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Selecting and Forming Business Entities

What’s the most critical part of starting a business? Choosing the right entity! Find out quickly if your client needs a corporation, partnership, or LLC and get the myriad, required state forms you’ll need to file. Then gain powerful expertise drafting effective articles and operating agreements.

What’s the most critical part of starting a business? Choosing the right entity! Find out quickly if your client needs a corporation, partnership, or LLC and get the myriad, required state forms you’ll need to file. Then gain powerful expertise drafting effective articles and operating agreements.

  • Includes relevant provisions of the Tax Cuts and Jobs Act of 2017 and all subsequent IRS guidance
  • Hundreds of agency forms and custom, annotated, attorney-drafted operating agreements
  • Evaluating entity choices
  • Choosing and registering the business name
  • Formation requirements for general partnerships, limited partnerships, and limited liability partnerships, including annotated forms of partnership agreements
  • Guidance on forming S, C, and close corporations
  • Tricks of forming law and medical professional corporations, with complete articles, bylaws, and registration forms
  • LLC formation, operation, and detailed short and long-form operating agreements
  • Converting existing entities to LLCs
  • When and why to use social purpose or benefit corporations
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What’s the most critical part of starting a business? Choosing the right entity! Find out quickly if your client needs a corporation, partnership, or LLC and get the myriad, required state forms you’ll need to file. Then gain powerful expertise drafting effective articles and operating agreements.

  • Includes relevant provisions of the Tax Cuts and Jobs Act of 2017 and all subsequent IRS guidance
  • Hundreds of agency forms and custom, annotated, attorney-drafted operating agreements
  • Evaluating entity choices
  • Choosing and registering the business name
  • Formation requirements for general partnerships, limited partnerships, and limited liability partnerships, including annotated forms of partnership agreements
  • Guidance on forming S, C, and close corporations
  • Tricks of forming law and medical professional corporations, with complete articles, bylaws, and registration forms
  • LLC formation, operation, and detailed short and long-form operating agreements
  • Converting existing entities to LLCs
  • When and why to use social purpose or benefit corporations

1

Attorney-Client Relationship

Demetrios Dimitriou

  • I.  SCOPE OF CHAPTER  1.1
  • II.  ETHICAL ISSUES IN REPRESENTING BUSINESS ORGANIZATIONS
    • A.  Determining Whether Representation Is Appropriate  1.2
    • B.  Assessing Attorney’s Professional Competence to Represent Client  1.3
    • C.  Identifying Potential Conflicts of Interest  1.4
      • 1.  Conflicts Among Parties  1.5
      • 2.  Conflicts Between Attorney and Client
        • a.  Prior Relationship  1.6
        • b.  Investment in Client’s Business  1.7
        • c.  Ownership Interest in Exchange for Services  1.8
        • d.  Service as Both Counselor to and Director or Officer of Entity  1.9
    • D.  Avoidance or Waiver of Conflicts of Interest  1.9A
      • 1.  Conflicts of Interest Checking  1.9B
      • 2.  Ethical Walls  1.9C
    • E.  Limiting Advice to Attorney’s Area of Expertise  1.10
    • F.  Fee Disgorgement  1.11
  • III.  DOCUMENTING THE ATTORNEY-CLIENT RELATIONSHIP  1.12
    • A.  Nonengagement Letters  1.13
    • B.  Engagement Letters
      • 1.  Written Fee Agreement  1.14
      • 2.  Statutory Requirements Governing Fee Agreements  1.15
      • 3.  Attorney Fees
        • a.  Amount of Fee  1.16
        • b.  Advance Fees  1.17
        • c.  Nonrefundable Fees  1.18
        • d.  Financial Arrangements Among Attorneys  1.19
      • 4.  Arbitration Provisions  1.20
      • 5.  Judicial Reference as Alternative to Arbitration  1.21
      • 6.  Other Matters  1.22
      • 7.  Checklist: Elements to Consider for Inclusion in Engagement Letter  1.23
    • C.  Disengagement Letters
      • 1.  Disengagement Letter on Completion of Legal Services  1.24
      • 2.  Disengagement Letter Terminating Professional Relationship Before Legal Services Completed  1.25
  • IV.  FORMS
    • A.  Form: Nonengagement Letter  1.26
    • B.  Engagement Letter
      • 1.  Form: Salutation and Introduction  1.27
      • 2.  Form: Legal Services  1.28
      • 3.  Form: Attorney Fees and Costs  1.29
      • 4.  Form: Estimated Fees and Costs  1.30
      • 5.  Form: Payment of Fees and Costs  1.31
      • 6.  Form: Arbitration of Fee Disputes  1.32
      • 7.  Form: Arbitration of Attorney Malpractice  1.33
      • 8.  Form: Judicial Reference of Disputes  1.34
      • 9.  Form: Document Retention  1.35
      • 10.  Form: Tax Advice  1.36
      • 11.  Form: Withdrawal and Termination  1.37
      • 12.  Form: Potential Conflicts of Interest—Individual Client  1.38
      • 13.  Form: Potential Conflicts of Interest—Multiple Clients  1.39
      • 14.  Form: Waiver of Conflict of Interest—Client and Another Client of Firm  1.40
      • 15.  Form: Closing and Signature  1.41
      • 16.  Form: Client Consent  1.42
    • C.  Form: Disengagement Letter on Completion of Services  1.43
    • D.  Form: Disengagement Letter Before Services Completed  1.44

2

Evaluating Entity Choices

Carol A. Brittain

W. Rod Stern

  • I.  SCOPE OF CHAPTER  2.1
  • II.  CHARACTERISTICS OF MAJOR BUSINESS ENTITIES  2.2
    • A.  Sole Proprietorships  2.3
      • 1.  Formation  2.4
      • 2.  Personal Liability  2.5
      • 3.  Anonymity  2.6
      • 4.  Management and Control  2.7
      • 5.  Working Capital  2.8
      • 6.  Securities Issues  2.9
      • 7.  Change of Ownership  2.10
      • 8.  Termination  2.11
      • 9.  Who May Operate as Sole Proprietor  2.12
      • 10.  Taxation  2.13
      • 11.  Estate Planning  2.14
    • B.  Corporations  2.15
      • 1.  Formation  2.16
      • 2.  Personal Liability  2.17
      • 3.  Anonymity  2.18
      • 4.  Management and Control  2.19
      • 5.  Working Capital; Shares Issued  2.20
      • 6.  Securities Issues  2.21
      • 7.  Change of Ownership  2.22
      • 8.  Termination  2.23
      • 9.  Who May Form Corporations or Professional Corporations  2.24
      • 10.  Taxation  2.25
      • 11.  Estate Planning  2.26
    • C.  S Corporations  2.27
      • 1.  Formation  2.28
      • 2.  Taxation  2.29
      • 3.  Estate Planning  2.30
    • D.  Close Corporations  2.31
      • 1.  Formation  2.32
      • 2.  Termination  2.33
      • 3.  Taxation  2.34
      • 4.  Estate Planning  2.35
    • E.  Benefit Corporations
      • 1.  Formation  2.35A
      • 2.  Purposes; Requirement to Consider Impact on Third Parties  2.35B
      • 3.  Annual Report; Accountability and Liability  2.35C
    • F.  Social Purpose Corporations
      • 1.  Formation  2.35D
      • 2.  Name, Purpose, Statement  2.35E
      • 3.  Table: Operational Provisions of Corporate Flexibility Act [Deleted]  2.35F
      • 4.  Table: Enabling Provisions of Bill Enacting Corporate Flexibility Act [Deleted]  2.35G
    • G.  Limited Liability Companies (LLCs)  2.36
      • 1.  Formation  2.37
      • 2.  Personal Liability  2.38
      • 3.  Anonymity  2.39
      • 4.  Management and Control  2.40
      • 5.  Working Capital; Membership Interests Issued  2.41
      • 6.  Securities Issues  2.42
      • 7.  Change of Ownership  2.43
      • 8.  Termination  2.44
      • 9.  Who May Form LLCs?  2.45
      • 10.  Taxation  2.46
      • 11.  Estate Planning  2.47
    • H.  General Partnerships  2.48
      • 1.  Formation  2.49
      • 2.  Personal Liability  2.50
      • 3.  Anonymity  2.51
      • 4.  Management and Control  2.52
      • 5.  Working Capital; Partnership Interests Issued  2.53
      • 6.  Securities  2.54
      • 7.  Change of Ownership  2.55
      • 8.  Termination  2.56
      • 9.  Who May Form General Partnerships?  2.57
      • 10.  Taxation  2.58
      • 11.  Estate Planning  2.59
    • I.  Limited Partnerships  2.60
      • 1.  Formation  2.61
      • 2.  Personal Liability  2.62
      • 3.  Anonymity  2.63
      • 4.  Management and Control  2.64
      • 5.  Working Capital; Partnership Interests Issued  2.65
      • 6.  Securities Issues  2.66
      • 7.  Change of Ownership  2.67
        • a.  Departing Partners
          • (1)  Under CRLPA [Deleted]  2.68
          • (2)  Right to Dissociate  2.69
        • b.  New Partners
          • (1)  Under CRLPA [Deleted]  2.70
          • (2)  When New Partners May Be Admitted  2.71
      • 8.  Termination
        • a.  Under CRLPA [Deleted]  2.72
        • b.  When Partnership Is Terminated  2.73
      • 9.  Who May Form Limited Partnerships?  2.74
      • 10.  Taxation  2.75
      • 11.  Estate Planning  2.76
    • J.  Limited Liability Partnerships (LLPs)  2.77
      • 1.  Formation  2.78
      • 2.  Personal Liability  2.79
      • 3.  Anonymity  2.80
      • 4.  Management and Control  2.81
      • 5.  Working Capital  2.82
      • 6.  Securities Issues  2.83
      • 7.  Change of Ownership  2.84
      • 8.  Termination  2.85
      • 9.  Who May Form LLPs?  2.86
      • 10.  Taxation  2.87
      • 11.  Estate Planning  2.88
    • K.  Other Forms of Business  2.89
      • 1.  Unincorporated Associations  2.90
      • 2.  Entities Formed to Hold Real Estate
        • a.  Real Estate Investment Trusts (REITs)  2.91
        • b.  Condominiums  2.92
        • c.  Stock Cooperatives  2.93
      • 3.  Cooperative Corporations  2.94
      • 4.  Business Trusts (Massachusetts Trusts)  2.95
      • 5.  Joint Ventures  2.96
      • 6.  Family Limited Partnerships (FLPs) and Family Limited Liability Companies (FLLCs)  2.96A
    • L.  Entities Available to Attorneys, Accountants, Architects, and Medical Professionals  2.97
  • III.  FACTORS IN SELECTING MOST APPROPRIATE FORM FOR DOING BUSINESS  2.98
    • A.  Costs and Ease of Formation; Agreements Among Owners  2.99
      • 1.  Sole Proprietorships  2.100
      • 2.  Corporations
        • a.  C Corporations  2.101
        • b.  S Corporations  2.102
        • c.  Close Corporations  2.103
        • d.  Benefit Corporations  2.103A
        • e.  Social Purpose Corporations  2.103B
        • f.  Professional Corporations  2.104
      • 3.  General Partnerships  2.105
      • 4.  Limited Partnerships  2.106
      • 5.  Limited Liability Partnerships (LLPs)  2.107
      • 6.  Limited Liability Companies (LLCs)  2.108
    • B.  Ability to Raise Capital; Securities Law Aspects  2.109
      • 1.  Sole Proprietorships  2.110
      • 2.  Corporations, Including S Corporations and Close Corporations  2.111
      • 3.  General Partnerships  2.112
      • 4.  Limited Partnerships  2.113
      • 5.  Limited Liability Partnerships (LLPs)  2.114
      • 6.  Limited Liability Companies (LLCs)  2.115
    • C.  Income Tax Considerations  2.116
      • 1.  Classification of Entities for Tax Purposes  2.117
      • 2.  Tax Considerations on Formation  2.118
        • a.  Contributions of Property  2.119
        • b.  Contribution of Services  2.120
      • 3.  Tax Considerations During Operation
        • a.  C Corporations
          • (1)  Entity Level Tax; Double Taxation  2.121
          • (2)  Tax Effect of Asset Distribution  2.122
          • (3)  Inability to Use Losses  2.123
          • (4)  At-Risk Rules; Passive Loss Rules  2.124
          • (5)  Method of Accounting  2.125
          • (6)  Taxable Year  2.126
        • b.  S Corporations  2.127
          • (1)  Flow-Through Entity  2.128
          • (2)  Qualifying for S Corporation Status  2.129
          • (3)  Distributions to Shareholders  2.130
          • (4)  At-Risk Rules; Passive Loss Rules  2.131
          • (5)  Method of Accounting  2.132
          • (6)  Taxable Year  2.133
          • (7)  Difference in Tax Treatment Between Partnerships and S Corporations  2.134
        • c.  Partnerships
          • (1)  Flow-Through Entity  2.135
          • (2)  Distributions  2.136
          • (3)  Special Allocations  2.137
          • (4)  Debt Increases Basis  2.138
          • (5)  Section 754 Election  2.139
          • (6)  At-Risk Rules  2.140
          • (7)  Passive Loss Rules  2.141
          • (8)  Termination of Partnership  2.142
          • (9)  Method of Accounting  2.143
          • (10)  Taxable Year  2.144
        • d.  Limited Liability Companies
          • (1)  Flow-Through Entity; Election of Corporate Treatment  2.145
          • (2)  Distributions  2.146
          • (3)  Application of Partnership Tax Rules to LLCs  2.147
          • (4)  Election to Apply Corporate Tax Rules to LLCs  2.148
      • 4.  Taxation on Disposition and Liquidation
        • a.  Corporations
          • (1)  Dispositions of Shares  2.149
          • (2)  Liquidation of Corporation  2.150
          • (3)  Merger of Corporation  2.151
        • b.  Partnerships
          • (1)  Disposition of Partnership Interest  2.152
          • (2)  Liquidation of Partnerships  2.153
        • c.  Limited Liability Companies  2.154
    • D.  State Taxation
      • 1.  Corporations  2.155
      • 2.  S Corporations  2.156
      • 3.  Partnerships  2.157
      • 4.  Limited Liability Companies  2.158
    • E.  Other Tax Considerations
      • 1.  Self-Employment Income  2.159
        • a.  Corporations  2.160
        • b.  Partnerships  2.161
        • c.  Limited Liability Companies  2.162
      • 2.  Fringe Benefits  2.163
        • a.  Corporations  2.164
        • b.  Partnerships  2.165
        • c.  Limited Liability Companies  2.166
    • F.  Anonymity of Owners
      • 1.  Sole Proprietorships  2.167
      • 2.  Corporations, Including S Corporations and Close Corporations  2.168
      • 3.  General Partnerships  2.169
      • 4.  Limited Partnerships  2.170
      • 5.  Limited Liability Partnerships (LLPs)  2.171
      • 6.  Limited Liability Companies (LLCs)  2.172
    • G.  Owners’ Personal Liability for Business Debts and Obligations
      • 1.  Sole Proprietorships  2.173
      • 2.  Corporations, Including S Corporations and Close Corporations  2.174
      • 3.  General Partnerships  2.175
      • 4.  Limited Partnerships  2.176
      • 5.  Limited Liability Partnerships (LLPs)  2.177
      • 6.  Limited Liability Companies (LLCs)  2.178
    • H.  Management and Control; Fiduciary Duties
      • 1.  Sole Proprietorships  2.179
      • 2.  Corporations  2.180
      • 3.  General Partnerships  2.181
      • 4.  Limited Partnerships  2.182
      • 5.  Limited Liability Partnerships (LLPs)  2.183
      • 6.  Limited Liability Companies (LLCs)  2.184
    • I.  Transferability of Interests; Liquidity  2.185
      • 1.  Sole Proprietorships  2.186
      • 2.  Corporations, Including S Corporations  2.187
      • 3.  General Partnerships  2.188
      • 4.  Limited Partnerships  2.189
      • 5.  Limited Liability Partnerships (LLPs)  2.190
      • 6.  Limited Liability Companies (LLCs)  2.191
    • J.  Continuity of Business  2.192
      • 1.  Sole Proprietorships  2.193
      • 2.  Corporations, Including S Corporations  2.194
      • 3.  General Partnerships  2.195
      • 4.  Limited Partnerships  2.196
      • 5.  Limited Liability Partnerships (LLPs)  2.197
      • 6.  Limited Liability Companies (LLCs)  2.198
    • K.  Estate Planning for Families  2.199
  • IV.  NOTIFYING TAX AUTHORITIES ON FORMATION OF ENTITY
    • A.  Notifying IRS; Obtaining Federal Employer Tax Identification Number  2.200
    • B.  Registering With California Employment Development Department  2.201
    • C.  Notifying California State Board of Equalization  2.202
    • D.  Notifying Local Taxing Authorities  2.203
  • V.  CHARTS
    • A.  Business Aspects of Commonly Used Entities  2.204
    • B.  Tax Aspects of Commonly Used Entities  2.205
    • C.  Chart: Deduction for Qualified Business Income of Pass-Through Entities  2.205A
    • D.  Client Interview Sheet  2.206
  • VI.  FORMS
    • A.  Form: Application for Employer Identification Number (IRS Form SS-4)  2.207
    • B.  Form: Commercial Employer Registration and Update Form (California EDD Form DE 1)  2.208
    • C.  Form: Business Entities Fee Schedule (Secretary of State Form BE FEES)  2.209

