Entrepreneurship Outline for Final 1. Complaint a. What is a complaint and what goes in it. b. You cannot plead an actual amount of punitive damages. c. I am entitled in an amount ascertained by the court. DO not say a specific number. 2. Motion to Quash a. Means service of process is bad. b. First motion you would file if they did not service you the way that they were required to service. It means I reject the appropriateness of this service. 3. General Denial a. It means that you deny everything in the complaint an assert general defenses b. If you do not deny then you waive them and you accept i. i.e. If it violates SOL, you must assert it or it is waived. ii. Notable defenses 1. Failure to state cause of action 2. Failure to mitigate damages 3. SOL 4. Equitable Affirmative defenses a. Laches b. Unclean hands 4. Cross Complaint a. Someone is suing you so you sue them back. 5. Default a. If you do not answer within 90 days from service a default is entered i. Anything you put forward is accepted as true. ii. These can go all the way to judgment. iii. Inadvertence, mistake, excusable neglect are ways to avoid default 6. Motions to Strike a. Certain parts of the complaint do not need to be there as a matter of law b. i.e. 1M in damages, you answer complaint in wrong name, i. You are curing a defect in the pleading 7. Demurrer a. You accept everything as true and it fails to state a cause of action as a matter of law. b. It gets sustain or overruled. 8. Motion for Summary Judgment a. Says there are no trialable disputable issues b. Know when to use this. When no issues of material facts that are disputable. 9. Discover Motion (2) a. Motion to Compel i. If the other side does not answer your discovery at all or you file if their answers are inadequate. ii. Whoever looses pays as a matter of law. You must award sanctions to the winner.
iii. First have to meet and confer. This means that you need to call them and try and work it out. You always follow this up with a letter because this is your evidence that you tried b. Motion for Protective Order i. Overburdensome and oppressive 1. If the other side is using their weight or for information that is privileged (attorney client; work product) you file a motion for a protective order. 10. Types of Discovery a. Depositions i. If you conclude a persons deposition you are done. No second bite at the apple. Do your best tactically to keep the deposition open. b. Interrogatories i. Written questions ii. Know how many you are allowed to ask in CA (35) iii. Know that you can ask more if you file a declaration of necessity or serve this. This means due to the complex nature of the case I am entitled to ask more questions. You will know whether you have to go to the judge for permission based on the other side. c. Request for production i. Really a request for inspection of documents. ii. You can inspect in their office. iii. The reason they call this inspection instead of production is because sometimes there are thousands of documents iv. In response to a request you have to file and serve a detailed written response that enumerates the documents that you have with specificity to the responses to the requests. 11. UCC Article 9 a. UCC 1 is to secure property (not real property) b. This becomes public record. It says the name of the secured creditor and debtor, a description of the collateral that is being offered as security. i. Then there is another contract between the lender and barrower is called a security agreement. c. You need both because the teeth are in the security agreement. The other just makes a lien on the other property. 12. California Corporations Code a. Section 25102(f) and (h) i. Remember he said that everything we do to raise money creates a security. If I issue bonds or promissory notes it is a security. The only reason I am allowed to do this without registering those are these exemptions ii. They say that if you are issuing securities to less than 35 nonaccredited investors or a infinite number of credited investors with household income of 200K a year or less. ????? 13. Sarbanes Oxeley a. Conflicts of interest
1. i.e. an employee comes up and says that they barrowed money from the finance departed and they paid it back and they need legal advice. S and O says that the lawyer must report up the chain of command. This would be in violation of attorney client privilege. They would say that this does not violate because you are lawyer to the company not the individual. 14. CA Code of Conduct (Client Financial Services) 1 a. 4-100: Preserving Identity of Funds and Property of a Client i. Member of law firm should keep separately a clients financial deposits or accounts. ii. Maintain record; keep them properly labed b. 4-200: Fees for Legal Services i. no unconscionable fees ii. Goes through factors for determining whether a fee is unconscionable. c. 4-300: Purchasing Property at a Foreclosure or a Sale Subject to Judicial Review d. 4-400: Receiving Gifts i. A member shall not induce a client to make a substantial gift, including a testamentary gift, to the member or to the member's parent, child, sibling, or spouse, except where the client is related to the member. 15. Mission Statement a. Starting Point for beliefs 16. USP a. Unique selling position 17. Exit Strategy a. You do this when you are beginning, not when you are finished. 18. What is a Capitol Structure a. What are the pros and cons of issuing debt or equity? i. If you have all debt you can leverage it as long as you make your payments. Downside is that you mess up your balance sheet. Your debt to income ratio could be messed up for other financiers. ii. If you issue to much equity you loose control of your company. To much debt and no one wants to buy 19. Jurisdiction a. certain sates have favorable laws like Delaware for corps that want to go public. The issues that we need to be concerns about are favorable law to going public (DEL) and allow the identification of officers (CA, TX). Jurisdiction will decide where we do business 20. Entities a. LLC i. If a business is sued or is unable to pay its debts, the creditors can ordinarily only reach the LLC's assets and cannot reach the assets of the members. 1. While in most states the law is not yet developed, some states permit an action to "pierce the corporate veil" of an LLC and reach
