Continuing to Operate Your Corporation During A Global Pandemic

COVID-19 has presented corporations with never-before-seen obstacles due in part to social distancing requirements, which have disabled directors and shareholders from meeting. Now is the time to update your corporate bylaws to allow your board to continue to operate during this global pandemic!

In January of 2014, the Corporations Committee of the California State Bar, spearheaded adding new provisions to the California Corporations Code to provide some flexibility in corporate governance during a state of emergency. The Corporations Code was amended in three important ways.

First, an article was added to acknowledge that bylaws may contain provisions to manage and conduct ordinary business during an “emergency,” such as COVID-19. The Code allows for bylaws to be amended to allow the board of directors to continue operations with special rules for calling board meetings and designating additional or substitute directors, if some directors are unavailable to participate.

Second, the California Corporation Code allows corporations to amend the lines of succession in the event of incapacity of a director, officer, employee or agent of the corporation, resulting from crises such as the COVID-19 emergency.

Third, corporations may give notice to directors of board meetings in any practical manner, when notice cannot be given as otherwise required by the bylaws or by the Code.  If necessary, corporations may also deem that one or more officers present is a director, in order to achieve a quorum.

The Code does not, however, eliminate the requirement of shareholder approval when it is otherwise required by law or the articles of incorporation. Under the current circumstances, because directors and shareholders may not able to meet, the Code and amendments to bylaws can address current pandemic or similar emergency situations in the future. These recommended amendments can allow the corporation to be operated properly.

If you have questions about updating your bylaws, please contact a business law attorney at Schneiders & Associates, L.L.P. for advice and legal guidance.

By: Roy Schneider, Esq.

Expert Trial Testimony on the Corporations Code

An attorney may competently testify as an expert witness on a seemingly pure legal question if the testimony involves the intersection of corporate articles or by-laws, on the one hand, and the Corporations Code on the other hand. I recently testified in a bifurcated trial, where the judge decided the first half and then the second half was reserved for a jury decision. The bifurcated issue required the trial judge to form a complex understanding of a corporation’s by-laws as compared to the Corporations Code. Luckily, I brought my Corporations Code book with me to the witness stand.

Was the board of directors meeting properly noticed? The by-laws and the Code supported my opinion—yes, the meeting (which plaintiff skipped) was correctly noticed and could properly be conducted with the remaining directors present and voting. I concluded that the director who called the meeting was permitted to delegate responsibility for sending meeting notification by email to her assistant who was not a corporate director.

Electronic notice of a directors or shareholder meeting is proper under some by-laws. If not specified in the by-laws, the Corporations Code permits notice by electronic transmission by the corporation. [Corp. C. §§ 307(a)(2); 601(b)]

Was the meeting properly suspended and reconvened the next day? The by-laws can limit the body’s ability to suspend and reconvene. If the by-laws do not set any limit, the Corporations Code permits it.

Was the vote count correct? The absent director claimed he actually held a double vote, so his absence cancelled the remaining directors’ power to take action. My opinion— no, the director did not have a double vote and no, the absent director did not destroy the quorum at the meeting he skipped.

The court was appreciative of my two-hour seminar on corporations law, and I was even nice enough to loan my code book to opposing counsel during my testimony. After forty (40) years teaching and practicing corporations and business association law—counseling many LLCs on whether to incorporate or form as an LLC—I have seen just about every type of partnership, LLC and corporation dispute there is. The Code is like a bible when it comes to meeting compliance.

By: Roy Schneider, Esq.

Roy Schneider recently testified as an expert witness in a shareholder dispute trial on issues of shareholder and director voting, meeting notices, and the process for removal of a director. Roy has almost 40 years of experience as a corporate attorney and is available to serve as an expert witness in corporate disputes and to assist litigators preparing for trial. Roy regularly speaks before business and community groups about corporate compliance. Roy is also an Adjunct Professor of Business Law at California Lutheran University in Thousand Oaks.

Please contact our office at 805-764-6370 regarding Roy’s availability.

