Tuesday, December 8, 2015

Three important lessons for holiday party hosts

Dear Alex:


Our company has historically held an annual holiday party, but this year our office manager is concerned about the potential liability of serving alcohol to our guests and is thinking about canceling the party.Is this a valid concern, and should we cancel the party?

Holiday parties are a fun and important tradition for businesses. Parties can be a great way to show gratitude to employees, to build employee morale, loyalty and camaraderie, and to offer everyone in the company an opportunity to revel in the joy of the season.
Alcohol is frequently served at holiday parties, and for many it is an important part of the holiday tradition. Unfortunately, sometimes guests can overindulge, and despite the host’s best efforts, guests may even drink and drive.
California is one of only a few states that offers protection to private social hosts from liability for the acts of their intoxicated guests. In most states, the host of a party could be liable for an intoxicated guest who causes injuries to others.
In California, however, the legislature enacted laws to protect private social hosts from liability for the actions of their guests in most circumstances. There are certain circumstances in which social hosts are not given liability protection, and in all circumstances, serving alcohol responsibly is an obligation that every social host should take very seriously.
Here are three things to keep in mind when planning a company holiday party:
1. Do not serve drinks to drunken people.
Bars and restaurants that serve drinks to drunken people can be guilty of a misdemeanor. Social hosts do not face criminal implications for providing drinks to an intoxicated person, but hosts have a social responsibility to help prevent accidents or injury to guests, property, and others.
2. Do not allow anyone under the age of 21 to drink.
The age of 21 is not only the minimum legal age for a person to drink, but California’s social host liability protections do not extend to adults who furnish alcohol to underage drinkers. If an underage person is injured, causes injury to another, or worse, the adults responsible for serving the minor may be held personally responsible for the resulting harm.
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3. If you are a social host, do not charge admission or ask your guests to “chip in” to help cover the costs.
Bars, restaurants and other licensees are permitted to charge for drinks, but those licensees are held to a different standard of liability than private social hosts. Social host liability protection may not extend to private social hosts who ask guests to chip in or pay for their drinks.
Court cases in California have held that charging for attendance at a party turned the party into a de facto “nightclub,” and the party host was not afforded the typical social host liability protection.
Most importantly, please be safe and make responsible decisions this holiday season.
Many of the local car services and AAA will offer special promotions during the holidays, and taxis or on-demand car services are always available (even some of the local businesses have apps to call for on-demand cars).

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on November 24th, 2015. You can read it on the Register's website here:
 "Three important lessons for holiday party hosts"

Back to basics: sole proprietors and general partnerships

In California, not every business is required to form a business entity with the state of California. Individuals, or multiple people working together in partnership who conduct business for profit, are automatically subject to certain laws and legal classifications.
These default laws apply even when those business people have not taken any affirmative steps to register or formalize their business structure or rules of operation.
An individual conducting business without creating a business entity is classified as a sole proprietor; multiple people conducting business together as partners without creating a business entity are classified as general partners.
If one person paints houses for money, and has not filed any business organization documents with the state, that person is a sole proprietor. If two people paint houses together for money, and intend to work as partners, that business is legally classified as a general partnership.
Sole proprietors and general partnerships receive similar default treatment under the law. The individual proprietor or partners are subject to personal liability for activities of the business. For tax purposes, business income is allocated directly to the individuals and so are business losses.
This is called being a “pass-through” entity because money passes right through the business entity directly to the individual business owners; the business itself does not pay taxes but the owners pay taxes on the business’s income.
Sole proprietors do not register their business with the secretary of state. General partnerships may register with the secretary of state, but it is optional. If general partners elect to register with the secretary of state, they file a document called a Statement of Partnership Authority.
General partners are “jointly and severally” responsible for the obligations of this business. This means that all of the partners are equally responsible for the business’s obligations, or any of them individually could be responsible for the entirety of those obligations. The partners also share business income equally, unless they make an agreement to change the allocations.
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Unlike other business entity types such as corporations and LLCs, sole proprietors and general partnerships do not pay an annual $800 franchise tax to the state of California. Sole proprietors and partners in general partnerships also do not receive the same protections under the law as corporate shareholders or LLC members. The personal assets of a sole proprietor or a general partner can be subjected to the liabilities of the business’s activities.
General partnerships can operate with or without contracts governing the rules of operation of the business. If the partners of a general partnership wanted to memorialize the terms of their arrangement in writing, they would do so with a partnership agreement. Although partners are not required to enter into a partnership agreement, they should. Relying on assumptions or verbal discussions can lead to uncertainties, misunderstandings, and disputes between partners.
Keeping a written record of the agreement of the partners helps reduce those misunderstandings, provide guidance in times of turmoil, set expectations of the partners, and can preserve the positive relationship of the partners.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on November 10th, 2015. You can read it on the Register's website here:
 "Back to basics: sole proprietors and general partnerships"

Friday, November 6, 2015

Tenants in common vs. joint tenants

Dear Alex:

A partner and I are buying an investment property together, and the title company has asked how we want to hold title together. They have told us that we can hold title as tenants in common or as joint tenants, but the differences are unclear. What should we do?