3

Selecting a Business Name

Alan M. Insul

  • I.  SCOPE OF CHAPTER  3.1
  • II.  OVERVIEW
    • A.  Applicable Principles  3.2
    • B.  Type of Business as Affecting Scope of Name Inquiry  3.3
    • C.  Determining Rights in Name  3.4
    • D.  Secretary of State and County Clerk Lists of Business Names  3.5
  • III.  GOVERNING LAWS
    • A.  California Statutes and Regulations  3.6
      • 1.  Trade Name Protection  3.7
      • 2.  Fictitious Business Name
        • a.  Purpose  3.7A
        • b.  Definitions  3.8
        • c.  Filing Requirements  3.9
        • d.  Effect of Filing Statement  3.10
        • e.  Effect of Noncompliance  3.11
        • f.  Priorities and Conflicting Use of Names  3.12
      • 3.  Trademark Protection  3.13
      • 4.  State Bar Rules Concerning Law Firm Names  3.14
      • 5.  Checking Availability of and Reserving Business Name  3.15
      • 6.  Secretary of State Regulations Governing Approval of Business Names  3.15A
        • a.  When Secretary of State May Determine Proposed Name to Be the Same or Deceptively Similar as Existing Name  3.15B
        • b.  Matters Secretary of State Will Not Consider in Evaluating Proposed Name  3.15C
        • c.  Obtaining Consent to Use Proposed Name From Existing Entity  3.15D
        • d.  Names That Are Likely to Mislead the Public  3.15E
        • e.  Additional Criteria the Secretary of State May Use to Evaluate Proposed Business Names  3.15F
    • B.  Trade Name Protection Under Federal Law  3.16
    • C.  Trade Name Protection Under Common Law  3.17
  • IV.  SPECIFIC ENTITY NAME REQUIREMENTS  3.18
    • A.  General Partnerships  3.19
    • B.  Corporations
      • 1.  Permissible Corporate Names  3.20
      • 2.  Prohibited Corporate Names  3.21
      • 3.  Secretary of State’s Discretion Concerning Filing of Name  3.22
      • 4.  Use of Consolidated List  3.23
      • 5.  Specific Types of Corporations
        • a.  Professional Corporations  3.24
        • b.  Nonprofit Corporations  3.25
        • c.  Close Corporations  3.26
        • d.  Social Purpose Corporations  3.26A
    • C.  Limited Partnerships
      • 1.  Under Uniform Limited Partnership Act of 2008 (Re-RULPA)  3.27
      • 2.  Secretary of State Naming Regulations  3.27A
    • D.  Limited Liability Partnerships  3.28
    • E.  Limited Liability Companies  3.29
  • V.  CHECKLIST: BUSINESS NAME SEARCH  3.30
  • VI.  FORMS
    • A.  Form: Name Availability Inquiry Letter (Secretary of State)  3.31
    • B.  Form: Name Reservation Request (Secretary of State)  3.32
    • C.  Form: Sample Fictitious Business Name Statement (Los Angeles County)  3.33
    • D.  Form: Letter Requesting Consent to Use Name Deemed Confusingly Similar  3.34

4

Choosing the State of Organization

David M. Serepca

  • I.  SCOPE OF CHAPTER  4.1
  • II.  CORPORATIONS
    • A.  Application of California Law to Foreign Corporations
      • 1.  Foreign Corporations  4.2
      • 2.  “Quasi-California” Corporations
        • a.  Test to Determine “Quasi-California” Corporation  4.3
        • b.  Compliance Requirements for “Quasi-California” Corporations  4.4
    • B.  Considerations for Foreign Corporations Doing Business in California
      • 1.  Qualification Requirement  4.5
        • a.  Obtaining Certificate of Qualification  4.6
        • b.  Foreign Corporations That Fail to Qualify
          • (1)  Voidability of Contracts  4.7
          • (2)  Loss of Right to Sue  4.8
          • (3)  Monetary Penalties  4.9
        • c.  Statement of Information by Foreign Corporation  4.10
      • 2.  Obligation to Pay California Tax  4.11
        • a.  Apportionment by Three-Factor Formula  4.12
        • b.  Relief From Tax Liability  4.13
        • c.  Tax Liability in Foreign State of Organization  4.14
      • 3.  Laws Applicable to Internal Affairs  4.15
        • a.  Restrictions on Limitation of Directors’ Personal Liability for Breach of Fiduciary Duty and Indemnification  4.16
        • b.  Shareholder Protections Concerning Removal of Directors  4.17
        • c.  Prohibition Against Privately Held Corporations Having Classified Boards  4.18
        • d.  Cumulative Voting  4.19
        • e.  Voting in Mergers and Sales  4.19A
      • 4.  Other Considerations  4.20
  • III.  LIMITED PARTNERSHIPS
    • A.  Application of California Law to Foreign Limited Partnerships  4.21
    • B.  Considerations for Foreign Limited Partnerships Doing Business in California
      • 1.  Registration Requirement  4.22
        • a.  Obtaining Certificate of Registration  4.23
        • b.  Foreign Limited Partnerships That Fail to Register  4.24
      • 2.  Obligation to Pay California Tax  4.25
      • 3.  Laws Applicable to Internal Affairs  4.26
  • IV.  LIMITED LIABILITY COMPANIES  4.27
    • A.  Application of California Law  4.28
    • B.  Considerations for Foreign LLCs Doing Business in California
      • 1.  Registration Requirement  4.29
        • a.  Obtaining Certificate of Registration  4.30
        • b.  Foreign LLCs That Fail to Register  4.31
        • c.  Biennial Statement of Information  4.32
      • 2.  Obligation to Pay California Tax  4.33
      • 3.  Laws Applicable to Internal Affairs  4.34
  • V.  FORMS
    • A.  Form: Statement and Designation by Foreign Corporation (Secretary of State Form S&DC-S/N)  4.35
    • B.  Form: Statement of Information (Secretary of State Form SI-550)  4.36

