The Who, What, Where, When, Why, and How of the New Corporate Transparency Act (CTA) Reporting Requirements. Your Quick Guide to the New Law that has Everyone Asking Questions.

Schneiders & Associates, LLP is reaching out to provide some clarity and general information regarding the Corporate Transparency Act (“CTA”).  Some of you may have heard about the new law, and like many of us when first learning about it, were left with more questions than answers.  Please be aware that while the law itself appears to be straightforward, in practice it can be very complicated.  The below memorandum is a streamlined “Who, What, Where, When, Why, and How” overview of the CTA. Should you have any questions on the CTA, need further explanations or examples, or need assistance in determining if and how the CTA applies to your business, please do not hesitate to reach out and schedule a meeting or call to discuss how it applies specifically to your business and what, if any, information your business will be required to report.

After reviewing this memorandum, please make sure you confirm if your entity (e.g., corporation or LLC) is a Reporting Company, determine all Beneficial Owners, obtain all required information and submit all such information to FinCEN.  If you are not certain if your entity is a Reporting Company, who the Beneficial Owners of the Reporting Company are, or any other information that is required, or how to report it, please do not hesitate to reach out to us for assistance with any of the CTA requirements.


What is the CTA and Why was it enacted?

The CTA was enacted in 2021 as a way to combat the use of shell companies used for money laundering, terrorism financing, corruption, and tax fraud, by creating the Financial Crimes Enforcement Network (“FinCEN”), which will house certain information on certain business entities that have historically had little oversight and have been used for such nefarious practices. 

Why you shouldn’t ignore the CTA and Who is liable for CTA violations.

Violations of the CTA (i.e., not reporting the required information to FinCEN) can result in civil and criminal penalties.  There can be civil penalties of up to $500 for each day that the violation continues. Additionally, a person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. To be clear, it is the Reporting Company’s responsibility to identify all Beneficial Owners, timely report all required information of its Beneficial Owners, Company Applicants (if applicable), and other required information.  The filer who knowingly submits incorrect information and the Beneficial Owner who refuses to provide the required information can be liable for CTA violations.

Who does it effect?

Reporting Company

A “Reporting Company” is a business entity that  (a) is created by filing a document (e.g., Articles of Incorporation, Articles of Organization, etc.) with the Secretary of State or other similar office under state law or Indian Tribe law, or (b) is a foreign entity and is registered to do business in the United States by filing a document with the Secretary of State or other similar office under state law or Indian Tribe law. Please note, that if a business entity is a subsidiary of another entity, they are still required to report, independently, whether or not their parent company is a Reporting Company and files its own reports to FinCEN or is deemed to be exempt from filing reports to FinCEN. There are 23 exemptions, please see Exhibit A for a list of those exemptions. 

Beneficial Owners

A “Beneficial Owner” is a natural person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise EITHER:

  1. Owns or controls at least 25% of the Reporting Company’s ownership interest, or
  2. Exercises substantial control over the Reporting Company.

Ownership or control can occur by owning equity, stock, voting rights, capital or profits interest, convertible instruments, options or privilege, or any other instrument or agreement used to establish an ownership interest. An owner of non-voting stock may still be deemed a Beneficial Owner.

If a Reporting Company is owned by other entities (e.g., an LLC or corporation) you will need to go through each entity until there is a natural person that owns the interest and determine if that natural person owns, through all the entities, a 25% or greater interest in the Reporting Company. 

If a trust owns the interest, then the Settlor(s)/Grantor(s)/Trustor(s), Trustee(s), and/or Beneficiaries of the trust may be deemed to be a Beneficial Owner.

Having “substantial control” over a Reporting Company can occur because of your role/position in the Reporting Company.  Below, please find a list of common ways that FinCEN will determine if an individual will have substantial control over a Reporting Company.  Please be advised, this is not a definitive list, an analysis may need to be done to determine if an individual has substantial control over a Reporting Company.

  • A senior officer, which are the President, CFO, CEO, COO, General Counsel, or any other officer, regardless of title, who performs similar functions that are customarily performed by these officer roles is deemed to have substantial control. Please note the Treasurer and Secretary are not deemed to have substantial control, however, it is common for the Treasurer to also be deemed the CFO. You need to check your bylaws to see if that is the case with your corporation.  A Manager or Managers of an LLC are deemed to have substantial control.
  • If an individual has the authority to appoint or remove a senior officer or a majority of directors of a Reporting Company, they are deemed to have substantial control.
  • If an individual directs, determines, or otherwise has substantial influence over important decisions of the Reporting Company, they are deemed to have substantial control.  

