track. The lender may also be concerned with the following issues:

•  Defects in the loan documents; and

•  Unwanted carrying costs – When the housing market crashed in the years following the 2008 financial crisis, it became difficult for some banks to sell foreclosed properties. To avoid taking on the financial burden of additional bank-owned properties, some lenders stopped taking back properties through the foreclosure process. In those cases, title to the non-performing property remains with the delinquent owner.

HOA May Choose to Foreclose its Interest in Property

Some HOAs and community associations have decided to fight fire with fire. In the face of a stalled foreclosure by a lender, they are exploring the option of foreclosing themselves. Depending upon the legal documents that underpin the HOA, and depending further upon the condition and value of the property, the HOA can sometimes institute foreclosure because of the unpaid maintenance and community fees. While any purchaser would take subject to the lender’s mortgage, there may be sufficient equity to recoup what is owed to the HOA. It may also be just the thing to spur the lender into action and rid the community of a blighted property.

CKB VIENNA LLP: Experienced Financial Services Attorneys

Is there a “zombie” in the neighborhood? Has a property sat vacant for some period, with little or no activity on the part of the lender? Does your HOA have other properties that are occupied, but which are significantly behind on HOA payments? It may be time to begin a proactive effort to make things right. Because the attorneys at CKB VIENNA LLP have such a broad financial services practice, the firm has the experience to provide lenders, HOAs, and others with in-depth advice regarding the California foreclosure process. We have helped financial clients and community organizations with all types of legal issues regarding real estate. We can provide a dispassionate perspective when it comes to dealing with blighted real estate and other common concerns. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

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Is the Limited Liability Company Structure Still Appropriate for Your Maturing Business?

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Is the Limited Liability Company Structure Still Appropriate for Your Maturing Business?

Business Litigation attorneys for an llc

During the early, heady days of a business, it is quite common for the company’s founders to spend hours with attorneys, accountants, and other strategists, mulling over the alternative legal structures that might be utilized for the business. Often, the informality of governing structure allowed to a limited liability company (LLC), coupled with the flow-through tax treatment afforded to members of an LLC, are sufficient to cause owners of a fledgling business to choose that structure instead of that provided for “traditional” corporations. Many business owners don’t recognize that the choice of LLC structure need not be irrevocable. The correct legal format of a fledgling company may not remain frozen in place for a more mature company. Is the LLC structure still appropriate for your business?

Two Dominant Reasons Why You May Need a Change in Structure

While each business is unique, many legal and business experts advise owners to reconsider their LLC structure when either of two factors comes into play:

•  The informality of an LLC’s governance structure gets in the way of effective management of the business

•  New members have invested in the company, yet they do not want the flow-through tax treatment afforded to members of the LLC

Conversion: “Ring Out the Old, Ring in the New”

While the mechanism for change in company structure goes by various names, most legal experts refer to it as “conversion,” a process in which a business entity’s legal “type” is changed from, say, an LLC to a corporation or, alternatively, when the entity doesn’t change its legal structure, but does change it tax election.

Legal Conversion

Generally speaking, legal conversion is an actual alteration of the business entity’s legal structure. For example, if the company was originally organized as an LLC, a conversion to corporate structure would require the preparation and filing of new corporate documents. In California, an LLC is governed by the state’s Revised Uniform Limited Liability Company Act, whereas corporations are governed by other provisions of the California Corporations Code.

Tax Conversion

In some instances, business owners who have structured their companies as LLCs, and who desire a change in structure, may find that formal, “legal conversion” isn’t necessary; a more limited “tax conversion” may be sufficient. This springs from the fact that the IRS doesn’t recognize LLCs as a type of business entity. It puts businesses into one of three categories: Sole proprietorships, partnerships, and corporations. And so, while California provides for the creation of LLCs, from the IRS perspective, the entity must be treated as something else (e.g., a partnership) if there are multiple “members” and no alternative tax election has been made.

An LLC that currently is being taxed as a partnership can change its election to that of a corporation without filing any formal papers in Sacramento. At the state level, it will still be an LLC. At the federal level, for federal tax purposes, it will be considered a corporation.