Lunch & Learn: Annual Employment Law Update 2020 – Santa Barbara Chamber of Commerce

Name: Lunch & Learn: Annual Employment Law Update 2020

Date: February 25, 2020

Time: 12:00 PM - 1:30 PM PST

Website: Register Now

Event Description:

New employment laws have gone into effect since January 1, 2020! Topics include new laws and requirements that will affect employers in 2020. The Chamber of the Santa Barbara Region invites employers, human resource professionals and business owners to a 2020 Employment Law Update. Attorneys Roy and Ted Schneider of Schneiders & Associates will present topics including employment classification, employment arbitration agreements, expansion of paid family leave, and much more! Event Media:

Location: Workzones
351 Paseo Nuevo 2nd Floor
Santa Barbara, CA 93101

Date/Time Information: Tuesday February 25, 2020

12:00pm - 1:30pm

Fees/Admission: $5 for Members
$15 for Non-Members

Lunch will be provided.

Roy Schneider Elected to Community Memorial Healthcare Foundation Board of Directors

It is with great pleasure that we announce that Schneiders & Associates’ Partner Roy Schneider has been elected to serve on the board of directors of the Community Memorial Healthcare Foundation!

Community Memorial Healthcare Foundation is a charitable, nonprofit organization that helps elevate the quality of healthcare in our community by supporting Community Memorial Hospital (CMH) to offer state-of-the-art healthcare facilities, industry-leading programs, and comprehensive, accessible health services.

Community Memorial Healthcare Foundation is led by a member-elected board of directors that includes dedicated, hardworking individuals from throughout Ventura County. The board members volunteer their time because they are passionate about supporting healthcare in our community, and they receive no compensation for their services. Each member contributes a unique blend of knowledge, skills and resources, and together their diverse capabilities and strengths position the board to achieve its goals now and in the future.

Congratulations, Roy! Thank you for your service!

The Latest IRS Mindset – ENFORCEMENT!

The IRS Commissioner, Charles “Chuck” Rettig, a former Los Angeles-based tax lawyer of 38-years, has been diligently making his rounds at virtually every major tax conference around the country. 

The message –

            “I’m an enforcement guy, I’m a taxpayer service guy. I hope to touch every aspect of the tax service.”

he said to an audience of over a thousand accountants at the 2019 American Institute of CPAs’ Engage conference. 

He went on to say:

            “The IRS has the ability to help this country, and this country has the ability to help the world, and as tax pros, you have the ability to help the IRS.”

He called on tax practitioners to help taxpayers and the IRS resolve issues quickly and transparently, by saying:

            “It’s the responsibility of everyone here to get there first -- if your clients have issues, clean it up fast. I believe tax practitioners need to do the right thing. If you discover problems in preparing for an IRS exam [audit], let us know.”

On the tax enforcement front, he said: 

            “Taxpayers who are trying to do it right will have my support. Those who wake up with an idea of a creative way not to pay tax,  I’m paying attention to that. We will have a much greater presence on enforcement than before. We will be in every neighborhood that we can be, we’ll be touching people, but a fair touch.”

PAYROLL TAXES

One area where the new enforcement mindset has taken hold is in the payroll tax arena.  

Inside word has it that IRS agents recently received a one-week long refresher course to help them better spot payroll tax non-compliance problems.

The new approach is simple, somewhat harsh, but not necessarily unfair.  If a company paid someone as an independent contractor and did not issue a 1099, the IRS will give the company 3 options (take your pick):

  1. The auditor can open a payroll tax case and assess:
  2. the payroll tax (15.6% for Social Security and Medicare), plus
  3. the employee’s income tax that should have been withheld, plus
  4. failure to file penalties (25% of the taxes assessed), plus
  5. failure to deposit penalties (15% of the taxes assessed), plus
  6. Interest on the taxes and penalties at the current rate (ranging between 4% to 6% per year); or,
  7. The auditor can impose a Backup Withholding Penalty of 24% on the amount paid to the contractor; or,
  • Disallow (throw out) the expense and assess additional tax on the amount (depending on the taxpayer’s tax rate, that could cost between 25% to 37% of the amount disallowed), plus perhaps a 20% penalty on the tax, and interest too.