5

General Partnerships

Charles E. Toombs

  • I.  SCOPE OF CHAPTER  5.1
  • II.  CHARACTER OF GENERAL PARTNERSHIP
    • A.  Uniform Partnership Act of 1994 (RUPA)  5.2
    • B.  Association to Carry On as Co-Owners of Business for Profit  5.3
    • C.  Ostensible Partnership  5.4
      • 1.  Joint Venture Distinguished From Partnership  5.5
      • 2.  Agency Distinguished From Partnership  5.6
    • D.  Partnership as Distinct Entity  5.7
    • E.  Authority to Bind Partnership
      • 1.  Mutual Agency  5.8
      • 2.  Transfers of Partnership Property  5.9
    • F.  Partners’ Liability  5.10
  • III.  PARTNERS’ OBLIGATIONS
    • A.  Fiduciary Duties  5.11
      • 1.  Duty of Loyalty  5.12
      • 2.  Duty of Care  5.13
      • 3.  Obligation of Good Faith and Fair Dealing  5.14
    • B.  Permissible Exceptions to Partner’s Duties and Obligations  5.15
    • C.  Enforcement of Partners’ Obligations  5.16
  • IV.  APPLICATION OF CALIFORNIA LAW
    • A.  Taxation of California Partnerships  5.17
    • B.  Similarity to California Corporations  5.18
  • V.  FACTORS TO CONSIDER IN STRUCTURING PARTNERSHIP AND DRAFTING PARTNERSHIP AGREEMENT
    • A.  Partners’ Rights and Obligations  5.19
    • B.  Ownership of Property
      • 1.  Partnership Property  5.20
      • 2.  Nonpartnership Property  5.21
    • C.  Liability for Partnership Obligations
      • 1.  Partnership Liability to Third Parties  5.22
      • 2.  Partnership Liability to Partners  5.23
      • 3.  Partner’s Liability for Partnership Obligations  5.24
        • a.  After Dissociation  5.25
        • b.  After Dissolution  5.26
      • 4.  Partnership Indemnification  5.27
      • 5.  Insurance  5.28
    • D.  Capital Contributions and Capital Structure
      • 1.  Default Provisions  5.29
      • 2.  Additional Financing  5.30
      • 3.  Failure to Make Contributions  5.31
      • 4.  Profit and Loss Sharing  5.32
      • 5.  Distributions  5.33
      • 6.  Transfer or Assignment of Partnership Interests  5.34
    • E.  Dissociation of Partner  5.35
    • F.  Dissolving Partnership  5.36
      • 1.  Partnership at Will  5.37
      • 2.  Partnership for Definite Term or Particular Undertaking  5.38
      • 3.  Winding Up Process  5.39
      • 4.  Allocating Assets and Debts  5.40
    • G.  Resolving Disputes Without Litigation  5.41
    • H.  IRS Centralized Audit Regime  5.41A
  • VI.  FORMATION OF PARTNERSHIP
    • A.  Nature of Partnership; Who May Form; When Formed  5.41B
    • B.  Partnership Agreement
      • 1.  Issues to Include in Agreement  5.42
      • 2.  Issues Not Affected by Agreement  5.43
    • C.  Statement of Partnership Authority  5.44
    • D.  Statement of Address and Principal Place of Business  5.45
    • E.  Other Partnership Filings  5.46
  • VII.  CHECKLIST FOR PLANNING INITIAL CONTRIBUTIONS AND CAPITAL STRUCTURE  5.47
  • VIII.  FORMS
    • A.  Form: Statement of Partnership Authority (Secretary of State Form GP-1)  5.48
    • B.  Form: Statement by Unincorporated Association (Secretary of State Form UA-100)  5.49
  • IX.  PARTNERSHIP AGREEMENT
    • A.  Form: Parties, Date, and Recitals  5.50
    • B.  Organizational Matters
      • 1.  Form: Basic Operative Clause  5.51
      • 2.  Form: Firm Name  5.52
      • 3.  Form: Place of Business  5.53
      • 4.  Form: Term of Partnership  5.54
      • 5.  Form: Purposes Clause  5.55
      • 6.  Form: Powers  5.56
    • C.  Form: Statutory Filings  5.57
    • D.  Capital
      • 1.  Capital Contributions
        • a.  Form: Initial Contributions in Money or Property  5.58
        • b.  Form: Initial Contributions of Service  5.59
      • 2.  Form: Basis of Contributions  5.60
      • 3.  Form: Failure to Make Initial Contribution  5.61
      • 4.  Form: Deferred Contributions  5.62
      • 5.  Form: Additional Capital  5.63
      • 6.  Form: Withdrawals of Capital  5.64
      • 7.  Form: No Interest on Capital Contributions  5.65
      • 8.  Form: Loans to Partnership  5.66
    • E.  Form: Division of Profits and Losses  5.67
    • F.  Distributions to Partners
      • 1.  Form: Distribution of Profits  5.68
      • 2.  Form: Distributions of Proceeds From Sale of Capital Assets  5.69
      • 3.  Form: Limit on Distributions  5.70
    • G.  Accounting
      • 1.  Form: Fiscal Year of Partnership  5.71
      • 2.  Form: Accounting Method  5.72
      • 3.  Capital Accounts
        • a.  Form: Capital Accounts—Initial Contributions  5.73
        • b.  Form: Adjustment of Capital Accounts  5.74
      • 4.  Form: Determination of Profit and Loss  5.75
    • H.  Records and Reports
      • 1.  Form: Partnership Books  5.76
      • 2.  Form: Annual Report to Partners  5.77
    • I.  Management
      • 1.  Form: Control of Business  5.78
      • 2.  Form: Acts Requiring Majority Consent  5.79
      • 3.  Form: Handling Funds  5.80
      • 4.  Partners’ Remuneration
        • a.  Form: Remuneration to Partners  5.81
        • b.  Form: Effect of Assignment of Interest  5.82
      • 5.  Compliance With Centralized Partnership Audit Regime
        • a.  Form: Designation of Partnership Representative  5.82A
        • b.  Form: Authority to Be Exercised by Partnership Representative  5.82B
    • J.  Partner’s Fiduciary Duty
      • 1.  Form: Duty of Loyalty  5.83
      • 2.  Form: Duty of Care  5.84
      • 3.  Form: Duty of Good Faith and Fair Dealing  5.85
      • 4.  Form: Furtherance of Partner’s Own Interests  5.86
    • K.  Changes in Membership and Partner Dissociation
      • 1.  Form: New Partners  5.87
      • 2.  Form: Partner’s Dissociation  5.88
      • 3.  Form: Partner’s Expulsion by Partner Vote  5.89
      • 4.  Form: Expulsion by Judicial Determination  5.90
      • 5.  Retirement
        • a.  Form: Retirement From Partnership Management  5.91
        • b.  Form: Retirement From Partnership  5.92
      • 6.  Form: Noncompetition Covenant  5.93
      • 7.  Purchase of Dissociated Partner’s Interest
        • a.  Form: Payment When Business Not Wound Up  5.94
        • b.  Form: Payment of Purchase Price by Mutual Agreement When Business Not Wound Up  5.95
    • L.  Transfer of Partnership Interests
      • 1.  Form: Definition of Transferable Interest  5.96
      • 2.  Form: Transferability of Interest  5.97
      • 3.  Form: Transfers on Dissolution of Marriage  5.98
      • 4.  Form: Right of First Refusal  5.99
      • 5.  Form: Valuation of Interest  5.100
      • 6.  Form: Payment of Purchase Price  5.101
      • 7.  Form: Assumption of Outstanding Partnership Liabilities  5.102
    • M.  Dissolution and Termination
      • 1.  Form: Dissolution  5.103
      • 2.  Form: Termination of Partnership After Dissolution; Waiver of Termination  5.104
      • 3.  Form: Persons Eligible to Wind Up Partnership  5.105
      • 4.  Form: Distribution of Assets  5.106
    • N.  Form: Indemnification  5.107
    • O.  Miscellaneous Provisions
      • 1.  Form: Amendments  5.108
      • 2.  Form: Notices  5.109
      • 3.  Form: Counterparts  5.110
      • 4.  Form: Governing Law  5.111
      • 5.  Form: Successors and Assigns  5.112
      • 6.  Form: Severability  5.113
      • 7.  Form: Titles and Headings  5.114
      • 8.  Form: Further Assurances  5.115
      • 9.  Form: Waiver of Action for Partition  5.116
      • 10.  Form: Construction  5.117
      • 11.  Form: Number and Gender  5.118
      • 12.  Form: Incorporation by Reference  5.119
      • 13.  Form: Attorney Fees  5.120
      • 14.  Form: Entire Agreement  5.121
      • 15.  Form: Arbitration  5.122
    • P.  Form: Execution  5.123
    • Q.  Form: Consent of Spouses  5.124

6

Limited Partnerships

Edward Gartenberg

Ellis G. Wasson

  • I.  SCOPE OF CHAPTER  6.1
  • II.  NATURE OF LIMITED PARTNERSHIP
    • A.  Definition of a Partnership  6.2
    • B.  Permissible Businesses  6.3
    • C.  California Partnership Law  6.4
      • 1.  Tax Law
        • a.  Federal Taxation
          • (1)  Tax Treatment  6.5
          • (2)  Tax Classification  6.6
        • b.  California Taxation  6.7
      • 2.  Securities Laws  6.8
  • III.  RIGHTS AND LIABILITIES OF PARTNERS
    • A.  Rights of General Partners  6.9
    • B.  Liability of General Partners for Partnership Obligations  6.10
    • C.  Rights of Limited Partners  6.11
    • D.  Liability of Limited Partners
      • 1.  Limited Partners Are Generally Not Liable  6.12
      • 2.  Actions Not Constituting Participation in Management  6.13
      • 3.  Does Limited Partner Have Fiduciary Duty to Partnership?  6.14
  • IV.  PARTNERSHIP BOOKS, RECORDS, AND REPORTS
    • A.  Partnership Books and Records  6.15
    • B.  Copies and Reports
      • 1.  Under CRLPA [Deleted]  6.16
      • 2.  Under Re-RULPA  6.17
  • V.  FORMATION REQUIREMENTS  6.18
    • A.  Name of Limited Partnership  6.19
    • B.  Certificate of Limited Partnership
      • 1.  Filing Requirement  6.20
      • 2.  Execution and Acknowledgment Requirement
        • a.  By General Partners  6.21
        • b.  By Persons Other Than General Partners  6.22
        • c.  Facsimile and Electronic Filing  6.23
      • 3.  Filing Fee  6.24
      • 4.  Effective Date  6.25
      • 5.  Recording Certificate With County Recorder  6.26
      • 6.  Liability for Misstatements in Certificate  6.27
    • C.  Foreign Limited Partnerships  6.28
    • D.  Limited Partnership Agreement
      • 1.  Requirement of Agreement  6.29
      • 2.  Variation of Statutory Provisions
        • a.  Under CRLPA [Deleted]  6.30
        • b.  Under Re-RULPA  6.31
    • E.  Additional Filings
      • 1.  Federal Employer Identification Number  6.32
      • 2.  Securities Filings  6.33
      • 3.  Licensing and EDD Filings  6.34
      • 4.  Qualification in Foreign Jurisdictions  6.34A
  • VI.  CHECKLISTS
    • A.  Checklist: Preformation  6.35
    • B.  Checklist: Formation  6.36
  • VII.  FORMS
    • A.  Form: Letter to Secretary of State Requesting Filing of Certificate of Limited Partnership  6.37
    • B.  Form: Secretary of State Certificate of Limited Partnership (LP) (Form LP-1)  6.38
    • C.  Form: Amendment to Certificate of Limited Partnership (Secretary of State Form LP-2)  6.39
    • D.  Form: Secretary of State Application for Registration Foreign Limited Partnership (LP) (Form LP-5)  6.40
    • E.  Form: Foreign Limited Partnership Amendment to Application for Registration (Secretary of State Form LP-6)  6.41
  • VIII.  ANNOTATED AGREEMENT FOR LIMITED PARTNERSHIP  6.42
    • A.  Form: Title of Agreement  6.43
    • B.  Form: Date and Parties  6.44
    • C.  Form: Definitions  6.45
      • 1.  Form: Affiliate  6.46
      • 2.  Form: Agreement  6.47
      • 3.  Form: Bankruptcy  6.48
      • 4.  Form: Cash Available for Distribution  6.49
      • 5.  Form: Certificate of Limited Partnership  6.50
      • 6.  Form: Corporations Code  6.51
      • 7.  Form: Re-RULPA  6.52
      • 8.  Form: General Partners  6.53
      • 9.  Form: IRC  6.54
      • 10.  Form: Limited Partners  6.55
      • 11.  Form: Majority in Interest of General Partners  6.56
      • 12.  Form: Majority in Interest of Limited Partners  6.57
      • 13.  Form: Majority in Interest of Partners  6.58
      • 14.  Form: Nonrecourse Liability  6.59
      • 15.  Form: Partner Nonrecourse Debt  6.60
      • 16.  Form: Partners  6.61
      • 17.  Form: Partnership  6.62
      • 18.  Form: Partnership Minimum Gain  6.63
      • 19.  Form: Percentage Interests  6.64
      • 20.  Form: Treasury Regulation  6.65
    • D.  Organization
      • 1.  Form: Formation  6.66
      • 2.  Form: Name  6.67
      • 3.  Form: Designated Office  6.68
      • 4.  Form: Agent for Service of Process and Office  6.68A
      • 5.  Form: Qualification in Other Jurisdictions  6.68B
    • E.  Certificate of Limited Partnership
      • 1.  Form: Filing Certificate of Limited Partnership  6.69
      • 2.  Form: Amending Certificate of Limited Partnership  6.70
    • F.  Form: Term  6.71
    • G.  Form: Business of Partnership  6.72
    • H.  Form: Financing  6.73
    • I.  Form: Partner Guarantees Repayment  6.74
    • J.  Capital Contributions
      • 1.  Form: Initial Capital Contributions  6.75
      • 2.  Additional Capital Contributions
        • a.  Form: General Partners’ Additional Capital Contributions  6.76
        • b.  Form: Limited Partners—No Obligation to Contribute Additional Capital  6.77
      • 3.  Form: Capital Accounts  6.78
      • 4.  Form: No Interest  6.79
      • 5.  Form: No Withdrawal of Capital  6.80
    • K.  Distributions
      • 1.  Form: Manner of Distribution  6.81
      • 2.  Form: Time of Distribution  6.82
      • 3.  Form: Recontribution  6.83
      • 4.  Form: Withholding  6.84
    • L.  Profits and Losses
      • 1.  Form: Determination of Profits and Losses  6.85
      • 2.  Form: Allocation of Profits and Losses  6.86
      • 3.  Special Allocations of Profits and Losses
        • a.  Form: Minimum Gain Chargeback  6.87
        • b.  Form: Chargeback of Partnership Minimum Gain Attributable to Partner Nonrecourse Debt  6.88
        • c.  Form: Nonrecourse Deductions  6.89
        • d.  Form: Partner Nonrecourse Deductions  6.90
        • e.  Form: Qualified Income Offset  6.91
      • 4.  Form: IRC §704(c) Allocations  6.92
    • M.  Rights and Powers of General Partners
      • 1.  Form: Participation by All General Partners  6.93
      • 2.  Form: Rights and Powers  6.94
      • 3.  Compensation
        • a.  Form: Amount of Compensation  6.95
        • b.  Form: Tax Treatment  6.96
      • 4.  Form: Reimbursement of Expenses  6.97
      • 5.  Form: Indemnification  6.98
      • 6.  Form: Devotion of Time  6.99
      • 7.  Form: Other Business Activities  6.100
    • N.  Rights and Powers of Limited Partners
      • 1.  Form: Generally No Right to Participate  6.101
      • 2.  Form: Consent Required for Specified Actions by General Partners  6.102
      • 3.  Form: Liability of Limited Partners  6.103
      • 4.  Transactions With Limited Partners
        • a.  Form: Consent Required for Transactions With Partnership  6.104
        • b.  Form: Tax Treatment  6.105
    • O.  Administration
      • 1.  Form: Books and Records  6.106
      • 2.  Form: Reports and Copies  6.107
      • 3.  Partnership Representative
        • a.  Form: Tax Returns  6.108
        • b.  Form: Partnership Representative  6.109
        • c.  Form: Taxable Year  6.110
      • 4.  Form: Accounting Method  6.111
      • 5.  Form: Bank Accounts  6.112
      • 6.  Form: Partnership Meetings  6.113
      • 7.  Form: Insurance  6.114
    • P.  Transfers of Partnership Interests
      • 1.  Form: General Prohibition  6.115
      • 2.  Form: Conditions of Transfer  6.116
      • 3.  Form: Permitted Transfers  6.117
      • 4.  Form: Right of First Refusal  6.118
      • 5.  Form: Transferor’s Rights in Partnership  6.119
    • Q.  Form: Admission of Additional Partners  6.120
    • R.  Default of General Partner
      • 1.  Form: Events of Default of General Partner  6.121
      • 2.  Form: Notice of Default and Time to Cure  6.122
      • 3.  Form: Election of Remedies After Default of General Partner  6.123
      • 4.  Form: Determination of Fair Market Value  6.124
    • S.  Dissolution, Winding Up, Liquidation, and Termination
      • 1.  Form: Events of Dissolution  6.125
      • 2.  Winding Up
        • a.  Form: Winding Up After Dissolution  6.126
        • b.  Form: Party Authorized to Wind Up  6.127
        • c.  Form: Filings  6.128
      • 3.  Form: Distribution of Liquidation Proceeds  6.129
      • 4.  Form: Deficit Restoration Requirement  6.130
    • T.  Miscellaneous Provisions  6.131
      • 1.  Form: Amendment  6.132
      • 2.  Form: Arbitration  6.133
      • 3.  Form: Successors and Assigns  6.134
      • 4.  Form: Titles and Headings  6.135
      • 5.  Form: Counterparts and Facsimiles  6.136
      • 6.  Form: Counting of Days  6.137
      • 7.  Form: Cumulative Remedies  6.138
      • 8.  Form: Entire Agreement  6.139
      • 9.  Form: Exhibits  6.140
      • 10.  Form: Further Documents  6.141
      • 11.  Form: Governing Law  6.142
      • 12.  Form: Jurisdiction  6.143
      • 13.  Form: Notice  6.144
      • 14.  Form: Prevailing Party’s Fees  6.145
      • 15.  Form: Number and Gender  6.146
      • 16.  Form: Severability  6.147
      • 17.  Form: Time of Essence  6.148
      • 18.  Form: Waiver  6.149
      • 19.  Form: Execution  6.150
    • U.  Form: Separate Property Waiver and Acknowledgment  6.151
    • V.  Form: Joinder Agreement  6.152