There are 5 exemptions for Beneficial Owners, please see Exhibit B for a list of those exemptions.

Company Applicant (applicable to Reporting Company’s formed on or after January 1, 2024)

A “Company Applicant” is the individual that files the document with the Secretary of State or other similar office under state law or Indian Tribe law, that forms and creates the Reporting Company.  By way of example, if you retained our firm to create your business entity, the attorney that directed and oversaw the formation of your entity and the corporate paralegal that actually submitted the application to the Secretary of State would be your Company Applicant.  Any Reporting Company that was in existence prior to January 1, 2024, is exempt from having to report their Company Applicant.

What must be reported?

The Reporting Entities that are required to report to FinCEN must report the following information:

Reporting Company information:

  1. Legal Name
  2. Any “doing business as” (d/b/a) or “trading as” (t/a) names
  3. Current physical US street address of its principal place of business (a PO Box address is not allowed)
  4. Jurisdiction of formation or registration
  5. Taxpayer Identification Number
  6. Whether it is filing an initial report, a correction or an update of a prior report

Beneficial Ownership Report:

  1. Individual’s name
  2. Individual’s date of birth
  3. Individual’s residential address

Individual’s Identification Document (i.e., Driver’s License or Passport): the identifying number, the name of the issuing state or jurisdiction, and an image of the identification document 

Company Applicant

  1. Individual’s name
  2. Individual’s date of birth
  3. Individual’s residential address
  4. Individual’s Identification Document (i.e., Driver’s License or Passport): the identifying number, the name of the issuing state or jurisdiction, and an image of the identification document

*FinCEN Identifier – An individual can also obtain a FinCEN Identifier which is a unique identification number that they can submit in lieu of providing all of their information and a copy of their ID each time they have to report to FinCEN as a Beneficial Owner or Company Applicant. They will still need to submit the same information but will only need to submit it once to obtain their FinCEN Identifier.  If an individual reports for more than one Reporting Company, then this may be easier to manage.

When does the information have to be reported.

For all Reporting Companies formed before January 1, 2024, the Reporting Company has until January 1, 2025, to submit all required information to FinCEN.

For all Reporting Companies formed in the calendar year 2024, the Reporting Company must submit all required information within 90 calendar days of receiving actual or public notice of its formation.

For all Reporting Companies formed on or after January 1, 2025, the Reporting Company must submit all required information within 30 calendar days of receiving actual or public notice of its formation.

There is no fee to submit any information to FinCEN and no annual reporting, once the initial information is submitted the only requirement is to keep all information about the Reporting Company and all current Beneficial Owners current, including new and/or additional Beneficial Owners. If there is any change to the information submitted about the Reporting Company or its Beneficial Owners, the Reporting Company must submit the updated information to FinCEN within 30 days of the change.  If the Reporting Company discovers any information was reported in error, the Reporting Company has 30 days to fix any such inaccuracies. There is no obligation for a Reporting Company to submit updated information about its Company Applicant.

Where do you file the required information?

All information that must be reported can be submitted at You can fill out a PDF and submit online, or file directly online through the website.

Next Steps.

First, determine if your business entity is deemed a Reporting Company. If your business is a Reporting Company, begin to assemble a list of all the Beneficial Owners and obtain their required information.  If you need assistance in determining either of those factors, please do not hesitate to reach out.  As noted earlier, we are happy to assist in determining if you are a Reporting Company and who your Beneficial Owners are. 

Second, if your business entity is a “Reporting Company” we would strongly advise that you amend your Bylaws, Operating Agreement, applicable Employment Agreements, and any other agreement that you have which governs the relationship between the business and a Beneficial Owner, so that it requires them to (1) provide all needed information so that you can submit the Beneficial Ownership Report, (2) notify the appropriate Officer, Manager, or other applicable individual of any changes to the required information the business must report to FinCEN in a timely manner, and (3) add indemnification language should their refusal or delay in providing the business with such information result in the business or filer being fined.

Again, this memorandum touches on the main points of the CTA, should you have any additional questions regarding the CTA, need any further clarification, or require any assistance in determining if your business entity is a Reporting Company, who the Beneficial Owners are, or where to report the required information, please reach out to our office and we can schedule a meeting or phone call to address any questions you may have.

Exhibit A

Exemptions to Reporting Company Designation

Please reach out should you have any questions as to or to determine whether or not your business entity falls under one of these exemptions. Please note there are qualifications that must be met for each of the below in order for FinCEN to deem a business entity exempt under a particular Exemption Number.