Which road a taxpayer chooses depends on the taxpayer’s particular circumstances, and whether this is a one-off situation; or, whether the taxpayer has many service providers that fall under this scenario.

THE NIGHTMARE SCENARIO

The biggest consideration is trying to contain the problem to the year under audit, and hope the IRS does not go back in time 3 or more years; and, whether the State of California may follow the IRS’ approach, or take a harsher approach. 

A business can be crippled by a payroll tax audit.  A stitch in time…

By: John Balian, Of Counsel

Don’t Let Your Social Networking Activities Undermine Your Divorce Negotiations

According to the American Academy of Matrimonial Lawyers, in the past five years 81% of its members have represented clients in cases involving evidence from social networking sites, such as Facebook, Twitter, YouTube and LinkedIn. Posted pictures and comments can make the job all-too-easy for your former spouse’s attorney to attack your credibility and ensure you do not receive the relief that you are requesting from the court.

A picture is worth a thousand words. And that picture you posted of yourself, in various stages of undress, or with a marijuana cigarette in one hand and a drink in the other, speaks volumes to the court and can result in unfavorable rulings regarding child custody or visitation. But the information posted doesn’t even have to be tawdry or illegal to land you in trouble. What about the ex-husband who claims he has no income, but his Facebook profile is chock-full of photos of luxury purchases or exotic vacations? What about the parent who posts profanity-laden status updates, insulting the judge’s competence? Should it find its way into the court, none of this information is going to help your case.

All of these communications can be considered by the court in making its rulings. Nothing you post online is 100% private, regardless of your privacy settings. Opposing attorneys can always subpoena the records, share your dirty secrets with the court, impeach your credibility, and obtain a favorable ruling for their client – your ex-spouse.

The lasting implications of a negative court ruling can far outweigh the momentary, fleeting satisfaction of venting your frustration at the judge or your ex, or sharing “fun” photos on your Facebook profile. The bottom line is that you have to think before you post. What if that comment you are about to make, or the photo you are about to post, were to fall into the hands of your ex-spouse’s lawyer? This can have far-reaching consequences, affecting your income and support obligations, or visitation and custody of your children.

To avoid the pitfalls of information sharing in the digital age, you must assume that anything and everything you post will be obtained by opposing counsel and find its way into the courtroom. Family law cases involve some of our most private matters and care should be taken to ensure you protect your own privacy. Preserve your attorney-client privilege by refraining from sharing any details of your relationship or conversations with your attorney. Avoid posting compromising photos, or making derogatory remarks on your social networking profiles.

Above all, do not post anything you wouldn’t want your ex, his or her attorney, or the judge to see. Regardless of how restrictive your privacy settings may be, this information can easily be subpoenaed and become a part of the court record. If there is any doubt, do not post. You cannot “unring that bell!”

If you are in need of a family law attorney, contact Schneiders & Associates to speak with a Family Law Specialist today.

Neighbor Disputes: Property Boundaries

Disputes with neighbors can range widely, from loud parties, to poor upkeep, to boundary encroachments. If you are like most property owners, you take great pride in your land, and you do not want anyone to use property that is rightfully yours. When neighbors start taking down shrubs, planting trees, or putting up fences on your property, that is exactly what they are doing—using your real estate. What can you do to deal with these issues?

Know Your Property Lines

Many people generally understand where their property reaches, but they may not know precisely where the property line is located. In many situations, merely pointing out where you think your property lines lie can halt encroachments in their tracks. In other circumstances, it may be a good idea to call in a professional.

You can get a formal land survey done that indicates exactly where your property ends and where your neighbor’s land begins. Having this information can be extremely valuable in dealing with any boundary issues. You may learn that you have misunderstood where your property line is located, or that your neighbor was mistaken about where your property begins.

Land surveys do cost money, but some neighbors will agree to split the costs. In other situations, it may be worth the expense to avoid litigation down the road.