7

Limited Liability Partnerships

Alan M. Insul

  • I.  SCOPE OF CHAPTER  7.1
  • II.  DISTINGUISHING CHARACTERISTICS OF LLPs
    • A.  Definition of LLP  7.2
    • B.  Limited to Certain Professions  7.3
    • C.  General Partnership With Limited Liability Shield  7.4
      • 1.  Scope of Liability Shield  7.5
      • 2.  Exceptions to Liability Shield  7.6
    • D.  Treatment of Foreign LLPs Not Engaged in Permitted Professions and Unregistered Foreign LLPs  7.7
  • III.  LAWS GOVERNING LLPs
    • A.  California Statutes and Regulations  7.8
    • B.  Tax Laws  7.9
    • C.  Securities Laws  7.10
  • IV.  FORMATION, REGISTRATION, AND CONVERSION
    • A.  Formation Requirements  7.11
      • 1.  Partnership Vote to Register as LLP  7.12
      • 2.  Effect of Registration  7.13
      • 3.  Name  7.14
      • 4.  Registration With Secretary of State
        • a.  Domestic or Registered LLPs  7.15
        • b.  Foreign LLPs  7.16
    • B.  Modification of Partnership Agreement Converting LLP  7.17
      • 1.  Registration as LLP; Waiver of Shield  7.18
      • 2.  Personal Guaranties  7.19
      • 3.  Indemnity and Contribution Provisions  7.20
      • 4.  Loss Allocations and Capital Contributions  7.21
  • V.  SPECIFIC REQUIREMENTS FOR LEGAL, ACCOUNTING, ARCHITECTURAL, ENGINEERING, AND LAND SURVEYING LLPs  7.22
    • A.  State Bar of California Rules and Regulations  7.23
    • B.  State Board of Accountancy Requirements  7.24
    • C.  Architectural Firm Requirements  7.25
    • D.  Engineering and Land Surveying Firm Requirements  7.25A
    • E.  Security for Claims
      • 1.  Amount of Security  7.26
      • 2.  When Security Is Required  7.27
      • 3.  Meeting Security Requirement; Effect of Noncompliance  7.28
        • a.  Law Firms  7.29
        • b.  Accountancy Firms  7.30
        • c.  Architectural Firms  7.31
        • d.  Engineering and Land Surveying Firms  7.31A
  • VI.  CHECKLISTS
    • A.  Checklist to Organize New California LLP  7.32
    • B.  Checklist to Register Foreign LLP in California  7.33
    • C.  Checklist to Convert Domestic Partnership to Registered LLP  7.34
  • VII.  FORMS
    • A.  Form: Application to Register a Limited Liability Partnership (Secretary of State Form LLP-1)  7.35
    • B.  Form: Amendment to Registration of a Limited Liability Partnership (Secretary of State Form LLP-2)  7.36
    • C.  Form: Alternative Security Provision of a Limited Liability Partnership (Secretary of State Form LLP-3)  7.37
    • D.  Form: Notice of Change of Status of a Limited Liability Partnership (Secretary of State Form LLP-4)  7.38
    • E.  State Bar Application for Certificate of Registration as LLP
      • 1.  Form: Application for Issuance of a Certificate of Registration as a Limited Liability Partnership (State Bar Form LLPApp-0211)  7.39
      • 2.  Form: Limited Liability Partnership Rules and Regulations (State Bar of California) [Deleted]  7.40
    • F.  State Board of Accountancy Packet
      • 1.  Form: General Partnership/Limited Liability Partnership Check Sheet and Partnership Application for Licensure (Board of Accountancy Forms 11L–35 and 11A–19)  7.41
      • 2.  Form: Partnership Application for Licensure (Board of Accountancy Form 11A–19) [Deleted]  7.42
      • 3.  Form: General Partnership/Limited Liability Partnership Name Change Check Sheet and Partnership Name Change Application for Licensure (Board of Accountancy Forms 11-L-42 and 11A-36)  7.43
    • G.  Form: Architect’s Business Entity Report Form (California Architects Board)  7.44
    • H.  Forms for Engineering and Land Surveying LLPs
      • 1.  Form: Organization Record Form for Businesses Whose Principal Office Is in California (Board for Professional Engineers, Land Surveyors, and Geologists)  7.44A
      • 2.  Form: Organization Record Form for Businesses Whose Principal Office Is Located Outside of California (Board for Professional Engineers, Land Surveyors, and Geologists)  7.44B
    • I.  Form: Resolutions Authorizing Firm Conversion  7.45
    • J.  Amendments to Partnership Agreement
      • 1.  Form: Conversion to LLP; Name Change  7.46
      • 2.  Form: Limited Guaranty by Partners of Firm Debt (Corp C §16306(d))  7.47
      • 3.  Form: Elimination of Partners’ Vicarious Liability for Firm Obligations  7.48
      • 4.  Form: Firm Indemnification of Partners; Partners’ Indemnification of Firm  7.49
      • 5.  Form: Power of Attorney  7.50
      • 6.  Form: No Personal Liability to Make Capital Contribution  7.51
      • 7.  Form: Partnership Agreement to Remain in Full Force and Effect  7.52
    • K.  Client Letters
      • 1.  Form: Letter Explaining Conversion  7.53
      • 2.  Form: Engagement Letter Clause Explaining LLP Status  7.54
      • 3.  Form: Letter to Vendors, Suppliers, and Service Providers  7.55

7A

Social Purpose and Benefit Corporations

David A. Levitt

Steven R. Chiodini

  • I.  SCOPE OF CHAPTER  7A.1
    • A.  Why Consider a Hybrid Corporation Instead of a Conventional For-Profit Corporation?  7A.2
    • B.  Are There Tax Differences Between Hybrid Corporations and Conventional Corporations?  7A.3
    • C.  Comparing Hybrid Corporate Forms  7A.4
    • D.  Issues Regarding Untested Nature of Hybrid Forms  7A.5
  • II.  SOCIAL PURPOSE CORPORATIONS
    • A.  The Social Purpose Corporations Act  7A.6
    • B.  Corporate Powers  7A.7
    • C.  Transitional Provisions for Flexible Purpose Corporations Formed Before January 1, 2015  7A.7A
    • D.  Articles of Incorporation  7A.8
      • 1.  Checklist: Required and Optional Articles Provisions  7A.9
      • 2.  Form: General Statutory Purpose Statement  7A.10
      • 3.  Special Social Purpose Statement  7A.11
      • 4.  Form: Sample Special Purpose Statement  7A.12
      • 5.  Special Purpose Statements Required for Professional and Close Corporations, and Corporations Engaged in Banking or Insurance  7A.13
      • 6.  Authorized Shares  7A.14
      • 7.  Limits on Director’s Liability  7A.15
      • 8.  Indemnification of Officers and Directors  7A.16
      • 9.  Amendment of Articles  7A.17
    • E.  Incorporation by Existing Business Association Organized as Trust  7A.18
    • F.  Director’s Duties  7A.19
    • G.  Role of Attorney General  7A.20
    • H.  Derivative Actions  7A.21
    • I.  Required Reports  7A.22
      • 1.  Annual Reports  7A.23
      • 2.  Special Purpose Current Reports  7A.24
    • J.  Shares and Share Certificates  7A.25
    • K.  Sales of Assets  7A.26
    • L.  Merger  7A.27
    • M.  Change of Status  7A.28
    • N.  Reorganization  7A.29
  • III.  BENEFIT CORPORATIONS  7A.30
    • A.  Forming New Benefit Corporation  7A.31
    • B.  Converting Existing Entity to Benefit Corporation  7A.32
    • C.  Purposes  7A.33
    • D.  Third Party Standard  7A.34
    • E.  Director’s Duties  7A.35
    • F.  Form: Indemnification for Directors  7A.36
    • G.  Officer’s Duties  7A.37
    • H.  Annual Benefit Report  7A.38
    • I.  Benefit Enforcement Proceeding  7A.39
    • J.  Attorney General Supervision  7A.40
    • K.  Change of Status  7A.41
    • L.  Form: Restrictions on Amendments to Articles of Incorporations  7A.42
  • IV.  TABLES COMPARING CORPORATE FORMS
    • A.  Table: Spectrum of Public and Private Enterprise  7A.43
    • B.  Table: Comparison of Traditional and California Hybrid Corporations  7A.44