Exemption No.Exemption Short Title
1 Securities reporting issuer
2Governmental authority
4Credit Union
5Depository institution holding company
6Money services business
7Broker or dealer in securities
8Securities exchange or clearing agency
9Other Exchange Act registered entity
10Investment company or investment adviser
11Venture capital fund adviser
12Insurance company
13State-licensed insurance producer
14Commodity Exchange Act registered entity
15Accounting firm
16Public utility
17Financial market utility
18Pooled investment vehicle
19Tax-exempt entity
20Entity assisting a tax-exempt entity
21Large operating company
22Subsidiary of certain exempt entities
23Inactive entity

Exhibit B

Exemptions to Beneficial Owners Designation

Please reach out should you have any additional questions as to whether or not an individual is exempt as a Beneficial Owner. Please note there are qualifications that must be met for each of the below in order for FinCEN to deem an individual exempt under a particular Exemption Number.

Exemption No.Exemption
1Minor Child
2Nominee, intermediary, custodian, or agent

By: Jessica Villar, Esq.

Key Areas to Be Aware of When Starting a Business

When starting a business in California, there are several laws and regulations that entrepreneurs should consider. It’s important to consult with legal professionals to ensure compliance, but here are some key areas to be aware of:

Business Structure:

  • Choose a legal structure for your business (e.g., sole proprietorship, partnership, LLC, corporation). This decision is driven by tax goals as well as whether you have or intend to have partners.
  • Register your business with the California Secretary of State.

Business Licenses and Permits:

  • Obtain the necessary licenses and permits for your specific industry and location.
  • Check with local city and county authorities for additional requirements.

Tax Obligations:

  • Understand your state and federal tax obligations.
  • Register for a state employer identification number (EIN) if you have employees or want to be able to open a company bank account.

Employment Laws:

  • Comply with California labor laws, including minimum wage, overtime, and meal/rest break requirements.
  • Familiarize yourself with regulations related to hiring, termination, and workplace safety, especially the difference between W2 employees and 1099 independent contractors.

Zoning and Land Use:

  • Check local zoning laws to ensure your business location is compliant.
  • Verify that your business activity aligns with local land use regulations and you have obtained all required permits and licenses to operate your business.

Environmental Regulations:

  • Be aware of environmental regulations that may affect your business operations.

Intellectual Property:

  • Protect your intellectual property through patents, trademarks, or copyrights if applicable.
  • Have your employees sign proper confidentiality and intellectual property assignment agreements.

Contracts and Agreements:

  • Have written contracts for business transactions, vendor relationships, customer relationships, partnerships, and employment agreements.
  • Ensure compliance with contract laws and regulations.

Consumer Protection Laws:

  • Understand consumer protection laws to avoid legal issues related to advertising, sales, and customer interactions.
  • Have appropriate terms and conditions and disclaimers of warranties to protect your business from claims by customers.

Accessibility Compliance:

  • Ensure your business is accessible to individuals with disabilities, complying with the Americans with Disabilities Act (ADA).

Privacy Laws:

  • Comply with privacy laws, especially if you collect and handle personal information.

Health and Safety Regulations:

  • Follow health and safety regulations, especially if your business involves food, healthcare, or other regulated industries.


  • Obtain the necessary business insurance, such as liability insurance and workers’ compensation.

It’s crucial to seek legal advice to navigate the specific requirements and nuances of starting a business in California. This information is not exhaustive, and regulations may change, so staying informed is key to compliance.

By: Roy Schneider, Esq.

CLICK-TO-SUBSCRIBE, CALL-TO-CANCEL: Unveiling Negative Option and Auto-Renewing Contracts

Negative Option Marketing Overview:

The Federal Trade Commission (“FTC”) broadly defines “negative option marketing” as a category of transactions where a consumer customer’s failure to take affirmative action, either to reject an offer or cancel an agreement, is interpreted as consent to be charged for goods or services. This shifts the conventional buyer-seller relationship, making subsequent offers deemed accepted unless explicitly rejected. Four plans fall within this category: pre-notification negative option plans, continuity plans, automatic renewals, and free-to-pay or nominal fee-to-pay conversion plans.

Auto-Renewal Contracts:

Auto-renewal contracts, also known as automatic renewal or evergreen contracts, establish agreements between a service provider and a consumer customer. In automatic renewal negative option offers, contracts automatically renew at the end of a fixed period, such as a one-year magazine subscription, unless consumers instruct otherwise. Trial offers are often structured as free-to-pay or nominal fee-to-pay conversion plans, where consumers receive a free or nominally priced service for an introductory period. Charges are incurred only if consumers do not take affirmative action to cancel, reject, or return the service before the trial period ends.