For non-married co-owners, joint tenancy and tenancy in common are the two preferred means of holding title. Although I frequently recommend co-owners hold rental properties within an LLC that holds title to the property, holding title in an LLC is not always the best option — for example, when the rental income does not justify the $800 annual franchise tax that LLCs must pay. Married couples, on the other hand, usually hold real estate as community property with right of survivorship.
In this instance, as unmarried co-owners who have elected not to hold your property with an LLC, whether you should hold the property as joint tenants or as tenants in common depends on your long-term ownership objectives.
The most basic element of a joint tenancy is that if you own a piece of property as a joint tenant, then you and the other joint tenants own the property equally, each with equal ownership interests to the entire property. When one joint tenant dies, the deceased person’s interest does not pass to his or her heirs; instead, the surviving joint tenants automatically receive the deceased person’s property interest.
This is called the “right of survivorship.” A joint tenancy also avoids probate on the death of a joint tenant, because the deceased person’s interests automatically transfer to the remaining joint tenants. Joint tenancies are slightly more difficult to create and maintain than tenancies in common; to create a joint tenancy the co-owners must obtain title at the same time, in equal proportions, with equal co-ownership rights.
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With a tenancy in common, on the other hand, the tenants can own different shares of the property, equal or unequal, and each party is free to transfer, sell or dispose of their share of the property as they choose. Unlike a joint tenancy, the rights of the owners of a tenancy in common can vary, depending upon how much monetary claim was made by each tenant.
For example, with three brothers, one brother can own a 50 percent interest in the property, and the other two brothers each have a 25 percent ownership interest in the property. Each brother can put his share of the property in his estate plan and pass the interest on to his spouse, children, or whomever he chooses.
Also, one brother may choose to sell his property interest to a third party, and can do so without the consent of the other two brothers. Since there is no right of survivorship in a tenancy in common, when one tenant in common passes, their ownership interest goes to their own heirs or devisees, not to the remaining surviving tenants in common.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on October 27th, 2015. You can read it on the Register's website here:
 "Tenants in common vs. joint tenants"

Letters of intent — what’s the point?

Dear Alex:

I am selling my business and am in the process of negotiating a “Nonbinding Letter of Intent,” which I have to pay my lawyer to do.What’s the point of going through the time and trouble to negotiate this, if it’s not binding on the parties and we still have to negotiate the final contracts down the road? It seems like a pointless expense.

Letters of Intent, or LOIs, also sometimes take the form of a Memorandum of Understanding, or MOU.
Both LOIs and MOUs have the same basic purpose. These documents outline the fundamental terms of a prospective deal, including the price, specific descriptions of what is being bought or sold and the timeline to close the deal.
Sometimes, these documents are binding and have the effect of a contract, obligating the parties to perform according to the terms of the LOI. Other times, they are nonbinding and have the effect of an agreement-to-agree.
In some circumstances, if the parties aren’t careful with how the documents are drafted and presented, an LOI that was initially believed to be nonbinding can be construed as a binding contract.
Particularly with nonbinding letters of intent, clients sometimes feel like they are paying to do the same thing twice — to negotiate the deal for the purposes of the LOI, and to negotiate the deal again later when they are preparing the actual contracts.
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While the terms of an LOI are intended to overlap with many of the terms of the final execution-ready contracts, there are significant benefits to the parties’ agreeing upon a nonbinding letter of intent at the initiation of a deal.
Primarily, the LOI serves as a relatively low-cost method of filtering out the “tire-kickers” from serious prospective buyers or sellers. This can save considerable time and expenses.
Additionally, if the most important terms of a deal aren’t laid out explicitly from the start, assumptions are often made as to the other parties’ expectations or intentions, and those assumptions are very often wrong, which can blow up a deal. The very process of drafting and negotiating an LOI helps to cement the parties’ obligations to the deal, reducing the risk of one party walking away from the negotiation table down the line.
Additionally, one party may need to present a prospective deal to lenders, boards of directors, or other third parties whose review and consent to a potential transaction is required before the transaction can be finalized.
With an LOI, these interested third parties are able to get a sound understanding of the terms before the time and expense of negotiating every element of the transaction has been completed. In this way, if those parties are going to reject the deal entirely, or object to specific terms that have been proposed, they are able to do so early in the process.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on October 13th, 2015. You can read it on the Register's website here:
 "Letters of intent — what’s the point?"

Is your business a dog or a cat?