8

S and C Corporations

Whitney M. Skala

  • I.  SCOPE OF CHAPTER  8.1
  • II.  PLANNING A CALIFORNIA BUSINESS CORPORATION
    • A.  Limited Liability  8.2
    • B.  Management and Control  8.3
    • C.  Determining Whether to Form Statutory Close Corporation  8.4
    • D.  Determining Whether to Elect S Corporation Status  8.5
    • E.  Determining Whether to Form Social Purpose or Benefit Corporation  8.5A
    • F.  Covenants Not to Compete; Misappropriation of Trade Secrets  8.6
    • G.  Securities Regulation Considerations  8.7
  • III.  PREINCORPORATION ACTIONS
    • A.  Preincorporation Subscription Agreements  8.8
    • B.  Shareholders’ Agreements  8.9
    • C.  Preincorporation Contracts  8.10
    • D.  Selecting Corporate Name  8.11
    • E.  Selecting Initial Agent for Service of Process  8.12
  • IV.  FORMING CORPORATION
    • A.  Articles of Incorporation
      • 1.  Filing Articles as Commencing Corporate Existence  8.13
      • 2.  Required Contents of Articles  8.14
      • 3.  Optional Provisions
        • a.  Optional Provisions That Must Be Stated in Articles to Be Effective  8.15
        • b.  Other Optional Provisions  8.16
      • 4.  Prohibited Article Provisions  8.17
      • 5.  Filing Requirements  8.18
      • 6.  Resubmitting Rejected Articles  8.19
      • 7.  Certificate of Determination of Preferences  8.20
    • B.  Franchise Tax Requirements  8.21
    • C.  Bylaws
      • 1.  Purpose and Drafting of Bylaws  8.22
      • 2.  Contents  8.23
      • 3.  Matters Subject to Variation by Bylaw  8.24
      • 4.  Statutory Rules That Cannot Be Changed by Bylaw  8.25
      • 5.  Adoption, Amendment, and Repeal of Bylaws  8.26
      • 6.  Location and Inspection of Bylaws  8.27
    • D.  Initial Organizational Meeting of Corporation  8.28
  • V.  CHARTS AND CHECKLISTS
    • A.  Charts
      • 1.  Chart: Comparison of C and S Corporations  8.29
      • 2.  Permissible Variations From Statutory Rules
        • a.  Introduction  8.30
        • b.  Chart: Permissible Variations From Statutory Rules  8.31
    • B.  Checklists
      • 1.  Preformation Checklist: Selected Issues  8.32
      • 2.  Preformation Checklist: Selected Tasks  8.33
      • 3.  Preformation Checklist: Information Required to Draft Articles  8.34
      • 4.  Formation Checklist: Selected Issues  8.35
      • 5.  Formation Checklist: Selected Tasks  8.36
  • VI.  FORMS
    • A.  Articles of Incorporation
      • 1.  Articles of Incorporation: Minimum Required Provisions  8.37
        • a.  Form: Heading; Name; Purpose  8.38
        • b.  Form: Agent for Service of Process  8.39
        • c.  Form: One-Class Share Structure  8.40
        • d.  Form: Signature Block  8.41
        • e.  Form: Declaration by Initial Director  8.42
      • 2.  Articles of Incorporation: Optional Provisions
        • a.  Form: Number of Directors; Change in Number or Range  8.43
        • b.  Form: Names and Addresses of Initial Directors  8.44
        • c.  Form: Capitalization (Two-Class Share Structure)  8.45
        • d.  Form: Preferences, Privileges, and Restrictions on Shares  8.46
        • e.  Form: Dividend Preferences (Two-Class Share Structure)  8.47
        • f.  Form: Voting Rights  8.48
        • g.  Form: Voting Rights (Failure to Pay Dividends on Preferred Shares)  8.49
        • h.  Form: Liquidation Preferences  8.50
        • i.  Form: Preemptive Rights  8.51
        • j.  Form: Redeemable Shares  8.52
        • k.  Form: Conversion Rights  8.53
        • l.  Form: Transfer Restrictions; Right of First Refusal  8.54
        • m.  Form: Limit on Directors’ Liability  8.55
        • n.  Form: Indemnification of Officers and Directors  8.56
        • o.  Form: Election to Be Statutory Close Corporation  8.57
      • 3.  Form: Certificate of Determination of Preferences  8.58
    • B.  Bylaws
      • 1.  Form: Heading; Location of Offices  8.59
      • 2.  Shareholders’ Meetings
        • a.  Form: Place of Meetings  8.60
        • b.  Form: Conducting Meetings by Electronic Transmission  8.61
        • c.  Form: Annual Meeting of Shareholders  8.62
        • d.  Form: Special Meetings  8.63
        • e.  Form: Notice of Shareholders’ Meetings  8.64
        • f.  Form: Manner of Giving Notice of Shareholders’ Meetings  8.65
        • g.  Form: Quorum  8.66
        • h.  Form: Adjournment of Meeting  8.67
        • i.  Form: Voting  8.68
        • j.  Form: Waiver of Notice or Consent by Absent Shareholders  8.69
        • k.  Form: Shareholder Action by Written Consent Without a Meeting  8.70
        • l.  Form: Record Date for Notice and Voting  8.71
        • m.  Form: Proxies  8.72
        • n.  Form: Inspectors of Election  8.73
      • 3.  Board of Directors
        • a.  Form: Powers of Directors  8.74
        • b.  Form: Number of Directors  8.75
        • c.  Form: Election and Term of Office of Directors  8.76
        • d.  Form: Vacancies on Board of Directors  8.77
        • e.  Form: Meetings of Board of Directors  8.78
        • f.  Form: Quorum  8.79
        • g.  Form: Waiver of Notice of Board of Directors’ Meetings  8.80
        • h.  Form: Adjournment of Board of Directors’ Meetings  8.81
        • i.  Form: Action Without a Board of Directors’ Meeting  8.82
        • j.  Form: Compensation of Directors  8.83
        • k.  Form: Committees of the Board of Directors  8.84
      • 4.  Corporate Officers
        • a.  Form: Corporate Officers  8.85
        • b.  Form: Duties of Particular Officers  8.86
      • 5.  Indemnification of Directors, Officers, Employees, and Other Agents
        • a.  Form: Indemnification of Agents (Short Form)  8.87
        • b.  Form: Indemnification of Directors, Officers, Employees, and Other Agents (Long Form)  8.88
      • 6.  Records and Reports
        • a.  Form: Maintenance of Records of Shareholders  8.89
        • b.  Form: Maintenance and Inspection of Bylaws  8.90
        • c.  Form: Maintenance and Inspection of Minutes and Accounting Records  8.91
        • d.  Form: Inspection of Books and Records by Directors  8.92
        • e.  Form: Annual Report to Shareholders  8.93
        • f.  Form: Financial Statements  8.94
        • g.  Form: Annual Information Statement  8.95
      • 7.  General Corporate Matters
        • a.  Form: Record Date for Dividends  8.96
        • b.  Form: Authorized Signatories  8.97
        • c.  Form: Executing Corporate Contracts  8.98
        • d.  Form: Issuing Shares Certificates  8.99
        • e.  Form: Lost Certificates  8.100
        • f.  Form: Voting Shares of Other Corporations  8.101
        • g.  Form: Reimbursing Corporation for Disallowed Payments  8.102
      • 8.  Form: Construction and Definitions  8.103
      • 9.  Form: Amending the Bylaws  8.104
      • 10.  Form: Emergency Powers  8.104A
    • C.  Completing Corporate Organization
      • 1.  Form: Adoption of Bylaws and Election of Directors by Incorporator  8.105
      • 2.  First Meeting of Board of Directors
        • a.  Form: Waiver of Notice and Consent to First Meeting of Board of Directors  8.106
        • b.  Minutes of First Meeting of Board of Directors
          • (1)  Form: Heading and Opening Sentence  8.107
          • (2)  Form: Directors Present; Officers of the Meeting  8.108
          • (3)  Form: Waiver of Notice Presented  8.109
          • (4)  Form: Report of Articles Filed  8.110
          • (5)  Form: Approval or Appointment of Agent for Service of Process  8.111
          • (6)  Form: Approval of Bylaws  8.112
          • (7)  Form: Appointment of Officers  8.113
          • (8)  Form: Adoption of Corporate Seal  8.114
          • (9)  Form: Adoption of Share Certificate Form  8.115
          • (10)  Form: Selection of Annual Accounting Period  8.116
          • (11)  Form: Establishing Principal Executive Office  8.117
          • (12)  Form: Filing of Annual Statement  8.118
          • (13)  Form: Establishing Bank Accounts  8.119
          • (14)  Form: Payment of Incorporation Expenses  8.120
          • (15)  Form: Optional Qualification of Stock Under IRC §1244  8.121
          • (16)  Form: Authorization of Issuance of Shares  8.122
          • (17)  Form: Optional Election of S Corporation Status  8.123
          • (18)  Form: Adjournment  8.124
      • 3.  Filing Statement of Information  8.125
      • 4.  Form: Corporate Operations Memorandum  8.126

9

Close Corporations

CEB Staff

Whitney M. Skala

  • I.  SCOPE OF CHAPTER  9.1
  • II.  INTRODUCTION
    • A.  Definition of Close Corporation  9.2
    • B.  Advantages of Close Corporation  9.3
  • III.  ORGANIZING A CLOSE CORPORATION
    • A.  Requirement of California For-Profit Corporation  9.4
    • B.  Name Requirements  9.5
    • C.  Contents of Articles of Incorporation  9.6
    • D.  Filing Articles of Incorporation  9.7
    • E.  Number of Shareholders  9.8
    • F.  Legend on Share Certificates  9.9
    • G.  Close Corporations and S Corporation Election  9.10
  • IV.  SHAREHOLDER AGREEMENTS
    • A.  Role in Corporate Governance  9.11
    • B.  Form and Contents
      • 1.  Requirement of Writing  9.12
      • 2.  Optional Provisions From Corp C §204  9.13
      • 3.  Corporate Governance Provisions That Shareholders’ Agreement May Not Vary  9.14
      • 4.  Corporate Governance Provisions That May Be Varied  9.15
    • C.  Modification, Revocation, and Termination of Agreement  9.16
  • V.  CLOSE CORPORATIONS AND OTHER ENTITIES
    • A.  Close Corporations and Professional Corporations  9.17
    • B.  Close Corporations and LLPs  9.18
    • C.  Close Corporations versus LLCs  9.19
  • VI.  CONSIDERATIONS IN DRAFTING SHAREHOLDERS’ AGREEMENT FOR CLOSE CORPORATION  9.20
    • A.  Statutory Requirements  9.21
    • B.  Management and Control  9.22
    • C.  Distributions  9.23
    • D.  Dissolution  9.24
    • E.  Certain Voting Requirements  9.25
    • F.  Transfer Restrictions  9.26
    • G.  Rights of First Refusal  9.27
    • H.  Buy-Sell Provisions  9.28
    • I.  Alternative Dispute Resolution  9.29
    • J.  Noncompetition; Trade Secrets  9.30
    • K.  Legends on Share Certificates  9.31
    • L.  Termination; Amendment  9.32
    • M.  Miscellaneous Provisions  9.33
  • VII.  CHECKLIST: PROVISIONS IN SHAREHOLDERS’ AGREEMENT FOR STATUTORY CLOSE CORPORATION  9.34
  • VIII.  FORMS
    • A.  Form: Articles of Incorporation of a Close Corporation (Secretary of State Form ARTS-CL)  9.35
    • B.  Close Corporation Shareholder Agreement  9.36
      • 1.  Form: Heading, Parties, and Date  9.37
      • 2.  Form: Recitals  9.38
      • 3.  Form: Management and Control of Corporation  9.39
      • 4.  Form: Distributions  9.40
      • 5.  Form: Transfer Restrictions  9.41
      • 6.  Form: Noncompetition  9.42
      • 7.  Form: Trade Secrets  9.43
      • 8.  Form: Shares Governed by Agreement  9.44
      • 9.  Form: Representations and Waivers  9.45
      • 10.  Form: Share Certificate Legend  9.46
      • 11.  Form: Right of First Refusal  9.46A
      • 12.  Form: Purchase of Shares on Shareholder’s Death  9.46B
      • 13.  Form: Dissolution  9.47
      • 14.  Form: Arbitration  9.48
      • 15.  Form: Termination of Agreement  9.49
      • 16.  Form: Miscellaneous Provisions  9.50
      • 17.  Form: Execution and Signatures  9.51

10

Professional Corporations

Elspeth Delaney-Paul

David A. Hatch

Thomas A. Maier

  • I.  SCOPE OF CHAPTER  10.1
  • II.  DEFINITION AND ELIGIBLE PROFESSIONALS  10.2
  • III.  CALIFORNIA LAW GOVERNING PROFESSIONAL CORPORATIONS
    • A.  Forming Professional Corporations  10.3
    • B.  Permissible Business  10.4
    • C.  Permissible Shareholders and Directors  10.5
  • IV.  DECIDING WHETHER TO INCORPORATE
    • A.  Nontax Considerations  10.6
      • 1.  Limitations on Limited Liability  10.7
      • 2.  Malpractice Insurance Requirement  10.8
      • 3.  Covenants Not to Compete  10.9
    • B.  Tax Considerations
      • 1.  Tax Advantages
        • a.  Deductions for Retirement Benefits and Fringe Benefits  10.10
        • b.  Retirement Plans as Shield for Assets  10.11
      • 2.  Other Tax Advantages  10.12
      • 3.  Tax Disadvantages  10.13
      • 4.  Tax Ramifications of S Corporation Election  10.14
      • 5.  State Taxation  10.15
  • V.  FORMATION REQUIREMENTS
    • A.  Name of Professional Corporation  10.16
    • B.  Articles of Incorporation  10.17
    • C.  Registration With Licensing Boards  10.18
    • D.  Bylaws  10.19
    • E.  Other Filings  10.20
  • VI.  CHARTS AND CHECKLISTS
    • A.  Chart: Comparison of Corporate Practice With Sole Proprietor or Partnership Practice  10.21
    • B.  Checklist: Client Questionnaire  10.22
    • C.  Checklist: Preincorporation  10.23
  • VII.  FORMS
    • A.  Articles of Incorporation for Medical or Law Corporations: Selected Provisions  10.24
      • 1.  Form: Heading; Name of Corporation  10.25
      • 2.  Form: Purpose; Statement of Professional Corporation  10.26
      • 3.  Form: Number of Shares  10.27
      • 4.  Form: Shareholder Restrictions  10.28
      • 5.  Form: Board of Directors  10.29
      • 6.  Form: Agent for Service of Process  10.30
      • 7.  Form: Limits on Liability; Indemnification  10.31
      • 8.  Form: Signature Block  10.32
    • B.  Bylaws Provisions for Medical or Law Corporations
      • 1.  Form: Heading, Purpose, and Offices  10.33
      • 2.  Form: Stock in Corporation  10.34
      • 3.  Form: Qualified Shareholders—Medical Corporation  10.35
      • 4.  Form: Qualified Shareholders—Law Corporation  10.36
      • 5.  Form: Voting of Shares  10.37
      • 6.  Form: Meetings of Shareholders  10.38
      • 7.  Form: Adjournment of Meeting  10.39
      • 8.  Form: Voting at Meeting  10.40
      • 9.  Form: Determining Shareholders of Record  10.41
      • 10.  Form: Voting Trusts and Proxies  10.42
      • 11.  Form: Disqualified Persons  10.43
      • 12.  Form: Consent of Absentees  10.44
      • 13.  Form: Shareholder Action Without Meeting  10.45
      • 14.  Form: Inspectors of Election  10.46
      • 15.  Form: Record Date for Purposes Other Than Notice and Voting  10.47
      • 16.  Form: Powers, Numbers, and Election of Directors  10.48
      • 17.  Form: Definition of Board Vacancies  10.49
      • 18.  Form: Resignation of Director  10.50
      • 19.  Form: Removal of Director  10.51
      • 20.  Form: Filling Vacancies  10.52
      • 21.  Form: Shareholders to Fill Vacancies Not Filled by Board  10.53
      • 22.  Form: Meetings of Directors  10.54
      • 23.  Form: Fees and Compensation for Directors  10.55
      • 24.  Form: Board Action Without Meeting  10.56
      • 25.  Form: Board Committees  10.57
      • 26.  Form: Officers  10.58
      • 27.  Form: Indemnification of Directors, Officers, Employees, and Other Agents  10.59
      • 28.  Form: Records; Contracts; Restrictions on Transfer  10.60
      • 29.  Form: Stock Certificates  10.61
      • 30.  Form: Legend on Certificates  10.62
      • 31.  Form: Shares of Other Corporations; Financial Statements  10.63
      • 32.  Form: Reporting Requirements for Law Corporations  10.64
      • 33.  Form: Malpractice Insurance for Law Corporation  10.65
      • 34.  Form: Fiscal Year; Construction of Bylaws  10.66
      • 35.  Form: Amendments  10.67
      • 36.  Form: Certificate of Secretary  10.68
    • C.  Selected Provisions of Minutes of First Meeting of Board of Directors  10.69
      • 1.  Form: Resolutions Regarding Application for Certificate of Registration  10.70
      • 2.  Form: Resolutions Regarding Approval of Employment Agreement  10.71
      • 3.  Form: Resolutions Adopting Tax-Qualified or Profit-Sharing Plan  10.72
      • 4.  Form: Resolutions Regarding Election of Limitation Year [Deleted]  10.73
      • 5.  Form: Resolutions Designating Process Agent and Investment Committee  10.74
      • 6.  Form: Adjournment  10.75
    • D.  Registration Forms for Professional Corporations
      • 1.  Form: Application for Issuance of a Certificate of Registration as a Law Corporation (State Bar Form LC101–08.11)  10.76
      • 2.  Medical Corporations
        • a.  Fictitious Name Permit Requirement  10.77
        • b.  Form: Fictitious Name Permit Application (Medical Board of California Form FNP-001)  10.78
    • E.  Stock Purchase Agreement  10.79
      • 1.  Form: Intent to Comply With Law and Regulations  10.80
      • 2.  Form: Purchase Agreement  10.81
      • 3.  Form: Purchase Price  10.82
      • 4.  Form: Time for Completion of Sale or Transfer  10.83
      • 5.  Form: Repurchase by Reinstated Employee  10.84
      • 6.  Form: Sale of Shares to Eligible Employee  10.85
      • 7.  Form: Change of Corporation’s Name  10.86
      • 8.  Form: Restrictions on Certificate  10.87
    • F.  Employment Agreement
      • 1.  Nature of Agreement  10.88
      • 2.  Form: Employment Agreement  10.89