Consumer Concerns

The surge in subscription-based services, spanning streaming platforms, grocery services, magazine subscriptions, software subscriptions, and meal kit services, has led to growing concerns about intricate cancellation processes. Subscribers often grapple with elusive cancellation buttons and prolonged wait times, deeming these obstacles coercive and exploitative.

Federal Law Safeguards

The Federal Trade Commission Act, Section 5, addresses omissions of material information affecting consumer decisions. It specifies seven material terms sellers must disclose in negative option plans. 15 U.S.C. §45. The Restore Online Shoppers’ Confidence Act (“ROSCA”) complements this by mandating clear disclosures, express informed consent, and simple mechanisms to stop recurring charges in online negative option transactions. 15 U.S.C. §8401 et seq. Under ROSCA, if a business charges or attempts to charge any consumer for goods or services online through a negative option, it must: (1) clearly and conspicuously disclose the material terms of the transaction before obtaining billing information; (2) obtain the consumer’s express informed consent before charging the consumer; and (3) provide “simple mechanisms” for a consumer to stop recurring charges. 15 U.S.C. §8402.

California’s Automatic Renewal Law

California’s Automatic Renewal Law (“CA ARL”) imposes robust information, notice, and consent requirements on businesses making auto-renewal offers to California consumers. Cal. Bus. & Prof. Code § 17601 et seq. These include clear and conspicuous offer terms, affirmative consent before charging and providing detailed acknowledgment and cancellation information. CA ARL requires that any auto-renewal provision in the contract must be made to the consumer prior to the agreement being finalized and in “visual proximity, or in the case of an offer conveyed by voice, in temporal proximity, to the request for consent to the offer” and in at least one of the following manner: (a) Set off from the surrounding text in a way that makes the language stand out, (b) In a larger font than the surrounding text, and/or (c) In a type, font, and/or color that is in contrast with the surrounding text. Cal. Bus. & Prof. Code § 17601.

Proposed FTC Rule Changes, 2023

In April 2023, the FTC initiated a proposed rulemaking to overhaul negative option plans.[1] The proposed rule has now closed for stakeholders’ and public comments after a 60-day window. It aims to prohibit misrepresentations, enforce certain disclosures, and mandate an easy cancellation process. Violations could lead to significant penalties, signaling a potential shift in consumer protection enforcement. Navigating the complex landscape of negative option and auto-renewal contracts necessitates vigilance, understanding, and compliance with evolving federal and state regulations.

Stay tuned for updates as the proposed FTC rule unfolds!

[1] A Proposed Rule by the Federal Trade Commission on 04/24/2023, 88 FR 24716.

By: Sharvani Navangul

Corporation Shareholder Rights to Inspect and Participate

The California Corporations Code, as well as common law not found in the statutes, provide for shareholder inspection and participation rights in a corporation.

California Corporations Code section 1601(a)(1) provides that any shareholder is entitled to inspect and copy the following, at any reasonable time during usual business hours for a purpose reasonably related to such holder’s interest as a shareholder or holder of a voting trust certificate.

  1. the record of shareholders
  2. the accounting books and records
  3. minutes of proceedings of
    • the shareholders and
    • the board and
    • committees of the board.

The holders of 5% of any class of shares of the corporation may request, at specified intervals during the fiscal year, income statements and balance sheets and, if no annual report has been sent, the statements required by Corp. Code section 1501 (a).

The definition of “accounting books and records” is not defined explicitly in the Corporations Code. Other sections impose duties of financial disclosure that show the meaning of accounting books and records—balance sheet, income statement, and statement of cashflows.  The corporation does not have to allow inspection of the General Ledger at entry level, or line item level balance sheet showing what each principal has loaned the Company, if the balance sheet shows a summary of those loans as a consolidated number. The inspection must be allowed at any reasonable time, so, the shareholder might access monthly information rather than just annual data, if the shareholder repeats the requests more than once annually.

Corp. Code section 1501(a) is an example of the type of accounting books and records that a shareholder may inspect. (Jara v. Suprema Meats, Inc. (2004) 121 Cal. App. 4th 1238.) Section 1501 requires that the directors of a corporation send to shareholders an annual report on the business and financial condition of the corporation.[1] Corp. Code section 1501(a)(1) provides that the report must contain a balance sheet and an income statement and statement of cashflows for the fiscal year, accompanied by a report of independent accountants or a certificate of an authorized officer that the statement was prepared without audit from the books and records of the corporation.

So even if waived in the smaller corporation’s bylaws, this section informs the definition of accounting books and records.