Common Property-Related Problems

Many property-related disputes have similar causes. These may include:

  • Debris or damage from trees or other plants. In most situations, plant debris such as leaves or seeds are natural occurrences. As a property owner, you are responsible for dealing with this waste, even if you do not own the tree or another plant. However, if a tree causes damage by, for example, falling on your house, then the tree owner is responsible for that type of damage. You can carefully trim the branches of a tree that is rooted in your neighbor’s yard but that overhang into your yard, but you may not kill or damage the tree in the process.
  • Dogs and other pets. Pets can wander onto your property if they are not restrained or appropriately contained. They may soil in your yard or dig up your flowers. While these activities are generally just a nuisance, wandering animals can be dangerous in some situations. As a rule, a pet owner is responsible for any damage that their furry fiend causes, especially if the pet crosses into a neighbor’s yard.
  • Trespassing neighbors. Some neighbors have very little respect for your property. If they are coming on to your land without your permission, they are trespassing. Talk to them about this issue. If it cannot be resolved, then you can begin legal proceedings to keep them off your land. In fact, trespassing is often a criminal offense!

Dealing with Neighbor Disputes

It is almost always a good idea to talk to your neighbor about any problems you are having first. Many people can work things out informally. If your neighbor is unreasonable or you cannot come to an agreement, you likely have other options. For example, you may be able to sell a portion of your property to the neighbor who is encroaching. If you simply want the land back, starting a civil suit may be a good option as well. If you are having difficulty with your neighbor over your property lines, a real estate attorney at Schneiders & Associates can certainly provide with you advice and guidance.

By: Ted Schneider, Esq.

Financial Disclosure in Divorce

During the pendency of a divorce in California, each divorcing party is required to exchange full and complete financial information with the other.

Family Code Section 2100 requires full disclosure of all assets and debts, income and expenses to the opposing party, from the date of filing of the Petition until the Judgment of Dissolution is entered. The requirement is intended to provide each party with full transparency of all financial matters that may affect their position in settlement or trial, and to assure fairness in the process. The courts take this obligation very seriously.

Failure to adhere to the requirement of transparency can have serious adverse consequences to the party who has failed to disclose, including payment of attorney’s fees and other costly sanctions, including setting aside of the Judgment. In the case of fraud in the disclosures, punitive damages may be awarded to the other party. In one famous case, a wife who failed to disclose her lottery winnings to her husband was required by the court to turn over her entire winnings – over a million dollars – to her former husband. The courts have held that attempts to circumvent disclosures are sanctionable even if the other party was not harmed. Therefore, diligence requires strict attention to preparation of financial disclosures.

The Declaration of Disclosure is not filed with the Court, but it is signed under penalty of perjury, and is one of the most important documents involved in any Dissolution of Marriage in California.

  1. Preliminary Declaration of Disclosure

The Preliminary Declaration of Disclosure is required to be exchanged between the parties within 60 days of the filing of the Petition for Dissolution of Marriage and Response. The Preliminary Declaration of Disclosure typically includes two attached forms, the Schedule of Assets and Debts and the Income and Expense Declaration.

  1. Schedule of Assets and Debts

This form requires all assets and debts to be listed, whether in the name of the disclosing party, their spouse’s name, or both names, whether the assets were acquired before or during marriage, whether or not they are in the party’s possession or in the possession of a third party, and in some cases, even when the party believes the asset has no value. The most recent back-up documentation must be attached, including deeds, titles, and account statements, for example. Diligence in preparation of this document is essential.

  1. Income and Expense Declaration

As one might guess, this form requires disclosure of all the party’s income and expenses. For a business owner, this requires disclosure of a separate schedule showing the income and expenses of the business. When a business is involved, a forensic accountant may be necessary to assist to adequately prepare the Income and Expense Declaration. This document, as are the other disclosure documents, is signed under penalty of perjury and must be complete and accurate.

  1. Final Declaration of Disclosure

Prior to settlement or trial, the parties are required to serve on each other a Final Declaration of Disclosure. The Final Declaration requires that the parties disclose to each other all material facts and information regarding characterization and valuation of assets and debts and the facts and information contained in the Income and Expense Declaration. Certain investment opportunities must also be disclosed.