11

Limited Liability Companies

Charles E. McKee

  • I.  SCOPE OF CHAPTER  11.1
  • II.  INTRODUCTION
    • A.  What Is a Limited Liability Company?  11.2
    • B.  Governing Law
      • 1.  California Law  11.3
      • 2.  Tax Laws  11.4
        • a.  Tax Classification Under Federal Law  11.5
        • b.  Making Federal Tax Classification Election  11.6
        • c.  California Income Tax, Franchise Tax, and Annual Fee  11.7
      • 3.  Securities Laws  11.8
        • a.  Federal Securities Laws
          • (1)  Are LLC Membership Interests Securities?  11.9
          • (2)  Registration of Securities  11.10
        • b.  California Securities Laws  11.11
  • III.  LLC OPERATIONS
    • A.  Permissible Businesses  11.12
    • B.  Membership Interests and Capital Contributions
      • 1.  Membership Interests  11.13
      • 2.  Capital Contributions  11.14
      • 3.  Tax Treatment of Capital Contributions  11.15
    • C.  Management
      • 1.  Management by Members or Managers  11.16
      • 2.  Management by All Members  11.17
      • 3.  Management by One or More Managers  11.18
      • 4.  Fiduciary Duties  11.19
      • 5.  Officers  11.20
    • D.  Members’ Rights and Liabilities
      • 1.  Members’ Rights  11.21
      • 2.  Members’ Liabilities  11.22
      • 3.  Dissociation  11.22A
    • E.  Allocations and Distributions
      • 1.  Allocations  11.23
      • 2.  Distributions  11.24
    • F.  Records  11.25
    • G.  Dissolution  11.26
    • H.  Asset Protection  11.26A
    • I.  Foreign Limited Liability Companies  11.27
  • IV.  FORMATION
    • A.  Name of Limited Liability Company  11.28
    • B.  Articles of Organization
      • 1.  Contents of Articles  11.29
      • 2.  Filing Articles of Organization  11.30
    • C.  Operating Agreement
      • 1.  Statutory Requirements  11.31
      • 2.  Variation From Statutory Provisions  11.32
    • D.  Additional Filings
      • 1.  Statement of Information  11.33
      • 2.  Federal Employer Identification Number  11.34
      • 3.  Licensing and Other Filings  11.35
  • V.  CHECKLISTS
    • A.  Preformation Checklist  11.36
    • B.  Formation Checklist  11.37
  • VI.  FORMS  11.38
    • A.  Form: Secretary of State Articles of Organization Limited Liability Company (LLC) (Form LLC-1)  11.39
    • B.  Form: Secretary of State Amendment to Articles of Organization of a Limited Liability Company (LLC) (Form LLC-2)  11.40
    • C.  Form: Application to Register a Foreign Limited Liability Company (LLC) (Secretary of State Form LLC-5)  11.41
    • D.  Form: Secretary of State Foreign Limited Liability Company (LLC) Name Change Amendment (Form LLC-6)  11.42
    • E.  Form: Certificate of Continuation of a California Limited Liability Company (LLC) (Secretary of State Form LLC-8) [Deleted]  11.43
    • F.  Form: Secretary of State Restated Articles of Organization of a Limited Liability Company (LLC) (Form LLC-10)  11.44
    • G.  Form: Certificate of Correction of a Limited Liability Company (LLC) (Secretary of State Form LLC-11)  11.45
    • H.  Form: Secretary of State Statement of Information (Limited Liability Company) (Form LLC-12)  11.46
    • I.  Form: Statement of Information—Limited Liability Company (Renewal) (Secretary of State Form LLC-12R) [Deleted]  11.47
  • VII.  LONG-FORM LIMITED LIABILITY COMPANY OPERATING AGREEMENT
    • A.  Form: Heading and Recitals  11.48
    • B.  Form: Definitions  11.49
      • 1.  Form: The Act  11.50
      • 2.  Form: Affiliate  11.51
      • 3.  Form: Agreement  11.52
      • 4.  Form: Articles  11.53
      • 5.  Form: BBA [Deleted]  11.54
      • 6.  Form: Capital Account  11.55
      • 7.  Form: Capital Contribution  11.56
      • 8.  Form: Capital Contribution Account  11.57
      • 9.  Form: Common Equity Units  11.58
      • 10.  Form: Company  11.59
      • 11.  Form: Company Accountants  11.60
      • 12.  Form: Company Counsel  11.61
      • 13.  Form: Company Minimum Gain  11.62
      • 14.  Form: Confidential Information  11.63
      • 15.  Form: Corporations Code  11.64
      • 16.  Form: Distributable Cash  11.65
      • 17.  Form: Economic Interest [Deleted]  11.66
      • 18.  Form: Fiscal Year  11.67
      • 19.  Form: Initial Member Loans  11.68
      • 20.  Form: Initial Members  11.69
      • 21.  Form: Interest  11.70
      • 22.  Form: Internal Revenue Code  11.71
      • 23.  Form: Majority Interest  11.72
      • 24.  Form: Manager  11.73
      • 25.  Form: Member  11.74
      • 26.  Form: Member Nonrecourse Debt  11.75
      • 27.  Form: Member Nonrecourse Deductions  11.76
      • 28.  Form: Membership Interest  11.77
      • 29.  Form: Net Profits and Net Losses  11.78
      • 30.  Form: Nonrecourse Liability  11.79
      • 31.  Form: Percentage Interest  11.80
      • 32.  Form: Person  11.81
      • 33.  Form: Preferred Equity Units  11.82
      • 34.  Form: Securities Act  11.83
      • 35.  Form: Securities Laws  11.84
      • 36.  Form: Selling Member  11.85
      • 37.  Form: Selling Member’s Notice  11.86
      • 38.  Form: Super Majority Interest  11.87
      • 39.  Form: Tax Representative  11.88
      • 40.  Form: Transfer  11.89
      • 41.  Form: Transferable Interest  11.89A
      • 42.  Form: Transferee  11.89B
      • 43.  Form: Treasury Regulations  11.90
      • 44.  Form: Units  11.91
    • C.  Organizational Matters
      • 1.  Form: Formation  11.92
      • 2.  Form: Name  11.93
      • 3.  Form: Office and Agent  11.94
      • 4.  Form: Addresses of Members and Manager  11.95
      • 5.  Form: Purpose and Business of the Company  11.96
    • D.  Capital Contributions
      • 1.  Form: Initial Capital Contributions  11.97
      • 2.  Form: Additional Capital Contributions  11.98
      • 3.  Form: Capital Accounts  11.99
      • 4.  Form: Withdrawal, Interest, Priority  11.100
      • 5.  Form: Failure to Make Capital Contributions  11.101
    • E.  Members
      • 1.  Form: Units  11.102
      • 2.  Form: Limited Liability  11.103
      • 3.  Form: Admission of Additional Members  11.104
      • 4.  Form: Dissociation  11.105
      • 5.  Form: Competing Activities  11.106
      • 6.  Form: Transactions With the Company  11.107
      • 7.  Form: Remuneration to Members  11.108
      • 8.  Form: Members Are Not Agents  11.109
      • 9.  Form: Voting Rights  11.110
      • 10.  Form: Meetings of Members and Voting (Short Form)  11.111
      • 11.  Form: Meetings of Members and Voting (Long Form)  11.112
      • 12.  Form: Certificate for Membership Interest or Units  11.113
      • 13.  Form: Confidentiality  11.114
      • 14.  Form: Initial Member Loans  11.115
      • 15.  Form: Waiver of Dissenting Members’ Rights  11.115A
      • 16.  Form: Election to Be Governed by UCC Article VIII  11.115B
    • F.  Management and Control of the Company
      • 1.  Form: Management of the Company; Powers  11.116
      • 2.  Form: Election of Manager  11.117
      • 3.  Form: Limitations on Powers of Managers or Member-Managers  11.118
      • 4.  Form: Performance of Duties; Liability of a Manager  11.119
      • 5.  Form: Devotion of Time  11.120
      • 6.  Form: Competing Activities  11.121
      • 7.  Form: Transactions With the Company  11.122
      • 8.  Form: Payments to the Manager  11.123
      • 9.  Form: Officers  11.124
      • 10.  Form: Limited Liability  11.125
      • 11.  Form: Membership Interests or Units of Manager or Officer  11.126
    • G.  Allocations of Net Profits and Net Losses and Distributions
      • 1.  Allocations of Net Profits and Net Losses
        • a.  Form: Net Losses  11.127
        • b.  Form: Net Profits  11.128
        • c.  Form: Loss Limitation  11.129
        • d.  Form: Allocations Respecting Asset Distributions  11.130
      • 2.  Form: Special Allocations  11.131
        • a.  Form: Minimum Gain Chargeback  11.132
        • b.  Form: Chargeback of Minimum Gain Attributable to Member Nonrecourse Debt  11.133
        • c.  Form: Nonrecourse Deductions  11.134
        • d.  Form: Member Nonrecourse Deductions  11.135
        • e.  Form: Qualified Income Offset  11.136
      • 3.  Form: IRC §704(c) Allocations  11.137
      • 4.  Form: Allocation of Net Profits and Net Losses and Distributions in Respect of Transferred Interest  11.138
      • 5.  Form: Compliance With Law and Regulations  11.139
      • 6.  Form: Distributions of Distributable Cash by the Company  11.140
      • 7.  Form: Form of Distributions  11.141
      • 8.  Form: Restrictions on Distributions  11.142
      • 9.  Form: Liability for Improper Distributions  11.143
      • 10.  Form: Obligations of Members to Report Allocations  11.144
      • 11.  Form: Transferable Interests  11.145
    • H.  Transfer of Membership Interests or Units
      • 1.  Form: Transfer  11.146
      • 2.  Form: Further Restrictions on Transfers  11.147
      • 3.  Form: Substitution of Members  11.148
      • 4.  Form: No Effect to Transfers in Violation of This Agreement  11.149
      • 5.  Form: Permitted Transfers  11.150
      • 6.  Form: Rights of Legal Representatives  11.151
      • 7.  Form: Right of First Negotiation  11.152
      • 8.  Form: Right of First Refusal  11.153
      • 9.  Form: Sale of the Company  11.154
      • 10.  Form: Transferable Interests  11.155
      • 11.  Optional Provisions  11.156
    • I.  Accounting, Records, Reporting by Members
      • 1.  Form: Books and Records  11.157
      • 2.  Form: Annual Statements  11.158
      • 3.  Form: Financial and Other Information  11.159
      • 4.  Form: Filings  11.160
      • 5.  Form: Bank Accounts  11.161
      • 6.  Form: Accounting Decisions and Reliance on Others  11.162
      • 7.  Form: Tax Matters for the Company Handled by the Tax Representative  11.163
    • J.  Dissolution and Winding Up
      • 1.  Form: Dissolution  11.164
      • 2.  Form: Winding Up  11.165
      • 3.  Form: Order of Payment on Dissolution  11.166
      • 4.  Form: Distributions in Kind  11.167
      • 5.  Form: Deficit Restoration Requirement  11.168
      • 6.  Form: Limitations on Payments Made in Dissolution  11.169
      • 7.  Form: Certificates  11.170
      • 8.  Form: Covenant Not to Compete  11.171
      • 9.  Form: No Action for Dissolution  11.172
    • K.  Indemnification and Insurance
      • 1.  Form: Indemnification and Insurance (Short Form)  11.173
      • 2.  Indemnification and Insurance (Long Form)
        • a.  Form: Definitions  11.174
        • b.  Form: Indemnification of Manager and Officers  11.175
        • c.  Form: Successful Defense  11.176
        • d.  Form: Determination of Conduct  11.177
        • e.  Form: Payment of Expenses in Advance  11.178
        • f.  Form: Indemnification of Other Agents  11.179
        • g.  Form: Indemnity Not Exclusive  11.180
        • h.  Form: Insurance  11.181
        • i.  Form: Heirs, Executors, and Administrators  11.182
        • j.  Form: Right to Indemnification on Application  11.183
        • k.  Form: Limitations on Indemnification  11.184
        • l.  Form: Partial Indemnification  11.185
    • L.  Investment Representations
      • 1.  Form: Representations and Warranties  11.186
        • a.  Form: Residency  11.187
        • b.  Form: No Broker  11.188
        • c.  Form: Accredited Investor  11.189
        • d.  Form: Investment Intent  11.190
        • e.  Form: No Registration of Membership Interest or Units  11.191
        • f.  Form: Economic Risk; No Obligation to Register  11.192
        • g.  Form: High Degree of Risk  11.193
        • h.  Form: Independent Investigation  11.194
        • i.  Form: Preexisting Relationship  11.195
        • j.  Form: Legend on Certificates  11.196
        • k.  Form: No Advertising  11.197
        • l.  Form: No Recommendation  11.198
        • m.  Form: Percent of Net Worth  11.199
        • n.  Form: Membership Interest or Units as Speculative  11.200
        • o.  Form: No Trading Market  11.201
        • p.  Form: Limitation on Distributions  11.202
        • q.  Form: Tax Consequences  11.203
        • r.  Form: No Assurance of Tax Benefits  11.204
        • s.  Form: Consultation With Advisors  11.205
      • 2.  Form: Indemnification  11.206
    • M.  General Provisions
      • 1.  Form: Amendment  11.207
      • 2.  Form: Waiver  11.208
      • 3.  Form: Notices  11.209
      • 4.  Form: Successors and Assigns  11.210
      • 5.  Form: Governing Law  11.211
      • 6.  Form: Jurisdiction  11.212
      • 7.  Form: Attorney Fees  11.213
      • 8.  Form: Mediation  11.214
      • 9.  Form: Arbitration  11.215
      • 10.  Form: Further Assurances  11.216
      • 11.  Form: Remedies  11.217
      • 12.  Form: Parties in Interest  11.218
      • 13.  Form: No Interest in Company Property  11.219
      • 14.  Form: Counterparts  11.220
      • 15.  Form: Reliance on Authority of Person Signing Agreement  11.221
      • 16.  Form: Severability of Provisions  11.222
      • 17.  Form: Integration  11.223
      • 18.  Form: Interpretation  11.224
      • 19.  Form: References to This Agreement  11.225
      • 20.  Form: Exhibits  11.226
      • 21.  Form: Company Counsel  11.227
      • 22.  Form: Independent Representation  11.228
      • 23.  Form: Consent of Spouse  11.229
      • 24.  Form: Special Power of Attorney  11.230
    • N.  Form: Signatures  11.231
    • O.  Form: Consent of Spouse  11.232
    • P.  Form: Exhibit A  11.233