The inspection of books and records does not mean the shareholder is entitled to unfettered access to corporate confidences and secrets. (National Football League Properties, Inc. v. Superior Court (1998) 65 Cal.App.4th 100, 107 [no shareholder inspection of attorney-client privileged material.]) The shareholder’s inspection must have a proper purpose “reasonably related to shareholder’s interest as a shareholder.”  (Corp. C. §1601(a).) So in most instances, the limited books and records inspection described here will fulfill the corporation’s duties to the shareholders. The “purpose” must be to determine the condition of the corporation and the value of shareholders’  interests therein.[1] For instance, inspection was permitted by the California Supreme Court in Schnabel v. Superior Ct. (1993) 5 Cal. 4th 704, 715, the purpose being to “ascertain the value of the stock” in a divorce case.

Meeting minutes are open to inspection (Corp. C.§ 1601[a]), even if they contain information about salaries and bonuses. Some privileges will apply, and possibly third party financial privacy could protect the actual dollar amounts and recipients. (National Football League Properties, supra.) But the information will probably be detected in the accounting books and records. Accessing historic minutes is probably required by section 1601. The section makes no exception for minutes created prior to the shareholder’s acquisition of stock.

Shareholders have rights around dissolution. The corporation can voluntarily dissolve only  upon the vote of shareholders holding shares representing 50% or more of the voting power of the corporation. Any 5% of the shareholders can petition for court involvement in a voluntary dissolution. Any 33.3% of shareholders can petition for involuntary dissolution, and the shares of the alleged wrongdoers don’t count.

Shareholders have rights around meetings as well. Shareholders have a right to attend shareholder meetings, which must occur at least annually for the election of directors. (Corp. Code § 600.) Although shareholders have no right to attend directors’ meetings, they have a right to inspect the minutes upon demand, at a reasonable time.

This subject is purposefully vague, and the courts are there to protect shareholder legitimate interests.  We have litigated cases in the past where the Board of Directors did not want to share certain requested information as it believed the information would be used for wrongful purposes, such as for competition. Such litigation is costly, time consuming and bad for morale.  However, for fully transparent corporations, the sharing of books and records and other legitimately requested reviews works just fine.

[1]This obligation can be waived in the bylaws of a corporation with fewer than 100 shareholders of record.

[2]One extreme example is Hobbs v. Tom Reed Gold Mining Co. (1913) 164 Cal. 497, 500-501, which is now considered limited by section 1601 because it allowed a shareholder to inspect the company’s Arizona gold mine. Hobbs set forth the common law definition of proper purpose: to determine whether company operations were carried on with skill and good judgment. In Hobbs, The California Supreme Court permitted the gold mine inspection “for the protection of his interest or for his information as to the condition of the corporation and the value of his interest therein.” (Hobbs supra at 501.) Section 1601 would not permit the mine inspection, but, the basis for the inspection–to protect the shareholder’s interest and the value of his stock—still applies.

Article By: Kathleen J. Smith

Kathleen J. Smith is an experienced civil litigator. Kathi advises clients on and handles all types of civil litigation, including employment matters, wage and hour, business, real estate, trademark disputes, class action defense, trust and probate, and homeowners association disputes. Kathi is experienced in all types of dispute resolution, from mediation to arbitration to civil trial.

Fiduciary Responsibilities and Your Business

As the owner of a corporation, you have certain responsibilities to other parties that must be fulfilled. Although being a sole proprietor gives you more leeway, a sole proprietorship lacks any liability protection for its owner.  Business owners who use corporations or LLC’s for their business structure must be familiar with fiduciary responsibilities. These obligations extend to corporate officers and even managers in some situations. So, what are fiduciary responsibilities for business owners and corporate officers?

What are Fiduciary Duties?

A fiduciary duty is a legal requirement that applies to anyone who has a relationship of trust with another person or organization. While fiduciary responsibilities extend to more than just the business context, they are often associated with corporations and partnerships. 

Other examples of this type of relationship include:

  • Trustee and beneficiaries
  • Investment manager and participants in an investment plan
  • Banker and customers
  • Attorney and client

In these relationships, the fiduciary often accepts legal ownership or control of property or an asset that belongs to someone else. In the business context, corporate owners and managers have this type of obligation to stockholders and investors in the business.

An Overview of Fiduciary Responsibilities

Several duties apply to those in fiduciary roles, such a corporate director or officer. Below is a general overview of responsibilities that likely apply to corporate owners and officers.