I have a cat and a dog at home. The cat, he could not care less about me as long as he’s got food and water and someplace to nap. The dog, on the other hand, needs constant attention, affection and care.
Sure, they’re both domesticated house pets with four legs and fur, but they are totally different creatures. The differences between cats and dogs are a lot like the differences between some of the most common business entities that people choose.
I think that LLCs are like cats, and corporations are like dogs.
You might get a cat or a dog for largely the same purpose – comfort, cuteness, companionship, love and affection – but they are very different creatures, and although their functions are similar, they demand very different treatment.
Similarly, LLCs and corporations are formed for many of the same purposes – personal asset protection, tax structure, increased legitimacy to customers or investors – but although the purposes of these entities are similar, their management, operation, and regular maintenance obligations are very different.
Cats are pretty independent; they might ignore you and expect to be ignored for hours or days on end, and they don’t really care. That’s one of the benefits of having a cat.
LLCs are a lot like that. LLCs don’t usually require a lot of annual formalities, approvals or maintenance. Beyond the basic care needed to keep them in good standing, LLCs can afford some neglect and it’s not a big deal. That’s one of the benefits of an LLC.
Dogs, on the other hand, are needy. Dogs wait for you by the front door to greet you when you get home; dogs need constant affection, exercise, and care. Without all this, your dog will become sad and unhealthy.
If you neglect your dog, the benefits of having a dog will go away and instead you will have a sad dog and a stack of veterinary bills.
Corporations are dog-like in that way. Corporations require regular maintenance, and operate under a formal structure to which the business’s activities need to adhere.
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With a corporation, any business decision outside of the ordinary course of business needs to pass approval of the board of directors; every single year, there needs to be a meeting of the shareholders and a meeting of the board of directors, with advance written notice, and accurate minutes of those meetings need to be kept in the corporate minute book.
Corporations need attention and maintenance, and without that care, the benefits of a corporation can go away. The corporation’s liability protection will be vulnerable to piercing, and the personal assets of the shareholders could become subject to the liabilities of the corporation.
So which is better? Corporations or LLCs? Dogs or cats?
When comparing corporations to LLCs, there are benefits and drawbacks to each, and it depends on what your needs are, and what your business activities are like.
To be sure, maintenance obligations are an important consideration to be taken into account when selecting a business entity (or pet).

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on September 29th, 2015. You can read it on the Register's website here:
 "Is your business a dog or a cat?"

A tree between neighbors

Dear Alex:

My neighbors have a tree with branches hanging over my yard, and I’m afraid the tree might fall on my property. What rights do I have, and what can I do about it?

This is a common issue among adjoining properties, when the roots and branches of one neighbor’s trees extend beyond their property line and into the other neighbor’s property. The ownership of a tree is usually based on the location of the trunk, not by the location of the branches.
Even if most of the branch leaves encroach onto your property, if the tree trunk is entirely in your neighbor’s yard, the tree, its roots, and its branches are all owned by your neighbor.
There are countless problems that an encroaching tree can create, including damage from tree roots, the safety risks of a diseased or unhealthy tree and damage from fallen branches, and the litter of leaves and twigs can be a real nuisance.
An owner who fails to properly maintain a tree on their property may be liable for damages caused to the owner of the adjoining property when the branch falls onto their house. However, if you are aware of the risk of damage ahead of time, it’s a good idea to take a proactive approach and try to prevent future damage or problems.
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If a neighbor’s tree is encroaching onto your property, causing damage from roots or branches, or causing a hazardous condition, the very first step should be to talk to your neighbor and try to reach a resolution or come up with an agreement for trimming the tree. Most neighbors are willing to take responsibility for their property, and this will help maintain a healthy neighborly relationship.
In the event that a neighbor refuses to accommodate a request to cure an encroaching tree, property owners do have the right to trim back the overhanging branches or the roots of a tree at the property line without the tree owner’s consent, as long as it is reasonable to do so. However, if it is not found to have been a reasonable action, the neighbor who cut the tree could face liability for damage caused to the tree.
Cutting the roots and branches of a neighbor’s tree that encroach into an adjoining property owner’s yard may only be done up to the property line, and may not damage the tree’s structural integrity. Generally, this sort of self-help is discouraged without the neighbor’s prior consent. There have been cases where tree owners have sued neighbors for cutting off branches of trees, and the tree owners were awarded thousands of dollars in damages.
Tree branches and roots that encroach on your land and may threaten damage to your property may be a nuisance. If it is a nuisance, you have the right to file an injunction against your adjoining neighbor. When a court grants an injunction, they may require the removal of the tree, and may award money damages for injuries or damage to property suffered as a result of the encroachment. However, to make a nuisance claim you would have to first prove that the encroaching tree interferes with your use or enjoyment of the property.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on September 15th, 2015. You can read it on the Register's website here: 
"A tree between neighbors"