12

Converting Existing Entity to Limited Liability Company

Brad J. Brigante

Christine M. Chacon

David C. McCuaig

Whitney M. Skala

  • I.  SCOPE OF CHAPTER  12.1
  • II.  PRELIMINARY CONSIDERATIONS WHEN CONVERTING TO A LIMITED LIABILITY COMPANY
    • A.  Why Convert?  12.2
    • B.  Statutory Conversion Provisions  12.3
    • C.  Statutory Conversion as Preferable Change of Entity Method  12.4
    • D.  Other Change of Entity Methods  12.5
      • 1.  Statutory Merger  12.6
      • 2.  LLC Holding Company  12.7
      • 3.  Liquidation and Recontribution  12.8
      • 4.  Drop Down to LLC  12.9
  • III.  TAX ISSUES
    • A.  Federal and State Income Taxes
      • 1.  Converting Corporations  12.10
        • a.  When Converting a C Corporation Is Appropriate  12.11
        • b.  Converting S Corporations  12.12
        • c.  Corporations With Minimal Tax Risks  12.13
      • 2.  Converting Partnerships  12.14
    • B.  Other Taxes
      • 1.  Sales and Use Taxes  12.15
      • 2.  Real Property Transfer Taxes  12.16
      • 3.  Property Tax Reassessment  12.17
      • 4.  Franchise Tax Considerations  12.18
  • IV.  SECURITIES ISSUES
    • A.  Applicability of Securities Laws  12.19
    • B.  General Partnership Interests as Securities  12.20
    • C.  Limited Partnership Interests as Securities  12.21
    • D.  Corporate Shares as Securities  12.22
  • V.  STATUTORY CONVERSIONS
    • A.  Statutes Governing Conversion  12.23
    • B.  Conversion Entities  12.24
    • C.  Conversion Prerequisites  12.25
    • D.  Rights and Obligations on Conversion  12.26
    • E.  Plan of Conversion  12.27
    • F.  Approval of Plan  12.28
    • G.  Amendment of Plan  12.29
    • H.  Dissenters’ Rights  12.30
    • I.  Statement or Certificate of Conversion  12.31
      • 1.  Filing Statement or Certificate of Conversion  12.32
      • 2.  Effect of Filing Statement or Certificate of Conversion  12.33
      • 3.  Recording Certified Evidence of Conversion by Converted Entity  12.34
      • 4.  Effective Date of Conversion  12.35
    • J.  Notifying Creditors of Conversion  12.36
    • K.  Where Plan Must Be Kept  12.37
    • L.  Assumption of Tax Liabilities of Converting Entity  12.38
    • M.  Securities Law Compliance  12.39
    • N.  Abandonment or Amendment of Conversion  12.40
  • VI.  CHECKLIST AND CHART
    • A.  Checklist: Conversion  12.41
    • B.  Chart: California Secretary of State Conversion Information  12.42
  • VII.  FORMS
    • A.  Form: Plan of Conversion for Partnership Converting to LLC  12.43
    • B.  Form: Limited Liability Company Articles of Organization—Conversion (Secretary of State Form LLC-1A)  12.44

SELECTING AND FORMING BUSINESS ENTITIES

(2d Edition)

April 2019

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH01

Chapter 1

Attorney-Client Relationship

01-023

§1.23

Checklist: Elements to Consider for Inclusion in Engagement Letter

01-026

§1.26

Nonengagement Letter

01-027

§§1.27-1.42

Salutation and Introduction

 

§1.28

Legal Services

 

§1.29

Attorney Fees and Costs

 

§1.30

Estimated Fees and Costs

 

§1.31

Payment of Fees and Costs

 

§1.32

Arbitration of Fee Disputes

 

§1.33

Arbitration of Attorney Malpractice

 

§1.34

Judicial Reference of Disputes

 

§1.35

Document Retention

 

§1.36

Tax Advice

 

§1.37

Withdrawal and Termination

 

§1.38

Potential Conflicts of Interest—Individual Client

 

§1.39

Potential Conflicts of Interest—Multiple Clients

 

§1.40

Waiver of Conflict of Interest—Client and Another Client of Firm

 

§1.41

Closing and Signature

 

§1.42

Client Consent

01-043

§1.43

Disengagement Letter on Completion of Services

01-044

§1.44

Disengagement Letter Before Services Completed

CH02

Chapter 2

Evaluating Entity Choices

02-206

§2.206

Client Interview Sheet

CH03

Chapter 3

Selecting a Business Name

03-030

§3.30

Checklist: Business Name Search

03-034

§3.34

Letter Requesting Consent to Use Name Deemed Confusingly Similar

CH05

Chapter 5

General Partnerships

05-047

§5.47

Checklist For Planning Initial Contributions And Capital Structure

05-050

§§5.50-5.124

Parties, Date, and Recitals

 

§5.51

Basic Operative Clause

 

§5.52

Firm Name

 

§5.53

Place of Business

 

§5.54

Term of Partnership

 

§5.55

Purposes Clause

 

§5.56

Powers

 

§5.57

Statutory Filings

 

§5.58

Initial Contributions in Money or Property

 

§5.59

Initial Contributions of Service

 

§5.60

Basis of Contributions

 

§5.61

Failure to Make Initial Contribution

 

§5.62

Deferred Contributions

 

§5.63

Additional Capital

 

§5.64

Withdrawals of Capital

 

§5.65

No Interest on Capital Contributions

 

§5.66

Loans to Partnership

 

§5.67

Division of Profits and Losses

 

§5.68

Distribution of Profits

 

§5.69

Distributions of Proceeds From Sale of Capital Assets

 

§5.70

Limit on Distributions

 

§5.71

Fiscal Year of Partnership

 

§5.72

Accounting Method

 

§5.73

Capital Accounts—Initial Contributions

 

§5.74

Adjustment of Capital Accounts

 

§5.75

Determination of Profit and Loss

 

§5.76

Partnership Books

 

§5.77

Annual Report to Partners

 

§5.78

Control of Business

 

§5.79

Acts Requiring Majority Consent

 

§5.80

Handling Funds

 

§5.81

Remuneration to Partners

 

§5.82

Effect of Assignment of Interest

 

§5.82A

Designation of Partnership Representative

 

§5.82B

Authority to Be Exercised by Partnership Representative

 

§5.83

Duty of Loyalty

 

§5.84

Duty of Care

 

§5.85

Duty of Good Faith and Fair Dealing

 

§5.86

Furtherance of Partner’s Own Interests

 

§5.87

New Partners

 

§5.88

Partner’s Dissociation

 

§5.89

Partner’s Expulsion by Partner Vote

 

§5.90

Expulsion by Judicial Determination

 

§5.91

Retirement From Partnership Management

 

§5.92

Retirement From Partnership

 

§5.93

Noncompetition Covenant

 

§5.94

Payment When Business Not Wound Up

 

§5.95

Payment of Purchase Price by Mutual Agreement When Business Not Wound Up

 

§5.96

Definition of Transferable Interest

 

§5.97

Transferability of Interest

 

§5.98

Transfers on Dissolution of Marriage

 

§5.99

Right of First Refusal

 

§5.100

Valuation of Interest

 

§5.101

Payment of Purchase Price

 

§5.102

Assumption of Outstanding Partnership Liabilities

 

§5.103

Dissolution

 

§5.104

Termination of Partnership After Dissolution; Waiver of Termination

 

§5.105

Persons Eligible to Wind Up Partnership

 

§5.106

Distribution of Assets

 

§5.107

Indemnification

 

§5.108

Amendments

 

§5.109

Notices

 

§5.110

Counterparts

 

§5.111

Governing Law

 

§5.112

Successors and Assigns

 

§5.113

Severability

 

§5.114

Titles and Headings

 

§5.115

Further Assurances

 

§5.116

Waiver of Action for Partition

 

§5.117

Construction

 

§5.118

Number and Gender

 

§5.119

Incorporation by Reference

 

§5.120

Attorney Fees

 

§5.121

Entire Agreement

 

§5.122

Arbitration

 

§5.123

Execution

 

§5.124

Consent of Spouses

CH06

Chapter 6

Limited Partnerships

06-035

§6.35

Checklist: Preformation

06-036

§6.36

Checklist: Formation

06-037

§6.37

Letter to Secretary of State Requesting Filing of Certificate of Limited Partnership

06-043

§§6.43-6.151

Title of Agreement

 

§6.44

Date and Parties

 

§6.45

Definitions

 

§6.46

Affiliate

 

§6.47

Agreement

 

§6.48

Bankruptcy

 

§6.49

Cash Available for Distribution

 

§6.50

Certificate of Limited Partnership

 

§6.51

Corporations Code

 

§6.52

Re-RULPA

 

§6.53

General Partners

 

§6.54

IRC

 

§6.55

Limited Partners

 

§6.56

Majority in Interest of General Partners

 

§6.57

Majority in Interest of Limited Partners

 

§6.58

Majority in Interest of Partners

 

§6.59

Nonrecourse Liability

 

§6.60

Partner Nonrecourse Debt

 

§6.61

Partners

 

§6.62

Partnership

 

§6.63

Partnership Minimum Gain

 

§6.64

Percentage Interests

 

§6.65

Treasury Regulation

 

§6.66

Formation

 

§6.67

Name

 

§6.68

Designated Office

 

§6.69

Filing Certificate of Limited Partnership

 

§6.70

Amending Certificate of Limited Partnership

 

§6.71

Term

 

§6.72

Business of Partnership

 

§6.73

Financing

 

§6.74

Partner Guarantees Repayment

 

§6.75

Initial Capital Contributions

 

§6.76

General Partners’ Additional Capital Contributions

 

§6.77

Limited Partners—No Obligation to Contribute Additional Capital

 

§6.78

Capital Accounts

 

§6.79

No Interest

 

§6.80

No Withdrawal of Capital

 

§6.81

Manner of Distribution

 

§6.82

Time of Distribution

 

§6.83

Recontribution

 

§6.84

Withholding

 

§6.85

Determination of Profits and Losses

 