  1. Obedience – Officers and directors must carry out their roles according to the requirements of the corporate bylaws, articles of incorporation, and other controlling documents. They are obligated to follow voting procedures and executed decisions made by the stockholders or investors. They must also fulfill their obligations under state and federal law.
  2. Loyalty – Business owners and officers have a duty of loyalty to the corporation and their shareholders. This means they must put the interest of the shareholders and the company ahead of any personal aspirations or goals. Any conflict of interest should be decided in favor of the business, and officers cannot use information gained in their roles in a way that would harm the company.
  3. Care- Diligence and care are essential duties in the corporate context. If corporate officers make decisions without thoroughly investigating the implications of those decisions, that could seriously endanger the company. They should act as prudent investors and decision makers and consider how the stockholders are affected in making every important decision involving the company. 
  4. Good Faith and Fair Dealing – Officers, directors, and owners are required to act with honesty, fairness, and good faith in everything they do for the business. This requirement applies to daily operations of the company as well as significant decision-making functions. This duty dovetails with the obligations of obedience, loyalty and care.
  5. Disclosure – Those who make important decisions for the business must disclose relevant information about those decisions to others. The duty of disclosure is often referred to as a “duty of candor.”  Officers, owners, and directors not only have a duty to their shareholders, but to the other key decision makers as well. There is also a duty to disclose potential conflicts of interest which coincides with the duties of loyalty, good faith and fair dealing.

The Takeaway

Given the significant fiduciary responsibilities associated with running a business, owners, directors, officers and managers should contact our office for proper legal representation in fulfilling these important duties.

By: Theodore Schneider, Esq.

Theodore Schneider assists his clients in Ventura County and surrounding areas, with respect to all aspects of personnel matters, including employee discipline, wrongful termination, retaliation, discrimination, hostile work environment, sexual harassment, leaves of absence, Americans with Disabilities Act, Fair Employment and Housing Act, Fair Labor Standards Act, and the California Labor Code. Ted also drafts and reviews employee handbooks and employment policies for his clients. Email Ted at

Coronavirus and Covid-19 Issues and Defenses in Contracts

By Kathleen J. Smith, Civil Litigation Attorney

Let’s be clear—Covid 19’s pandemic shutdown may affect your company’s ability to perform its contracts, but it’s no panacea for avoiding all your business obligations. Your contracts may contain variously worded “force majeure” clauses. That doesn’t mean you can ignore paying for services already received.

Here is a typical force majeure clause:

Force Majeure. Any delay or failure by either party hereto in performance hereby shall be excused if, and only to the extent that, such delays or failures are caused by occurrences beyond such party’s control, including Acts of God, decrees or restraints of governments, strikes or other labor disturbances, war, sabotage, and any other cause or causes which cannot be controlled by such party. Notification of such delay or failure in performance shall be promptly provided to the other party, including the cause thereof, and the extent of the performance which will be delayed or not performed.

See that? If the pandemic shutdown qualifies as a “decree or restraint of government” causing delay or failure in your performance, you have to promptly notify the other party about the effect on performance. Many commercial landlords have tenants who failed or delayed paying rent without ever telling the landlord that the shutdown caused the failure or delay.

On the other hand, if normal business vagaries and risk exposure caused the failure  or delay in performance, force majeure is not a trump card. “A force majeure clause is not intended to buffer a party against the normal risks of a contract. The normal risk of a fixed-price contract is that the market price will change. If it rises, the buyer gains at the expense of the seller …; if it falls, as here, the seller gains at the expense of the buyer…. A force majeure clause interpreted to excuse the buyer from the consequences of the risk he expressly assumed would nullify a central term of the contract.” Horsemen’s Benevolent & Protective Assn. v. Valley Racing Assn., 4 Cal. App. 4th 1538, 1565 (1992), modified (Apr. 6, 1992) citing Northern Indiana Pub. Serv. v. Carbon County Coal (7th Cir.1986) 799 F.2d 265 at 275.

If the pandemic shutdown makes it illegal for you to perform—think live stage performances—then you have a defense to a breach of contract claim.

Witkin says: The excuse of impossibility is covered in several Code sections:

“A condition in a contract, the fulfillment of which is impossible or unlawful … , or which is repugnant to the nature of the interest created by the contract, is void.” (C.C. 1441.)

“The object of a contract must be lawful when the contract is made, and possible and ascertainable by the time the contract is to be performed.” (C.C. 1596.)

Performance is excused “[w]hen it is prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies of this state or of the United States.” (C.C. 1511(2); see Pub.Contr.C. 7105(a), (b), infra, § 1027.)

In sales, California Commercial Code 2615 provides excuse by failure of a presupposed condition that there would be no pandemic. But the seller may be required to make/produce whatever product they are able and allocate among buyers. Section  2615 provides:

Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:

(a) Delay in delivery or nondelivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

(b) Where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.