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the personal assets of members who have engaged in wrongful conduct. ii. Documents 1. Must file Articles of Organization with Sec. of State 2. Statement of Information a. A statement of info is to tell the world who the directors, officers, agent for service of process are. The only other thing that is relevant on the form is the principal place of business so they can find us when they want to sue us 3. Operating Agreement – this is the bylaws of an LLC. This is the engine b. LL Partnership i. Same as LLC and formation documents are same except that instead of company on the forms they say partnerships. These deal only with professional companies 1. i.e. like Law Firms ii. These have several general partners and at least one limited partners If the limited partners exercise no management or control of business they will be afforded absolute liability protection. Their only risk will be the initial money they invested. c. C-Corp i. Most Common ii. Documents 1. Statement by Domestic Stock Corporation a. Like a statement of information except for corporations. b. For a corporation the document that you use to tell the world who the officers, agent of process, etc 2. Subscription Agreement 3. Offering memorandum iii. Pros and Cons 1. Pro – you can go public. Why form a C? Gives you liability protection. You get access to capitol because you can sell shares. Partnerships can do this. 2. Pro – No limit on the number of shareholders and shares that may be held. 3. Con -- In some circumstances, corporate profits will be subject to "double taxation", first as corporate income and second as income to the ultimate recipient. For example, if a corporation issues dividends from its profits, it has already paid income tax on that money, but the dividends remain taxable as income to the shareholders 4. Con -- The C Corporation cannot pass through losses to investors, as can an S Corporation, LLC, or unincorporated entity 5. A C over another type is access to capitol and the public understand that you want to take it public 6. LLC, S Corps, C Corps, all have same protections.
iv. C Corps at a point in time said they were tried of double taxes. Corporations are just like humans. If they make 1M it gets taxed on that. Then the people who formed it take out money and then they are taxed on the individual rate. The law evolved and they made S Corporations. If taxed as a pass through entity then you only pay taxes at individual rate d. S-Corp i. Treated like a partnership for tax purposes but it is like a C Corp. ii. S over a C because I do not want to get taxed twice iii. LLC and S – both provide same tax structure and protections. Best reason for LLC is that S corp were made for small business. You are limited to 35 unaccredited iv. May have no more than 75 shareholders (35 must be accredited) v. Pros and Cons 1. Pro -- The most significant advantages of converting a sole proprietorship or partnership to an S Corporation are limited liability, and possible tax benefits. 2. Pro -- While creditors can reach corporate assets, as a general rule they are not able to reach the assets of the corporation's shareholders. 3. Pro -- in contrast with a C Corporation, its profits are not potentially subject to double-taxation, first as corporate profits and second as personal income when distributed to the shareholders. Thus, when opting between an S Corporation and C Corporation, stockholders should consider the impact of paying taxes at the corporate rate as opposed to their personal marginal tax rates. 4. Pro -- Corporate losses may ordinarily be passed through to the shareholders, who can then claim a deduction from their other taxable income 5. Con -- Unlike a C Corporation, the S Corporation may not be the subject of a public offering 6. Con -- The shareholders of an S Corporation are limited in the amount they can deduct as a result of business losses, in rough terms to the amount of their "basis" or investment in the corporation vi. Under normal circumstances an S Corporation does not pay corporate income taxes. Instead, the corporate profits are passed through to the shareholders, who report the distribution on their individual tax returns 21. Subscription Agreement a. We would give this to an investor after they have filled out an investor questionnaire. b. The SA says we will elevate you as an investor and take your money as security. c. When you are going to raise money and you do not want to register you want to put burden back on investors. This is a set of questions and disclaimers. You want to know how much money the investor earned last year and how sophisticated they are. You want to have a paper that says they recognize the risk
and know they could loose are their money by virtue of answers to the form. If you like then you accept if not your reject d. 22. Quorum 23. Board Resolution 24. Notes a. Initial meeting of shareholders comes first b. Officers are appointed and directors are elected c. You need a quorum to pass a binding resolution. If you have a 10 person board do you think that it would be prudent to have more or less of the people there. 25. Financial Principles a. Income Statement i. Sales minus the cost of goods sold = gross profit b. Know what EBIDTA is. ** i. Earning before interest, deppreaicetion, taxes and amortization ii. This says lets take all soft expenses out and get down to what it is real value is c. Variance Report 26. Non –competition Agreements 27. Non-circumvention Agreements 28. Non-Solicitation Agreements