Do you have concerns that your company’s governance structure is not adequate? Have you taken in new investors whose interests are not necessarily aligned with those of the fledgling business? Do you need to consider either a legal or tax conversion?

CKB VIENNA LLP: A Full-Service Consulting and Law Firm

The law firm of CKB VIENNA has a long history of representing business owners, both in the “fledgling” stage of operation and in more “mature” phases. Our attorneys provide counsel in the appropriate structure for both new and seasoned businesses. We don’t stamp out cookie-cutter solutions. We first gain a true understanding of the client’s goals, concerns, and unique issues, then we work with the client to achieve success. CKB VIENNA has offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

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Arbitration Clauses in Consumer Finance Agreements: It May Pay Lenders “to Delegate”

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Arbitration Clauses in Consumer Finance Agreements: It May Pay Lenders “to Delegate”

For years now, most consumer finance institutions have included arbitration clauses in their finance agreements as a means of preventing runaway jury verdicts. Conversely, plaintiffs’ attorneys generally disfavor arbitration and push hard to avoid it, even to the point of filing a civil action that claims, for one reason or another, that the claim is not subject to arbitration. For example, they may claim the agreement is procedurally or substantively unconscionable, that it was procured by fraud, or – most typically – that their client’s claim falls outside the actual scope of the arbitration agreement. Courts have held, in some cases, that the claimant debtor may be entitled to a jury trial on the issue of whether the claim must be arbitrated.

Why Can’t the Issue of Arbitration Be Arbitrated?

Commercial lenders scratch their heads: Why can’t the issue of arbitration itself be arbitrated? Why can’t the arbitrator determine every issue, including the issue of whether there is to be arbitration? While the issue is still hotly contested – particularly in California – a carefully drafted arbitration clause may provide commercial lenders (and others) with additional protections.

Federal Arbitration Act Has Powerful Terms

Generally speaking, arbitration is a matter of contract. Accordingly, the Federal Arbitration Act requires courts to enforce arbitration agreements according to their terms. In most cases, parties are empowered to arbitrate “gateway’ or ”threshold“ questions of ”arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy."

California Caveat

One caveat: A court generally will not assume that the parties agreed to arbitrate a threshold issue like arbitrability unless there is “clear and unmistakable” evidence that they did so. The burden is on the party seeking to compel arbitration to prove delegation of the threshold issue to the arbitrator.

 

Some courts have allowed lenders and others to “piggyback” delegation provisions found in the internal rules published by the American Arbitration Association (AAA) and other arbitration bodies. In other words, if the lending agreement incorporates the AAA rules by reference, a few courts have found that sufficient to require arbitration of the gateway/threshold issue of arbitrability. That appears not to be the rule, however, in California. While the decision is not widely precedential, a federal court sitting in the Northern District of California [see Ingalls v. Spotify USA, Inc., 2016 U.S. Dist. LEXIS 157384 (N.D. Cal., Nov. 16, 2016)], has held that the arbitrability issue must be clearly designated in the actual agreement. It may not merely “live” in some side agreement that the consumer is not given as part of the lending transaction.

Meaningful Choice/Unfair Surprise

Still, the Spotify case appears to leave room for a straightforward agreement between the consumer lender and the customer that the arbitrator handle all issues – including the issue of arbitrability itself. California courts still have a power of review; if a court determines that the entire agreement is unconscionable, the lender may still find itself before a judge, rather than a more sympathetic professional arbitrator. It seems clear that a strong delegation clause cannot save an agreement that is too one-sided.

CKB VIENNA LLP: Experienced Financial Services Attorneys

Do your arbitration clauses need review? Are they clear when it comes to delegating the threshold issue of arbitrability to an arbitrator? It’s likely time you had your contracts reviewed by a firm that has extensive experience in the field. The attorneys at CKB VIENNA LLP have broad financial services experience. For years now, we have provided lenders, servicers, and others with in-depth advice regarding both California and federal lending laws and regulations. We can examine your practices and standard agreements, and advise what changes, if any, ought to be made in order to strengthen your position in regulatory matters. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone – 909.980.1040 – or complete our online form.

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