(c) The seller must notify the buyer seasonably that there will be delay or nondelivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.

Lawsuits are still happening, even with the shutdown of many law offices and courthouses. Contact our litigation experts today! We can remotely intake any new case and enforce contract rights in court with complete efficiency.  Pleadings are filed electronically. Court hearings are telephonic. Even mediations and arbitrations are done on videoconferencing platforms. Lawsuits happen—completely untouched by human hands, with personal attention remotely applied.

Annual Employment Law Update, 2021 – Webinar

The emergence of COVID-19 has changed the world as we once knew it; therefore, it should come as no surprise that the virus would impact employment law as well. California’s ever-changing employment laws will have employers scrambling to keep up in 2021! What are the reporting requirements if someone is exposed to COVID-19 at the workplace? What is the PPE requirement? Is my employee eligible for workers’ compensation benefits in the event of an outbreak? These are all new questions that employers need answers to.  The employment law attorneys at Schneiders & Associates are prepared to help!

Join us on Friday, January 22, 2021 at 8:30 am, when our employment law experts, Roy and Ted Schneider, will discuss the new employment law changes in 2021, via Zoom.

In addition to COVID-19 related employment law updates, there are several other employment law changes that the anticipated new year will bring. In addition to new laws related to COVID-19, other topics to be discussed include employee handbooks, wage and hour, contract employees, and much more! Do not miss the most important webinar of the year!

Click here to register for this event. For more information, please contact Marketing and Client Relations Director Angela Mumme at 805-764-6370 or by email at

Starting a New Business – Common Start-Up Costs

Starting a new business is an exciting time. For serial entrepreneurs, starting a new business is often more routine because they have developed a system from their prior ventures. For those who are just diving into entrepreneurship, understanding how to handle the early stages of the business, such as start-up costs, won’t be so routine. If you have a business idea and you’re considering taking the plunge with a start-up, it is essential to have a good business plan which will provide structure for handling the early stages of the company as well as managing start-up costs. The core start-up costs include:

Legal Fees

When establishing a business plan, many entrepreneurs overlook the cost of legal fees. For many, legal fees are an unwanted expense which results in pursuing subpar legal documents online. Unfortunately for many entrepreneurs, these documents fail to account for the individual needs of the business and entrepreneur, which can result in expensive litigation and exorbitant future business expenses. When establishing a start-up, always consult with a business attorney to ensure that you and your company are protected.

Regulatory Costs

Another often overlooked cost is related to regulatory costs. Depending on your start-up, you may be required to receive certain licensure and permitting from the state, local governments, or professional associations. These costs can quickly build up from a fee standpoint, and failure to satisfy these requirements can result in greater costs as your business may not be able to operate while you wait for the licensure, permit, or other regulatory approval.


Insurance protects you and your company from unexpected events that would otherwise cripple the company. Carrying the proper insurance means that your employees are protected, your customers are protected, your business is protected, and you are protected. In addition to potentially being illegal in your area, attempting to skip out on insurance has the potential to sink your company and make you personally liable.

Marketing Expenses

Even if you have the greatest product in the world, no one can buy it if they don’t know it exists. Thus, your business plan should always include a budget for marketing. The avenue you pursue for marketing will be specific to your business, but always take the time to budget for marketing costs.

Employee Expenses

One of the largest expenses for companies around the world is the cost of labor, or the amount it costs them to have employees. When budgeting for employees, you need to be realistic in what you are requiring of each employee when estimating the wage that the employee will require. In addition to an employee’s salary, don’t forget about employee benefits. Underestimating the cost of an employee can cost you thousands in unplanned expenses.

Administrative Costs

An often-overlooked expense is the administrative cost of operating the business. Here, you need to budget for accounting costs, payroll costs if you intend to have employees, and information technology costs. Additionally, some may include the costs of operating a website as an administrative cost, although others may budget their website as a marketing expense.

As you can see, there are numerous costs common to start-ups that need to be addressed in the business plan. If you need assistance with starting your business, we can help! Call us today!

An Overview of Foundational Corporate Documents

There are a number of steps to form a corporation, including selecting a name, obtaining the necessary licenses and permits, paying certain fees, and filing foundational documents with the appropriate state agency. While an attorney can help prepare and file the required papers, the owners, officers and directors should have a basic understanding of these documents.