Exchange of the Final Declaration may be waived under certain circumstances. Your attorney may advise against such waiver. Even if the Final Declaration is waived, the Preliminary Declaration must be fully updated.

  1. Conclusion

This brief summary provides an introduction to the disclosure process but is not intended to cover all the details of each spouse’s obligations. Your attorney will answer any questions you may have and guide you through the disclosure process to help you protect your interests.

Divorce is stressful for all parties. If you are in need of a family law attorney, contact a compassionate and experienced attorney at Schneiders & Associates.

By: Claudia Silverman, Family Law Specialist, Certified by the State Bar of California Board of Legal Specialization

Characteristics (and Red Flags) to Look for When Buying a Business

An entrepreneur is one who organizes, manages, and assumes the risks of a business or enterprise. Being an entrepreneur means taking financial risk for economic profit, it doesn’t have to mean building a completely new business. For those with an entrepreneurial spirit who don’t have the latest and greatest idea for an app or new technology, acquiring and improving an existing business is just as entrepreneurial as starting a new company. When buying a business, there are myriad issues that you need to look out for, as well as a few red flags.

  1. Asset vs Stock Acquisition. For the majority of entrepreneurs, an asset acquisition is the ideal method of buying a company because it provides tax benefits and shields you from existing corporate liability, such as a pending lawsuit or one yet to be brought. When looking to buy a business, the seller’s openness to an asset acquisition is a preferred characteristic. A seller only offering a stock sale should be a red flag. By limiting the sale to a stock sale, the seller is transferring legal liability to you – the red flag. However, for certain opportunities, a stock acquisition may be preferable to an asset acquisition, for instance when there are governmental licenses required for the operation of the business that may be difficult to transfer to a new corporation.
  2. Seller Indemnity. Regardless of whether you choose to conduct an asset or stock acquisition, receiving a seller indemnity helps to shield you from legal liability going forward. If a seller refuses to grant a broad indemnity for claims related to the business that arise prior to the closing, they are refusing to take responsibility for any unlawful conduct they engaged in while owning the business, which should be a red flag.
  3. Orderly Books and Recordkeeping. An often-overlooked characteristic of a business, even one in dire need of saving, is a clear history of recordkeeping. The business should be able to show cash flows into and out of accounts, current accounts receivables, etc. Without clear records, you could be acquiring a business that has failed to properly account for its debts – a liability you could be taking on.
  4. Proof of Tax Payments. Similar to orderly books and recordkeeping, the seller should be able to prove that all sales tax, payroll taxes, and any other outstanding taxes have been properly paid. Failure of the business to pay these required taxes could mean liability for you. Even in an asset acquisition, outstanding tax owed for those assets or for employees can become your problem.

In the end, entrepreneurial ventures may be risky, but they also offer the potential of significant profit.  If you are considering buying a business, the attorneys at Schneiders and Associates can help you protect yourself from liabilities of the seller.

By: Ted Schneider, Esq.

New Sexual Harassment Prevention Training Laws in 2019

California employers with at least five employees must now provide sexual harassment prevention training and education to all supervisory employees and non-supervisory employees in California.

Since 2005, employers with at least 50 employees have been required to train and educate all personnel in supervisory positions in California in the prevention of sexual harassment.

SB 1343 lowers the number of employees to five and includes non-supervisors in the mandate.

The new law also requires covered employers to provide at least two hours of sexual harassment prevention training and education to all supervisory employees and at least one hour of such training to all non-supervisory employees in California, by January 1, 2020. Training and education must be provided once every two years thereafter.  There are also new requirements for seasonal and temporary employees.

The new legislation mandates the DFEH to develop and make available online on its website the one-hour and two-hour anti-sexual harassment training courses.  Employers may develop their own training programs.

There are other rules and matters to consider this year for employers to be in compliance with SB 1343.  We anticipate claims for harassment of all kinds will be on the rise.

By: Roy Schneider, Esq.