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05. Business Law

Business Disputes in California

There are many legally described organizations through which individuals can “conduct business” in California.  Each organization has a unique set of rules, regulations and laws that control the manner of operation, the nature and extent of the rights, liabilities and obligations of involved participants.  In general, the Law requires that individuals act honestly, with integrity and with an appropriate level of transparency.

A.     CORPORATIONS

 

a.    A corporation is a business entity that is owned by its shareholder(s), who elect a board of directors to oversee the organization's activities. The corporation is liable for the actions and finances of the business – the shareholders are not.
 

A corporation  has an unlimited lifespan, even if a shareholder dies or one sells his or her share the Corporation continues to exist.

 

Generally, disputes arise between minority shareholders  who believe they are being prejudiced in some manner by what the management is doing in terms of disposition of assets, internal decisions affecting ongoing strategies and the responses to the interests of the minority.  Minority interests can be protected to some extent depending upon the extent of ownership interests and the allegations being made.

 

B.    PARTNERSHIPS

 

a.    GENERAL PARTNERSHIPS
A partnership is a single business where two or more people share ownership. Each partner contributes to all aspects of the business, including money, property, labor or skill. In return, each partner shares in the profits and losses of the business.  A partnership means that the owners are each fiscally responsible for business debts, and can be held accountable for all business discretions. This means that the owners can be held personally accountable, and their personal assets used, to cover any debt, lawsuits and legal fees.
A written General Partnership Agreement is advisable. This document sets forth important aspects of the operation and management.

 

b.    LIMITED PARTNERSHIPS
A limited partnership is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners, a limited partnership must have at least one general partner “GP” and at least one limited partner.  The general partners are responsible for managing the business and making business decisions to achieve the stated business goals. The limited partners, also sometimes called silent partners, are responsible only for investing in the business, not running it or for its debts and obligations.

 

A written Limited Partnership (LP) Agreement is advisable. This document sets forth the important aspects of the operation and management of the LP.

 

c.    LIMITED LIABILITY PARTNERSHIPS (LLC)

A Limited Liability Company is a legal entity all its own, while a partnership is owned by two or more people who share legal responsibility of the business entity. In a partnership, the business does not possess a legal identity outside of the business owners. A Limited Liability Company offers more flexibility in terms of operations and personal asset protection and reflects the existence of a separate legal entity.

 

An LLC may be owned by a single person, while a partnership needs at least two members to be formed. LLCs can also possess other business entities, such as a partnership, corporation or other LLC. An LLC may also have foreign individuals and businesses as active owners, whereas usually a partnership cannot.

 

An LLC has an unlimited lifespan, even if an owner dies or one sells his or her share of the company interest. A partnership, however, ends once one partner dies or sells their ownership interest.

 

An LLC generally requires the drafting and signing of an acceptable OPERATING AGREEMENT.  This document sets forth important considerations with respect to all aspects of the LLC.

 

C.    GENERAL CONSIDERATIONS

 

During the existence of any business organization differences arise between individual owners, managers, shareholders, and/or partners.  Differences are sometimes caused by varying opinions as to operation and management, purposes of the business and implementation of to achieve those objectives. 

 

There are duties which arise between the parties.  Fiduciary Duties are often described  as “a duty of utmost good faith, trust, confidence, and candor owed by a fiduciary (such as a partner or corporate officer, manager or member) to the beneficiary (such as a partner or a shareholder or a member); a duty to act with the highest degree of honesty and loyalty toward one another.

 

In general, there are three principal Fiduciary Duties:

Three Key Fiduciary Duties

  • Duty of Care. Duty of care describes the level of competence and business judgment expected of a board member, general partner, managing partner, etc.

  • Duty of Loyalty. Duty of loyalty revolves primarily around board members, general partner’s or  Managing Partners financial self-interest and the potential conflict this can create.

  • Duty of Obedience.

 

Prompt and effective action by the Law offices of Heather Gibson with regard to Business Disputes:

 

In California many of the duties of those owning and managing businesses are set forth in the Law.  When disputes arise, it is critical to review the facts of each situation in relation to the type of organization involved and the rules which must be adhered to by the various owners, managers, shareholders, partners or members.  A determination must be made as to the rights and duties which have been violated.  Suggested options must be considered in light of the likely costs involved to pursue a desired outcome. At LOHG, it is important that the client is fully aware of nature of the solutions/options being proposed initially, as well our continuing duty to maintain clients awareness of the status of their matter in a timely fashion.
 

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