Articles of Incorporation

The first underlying document is the Articles of Incorporation, which states the corporate name, business address, registered agent and purpose of the business. This is typically, but not always, a generic statement that the corporation will conduct any lawful business in the state in accordance with its objectives.  In addition, the type and amount of authorized stock that will be issued (common or preferred) must be established. This document should also contain an authorization for the corporation to indemnify its officers and directors.

Corporate Bylaws

Bylaws are the formal rules regarding the internal operations of a corporation. This document outlines the corporate structure and establishes the rights and powers of the shareholders, officers and directors. Bylaws specify how officers and directors are nominated and elected, as well as their responsibilities. In addition, this document should clarify how disputes among the parties will be resolved. Bylaws establish where and when shareholder and director meetings will be held, whether quarterly, annually or at other times, what constitutes a quorum, as well as number of directors on the board of directors, voting, and proxy rules. This document should also contain information on the issuance of shares of stock and other operational details.

Meeting Minutes

After corporate existence is commenced, an initial organizational meeting of the principals must be held in order to adopt the bylaws, elect directors, issue stock, authorized banking powers, and to conduct any other business. All of these activities must be memorialized in meeting minutes, which must also be prepared during any subsequent meetings.

Stock Certificates

Stock certificates are the record of any stock in the corporation that was issued to the stockholders. These certificates are the record of ownership of the corporation.

Once these foundational documents are in place, a corporation is also required to keep complete and accurate books and records of account and must maintain a record containing the names and addresses of all shareholders.

Incorporating is a complicated process and one that requires careful analysis and consideration.  An experienced business law attorney at Schneiders & Associates can help you prepare and file the necessary foundational documents for your corporation.

By: Elana Cuzzo, Esq.

Should I Incorporate My Business?

By: Theodore Schneider, Esq.

The primary advantages of operating as a corporation are liability protection and potential tax savings. Like any important decision, choosing whether to incorporate involves weighing the pros and cons of the various business structures and requires careful research.

Once incorporated, the business becomes a separate legal entity, and assets of the corporation are separated from the owner’s personal finances. As a result, the owner’s personal assets (house, cars, savings, investments), generally can be shielded from creditors of the business.

However, to maintain this legal separation and avoid a creditor “piercing the corporate veil,” the corporation must observe certain formalities, including:

  • Keeping corporate assets and personal assets separate (no commingling of funds);
  • Holding shareholder and director meetings at least annually;
  • Maintaining a corporate record book including bylaws, minutes of shareholder and director meetings and shareholder records;
  • Filing annual information statements with the Secretary of State; and
  • Filing a separate tax return for the corporation.

Failing to observe these corporate formalities could result in personal liability for the owner. Having the corporation formed and maintained by an experienced business attorney will help to ensure that the corporation is properly formed and maintained so the benefits of incorporating are not lost.

Many business owners are concerned about “double taxation” of income that affects certain types of corporations known as “C-Corporations.”   Double taxation results when the C-corporation has profit at the end of the year that is distributed to the shareholders. That profit is taxed to the corporation, at the corporate tax rate, and then the dividends are taxable income to the shareholders on their personal tax returns. However, the corporate tax and dividend rates can be lower than the individual tax rate that a sole-proprietor would pay on a 1040 Schedule C, and a knowledgeable accountant or tax attorney may be able to advise on how to minimize the burden of double-taxation and indeed pay an effective tax rate which is lower than what a sole proprietor would pay.

For example, a small C-Corporation will likely have a shareholder who is also an employee. Paychecks to the shareholder-employee are, of course, tax deductible to the business. To the shareholder-employee, they are taxable income (as would be the case with a paycheck from any employer). A bonus could be paid to the shareholder-employee in order to lower the corporation’s taxable profit, eliminating the double-taxation. These calculations should be performed by a tax advisor, but shifting income from the corporation to the shareholder-employee (or not, depending on which has the lower tax rate) can be an effective way to lower your overall tax liability. In addition, there are certain advantages that are only available with a C-Corporation. Of course, if the shareholder decides to sell the business, the double-taxation will be a significant deterrent to structuring the sale as a stock sale.

The S-Corporation avoids the double-taxation by offering a tax structure similar to the Limited Liability Company. A corporation with 100 or fewer shareholders, all of whom are United States residents, can elect to be treated as an S-Corporation. If the corporation is profitable, the shareholder-employee must draw a reasonable salary (and pay employment tax on it), but then all remaining corporate profits flow through to the shareholder’s personal tax return (thereby avoiding the FICA tax on the portion of profits that is taken as a distribution).

An experienced business attorney at Schneiders & Associates can help you decide which form of ownership is best for your business, help you establish the entity, and ensure the required formalities are observed. Please contact one of our attorneys with any questions about entity selection and formation.