§6.86

Allocation of Profits and Losses

 

§6.87

Minimum Gain Chargeback

 

§6.88

Chargeback of Partnership Minimum Gain Attributable to Partner Nonrecourse Debt

 

§6.89

Nonrecourse Deductions

 

§6.90

Partner Nonrecourse Deductions

 

§6.91

Qualified Income Offset

 

§6.92

IRC §704(c) Allocations

 

§6.93

Participation by All General Partners

 

§6.94

Rights and Powers

 

§6.95

Amount of Compensation

 

§6.96

Tax Treatment

 

§6.97

Reimbursement of Expenses

 

§6.98

Indemnification

 

§6.99

Devotion of Time

 

§6.100

Other Business Activities

 

§6.101

Generally No Right to Participate

 

§6.102

Consent Required for Specified Actions by General Partners

 

§6.103

Liability of Limited Partners

 

§6.104

Consent Required for Transactions With Partnership

 

§6.105

Tax Treatment

 

§6.106

Books and Records

 

§6.107

Reports and Copies

 

§6.108

Tax Returns

 

§6.109

Partnership Representative

 

§6.110

Taxable Year

 

§6.111

Accounting Method

 

§6.112

Bank Accounts

 

§6.113

Partnership Meetings

 

§6.114

Insurance

 

§6.115

General Prohibition

 

§6.116

Conditions of Transfer

 

§6.117

Permitted Transfers

 

§6.118

Right of First Refusal

 

§6.119

Transferor’s Rights in Partnership

 

§6.120

Admission of Additional Partners

 

§6.121

Events of Default of General Partner

 

§6.122

Notice of Default and Time to Cure

 

§6.123

Election of Remedies After Default of General Partner

 

§6.124

Determination of Fair Market Value

 

§6.125

Events of Dissolution

 

§6.126

Winding Up After Dissolution

 

§6.127

Party Authorized to Wind Up

 

§6.128

Filings

 

§6.129

Distribution of Liquidation Proceeds

 

§6.130

Deficit Restoration Requirement

 

§6.132

Amendment

 

§6.133

Arbitration

 

§6.134

Successors and Assigns

 

§6.135

Titles and Headings

 

§6.136

Counterparts and Facsimiles

 

§6.137

Counting of Days

 

§6.138

Cumulative Remedies

 

§6.139

Entire Agreement

 

§6.140

Exhibits

 

§6.141

Further Documents

 

§6.142

Governing Law

 

§6.143

Jurisdiction

 

§6.144

Notice

 

§6.145

Prevailing Party’s Fees

 

§6.146

Number and Gender

 

§6.147

Severability

 

§6.148

Time of Essence

 

§6.149

Waiver

 

§6.150

Execution

 

§6.151

Separate Property Waiver and Acknowledgment

06-068A

§6.68A

Agent for Service of Process and Office

06-068B

§6.68B

Qualification in Other Jurisdictions

06-152

§6.152

Joinder Agreement

CH07

Chapter 7

Limited Liability Partnerships

07-032

§7.32

Checklist to Organize New California LLP

07-033

§7.33

Checklist to Register Foreign LLP in California

07-034

§7.34

Checklist to Convert Domestic Partnership to Registered LLP

07-045

§7.45

Resolutions Authorizing Firm Conversion

07-046

§§7.46-7.52

Conversion to LLP; Name Change

 

§7.47

Limited Guaranty by Partners of Firm Debt (Corp C §16306(d))

 

§7.48

Elimination of Partners’ Vicarious Liability for Firm Obligations

 

§7.49

Firm Indemnification of Partners; Partners’ Indemnification of Firm

 

§7.50

Power of Attorney

 

§7.51

No Personal Liability to Make Capital Contribution

 

§7.52

Partnership Agreement to Remain in Full Force and Effect

07-053

§7.53

Letter Explaining Conversion

07-054

§7.54

Engagement Letter Clause Explaining LLP Status

07-055

§7.55

Letter to Vendors, Suppliers, and Service Providers

CH07A

Chapter 7A

Social Purpose and Benefit Corporations

07A-009

§7A.9

Checklist: Required and Optional Articles Provisions

07A-010

§7A.10

General Statutory Purpose Statement

07A-012

§7A.12

Sample Special Purpose Statement

07A-025

§7A.25

Shares and Share Certificates

07A-036

§7A.36

Indemnification for Directors

07A-042

§7A.42

Restrictions on Amendments to Articles of Incorporations

CH08

Chapter 8

S and C Corporations

08-032

§8.32

Preformation Checklist: Selected Issues

08-033

§8.33

Preformation Checklist: Selected Tasks

08-034

§8.34

Preformation Checklist: Information Required to Draft Articles

08-035

§8.35

Formation Checklist: Selected Issues

08-036

§8.36

Formation Checklist: Selected Tasks

08-038

§§8.38-8.42

Heading; Name; Purpose

 

§8.39

Agent for Service of Process

 

§8.40

One-Class Share Structure

 

§8.41

Signature Block

 

§8.42

Declaration by Initial Director

08-043

§§8.43-8.57

Number of Directors; Change in Number or Range

 

§8.44

Names and Addresses of Initial Directors

 

§8.45

Capitalization (Two-Class Share Structure)

 

§8.46

Preferences, Privileges, and Restrictions on Shares

 

§8.47

Dividend Preferences (Two-Class Share Structure)

 

§8.48

Voting Rights

 

§8.49

Voting Rights (Failure to Pay Dividends on Preferred Shares)

 

§8.50

Liquidation Preferences

 

§8.51

Preemptive Rights

 

§8.52

Redeemable Shares

 

§8.53

Conversion Rights

 

§8.54

Transfer Restrictions; Right of First Refusal

 

§8.55

Limit on Directors’ Liability

 

§8.56

Indemnification of Officers and Directors

 

§8.57

Election to Be Statutory Close Corporation

08-058

§8.58

Certificate of Determination of Preferences

08-059

§§8.59-8.104

Heading; Location of Offices

 

§8.60

Place of Meetings

 

§8.61

Conducting Meetings by Electronic Transmission

 

§8.62

Annual Meeting of Shareholders

 

§8.63

Special Meetings

 

§8.64

Notice of Shareholders’ Meetings

 

§8.65

Manner of Giving Notice of Shareholders’ Meetings

 

§8.66

Quorum

 

§8.67

Adjournment of Meeting

 

§8.68

Voting

 

§8.69

Waiver of Notice or Consent by Absent Shareholders

 

§8.70

Shareholder Action by Written Consent Without a Meeting

 

§8.71

Record Date for Notice and Voting

 

§8.72

Proxies

 

§8.73

Inspectors of Election

 

§8.74

Powers of Directors

 

§8.75

Number of Directors

 

§8.76

Election and Term of Office of Directors

 

§8.77

Vacancies on Board of Directors

 

§8.78

Meetings of Board of Directors

 

§8.79

Quorum

 

§8.80

Waiver of Notice of Board of Directors’ Meetings

 

§8.81

Adjournment of Board of Directors’ Meetings

 

§8.82

Action Without a Board of Directors’ Meeting

 

§8.83

Compensation of Directors

 

§8.84

Committees of the Board of Directors

 

§8.85

Corporate Officers

 

§8.86

Duties of Particular Officers

 

§8.87

Indemnification of Agents (Short Form)

 

§8.88

Indemnification of Directors, Officers, Employees, and Other Agents (Long Form)

 

§8.89

Maintenance of Records of Shareholders

 

§8.90

Maintenance and Inspection of Bylaws

 

§8.91

Maintenance and Inspection of Minutes and Accounting Records

 

§8.92

Inspection of Books and Records by Directors

 

§8.93

Annual Report to Shareholders

 

§8.94

Financial Statements

 

§8.95

Annual Information Statement

 

§8.96

Record Date for Dividends

 

§8.97

Authorized Signatories

 

§8.98

Executing Corporate Contracts

 

§8.99

Issuing Shares Certificates

 

§8.100

Lost Certificates

 

§8.101

Voting Shares of Other Corporations

 

§8.102

Reimbursing Corporation for Disallowed Payments

 

§8.103

Construction and Definitions

 

§8.104

Amending the Bylaws

08-104A

§8.104A

Emergency Powers

08-105

§8.105

Adoption of Bylaws and Election of Directors by Incorporator

08-106

§8.106

Waiver of Notice and Consent to First Meeting of Board of Directors

08-107

§§8.107-8.124

Heading and Opening Sentence

 

§8.108

Directors Present; Officers of the Meeting

 

§8.109

Waiver of Notice Presented

 

§8.110

Report of Articles Filed

 

§8.111

Approval or Appointment of Agent for Service of Process

 

§8.112

Approval of Bylaws

 

§8.113

Appointment of Officers

 

§8.114

Adoption of Corporate Seal

 

§8.115

Adoption of Share Certificate Form

 

§8.116

Selection of Annual Accounting Period

 

§8.117

Establishing Principal Executive Office

 

§8.118

Filing of Annual Statement

 

§8.119

Establishing Bank Accounts

 

§8.120

Payment of Incorporation Expenses

 

§8.121

Optional Qualification of Stock Under IRC §1244

 

§8.122

Authorization of Issuance of Shares

 

§8.123

Optional Election of S Corporation Status

 

§8.124

Adjournment

08-126

§8.126

Corporate Operations Memorandum

CH09

Chapter 9

Close Corporations

09-009

§9.9

Legend on Share Certificates

09-034

§9.34

Checklist: Provisions in Shareholders’ Agreement for Statutory Close Corporation

09-037

§§9.37-9.51

Heading, Parties, and Date

 

§9.38

Recitals

 

§9.39

Management and Control of Corporation

 

§9.40

Distributions

 

§9.41

Transfer Restrictions

 

§9.42

Noncompetition

 

§9.43

Trade Secrets

 

§9.44

Shares Governed by Agreement

 

§9.45

Representations and Waivers

 

§9.46

Share Certificate Legend

 

§9.46A

Right of First Refusal

 

§9.46B

Purchase of Shares on Shareholder’s Death

 

§9.47

Dissolution

 

§9.48

Arbitration

 

§9.49

Termination of Agreement

 

§9.50

Miscellaneous Provisions

 

§9.51

Execution and Signatures

CH10

Chapter 10

Professional Corporations

10-021

§10.21

Chart: Comparison of Corporate Practice With Sole Proprietor or Partnership Practice

10-022

§10.22

Checklist: Client Questionnaire

10-023

§10.23

Checklist: Preincorporation

10-025

§§10.25-10.32

Heading; Name of Corporation

 

§10.26

Purpose; Statement of Professional Corporation

 

§10.27

Number of Shares

 

§10.28

Shareholder Restrictions

 

§10.29

Board of Directors

 

§10.30

Agent for Service of Process

 

§10.31

Limits on Liability; Indemnification

 

§10.32

Signature Block

10-033

§§10.33-10.68

Heading, Purpose, and Offices

 

§10.34

Stock in Corporation

 

§10.35

Qualified Shareholders—Medical Corporation

 

§10.36

Qualified Shareholders—Law Corporation

 

§10.37

Voting of Shares

 

§10.38

Meetings of Shareholders

 

§10.39

Adjournment of Meeting

 

§10.40

Voting at Meeting

 

§10.41

Determining Shareholders of Record

 

§10.42

Voting Trusts and Proxies

 

§10.43

Disqualified Persons

 

§10.44

Consent of Absentees

 

§10.45

Shareholder Action Without Meeting

 

§10.46

Inspectors of Election

 

§10.47

Record Date for Purposes Other Than Notice and Voting

 

§10.48

Powers, Numbers, and Election of Directors

 

§10.49

Definition of Board Vacancies

 

§10.50

Resignation of Director

 

§10.51

Removal of Director

 

§10.52

Filling Vacancies

 

§10.53

Shareholders to Fill Vacancies Not Filled by Board

 

§10.54

Meetings of Directors

 

§10.55

Fees and Compensation for Directors

 

§10.56

Board Action Without Meeting

 

§10.57

Board Committees

 

§10.58

Officers

 

§10.59

Indemnification of Directors, Officers, Employees, and Other Agents

 

§10.60

Records; Contracts; Restrictions on Transfer

 

§10.61

Stock Certificates

 

§10.62

Legend on Certificates

 

§10.63

Shares of Other Corporations; Financial Statements

 

§10.64

Reporting Requirements for Law Corporations

 

§10.65

Malpractice Insurance for Law Corporation

 

§10.66

Fiscal Year; Construction of Bylaws

 

§10.67

Amendments

 

§10.68

Certificate of Secretary

10-070

§10.70

Resolutions Regarding Application for Certificate of Registration

10-071

§10.71

Resolutions Regarding Approval of Employment Agreement

10-072

§10.72

Resolutions Adopting Tax-Qualified or Profit-Sharing Plan

10-074

§10.74

Resolutions Designating Process Agent and Investment Committee

10-075

§10.75

Adjournment

10-080

§§10.80-10.87

Intent to Comply With Law and Regulations

 

§10.81

Purchase Agreement

 

§10.82

Purchase Price

 

§10.83

Time for Completion of Sale or Transfer

 

§10.84

Repurchase by Reinstated Employee

 

§10.85

Sale of Shares to Eligible Employee

 

§10.86

Change of Corporation’s Name

 

§10.87

Restrictions on Certificate

10-089

§10.89

Employment Agreement

CH11

Chapter 11

Limited Liability Companies

11-036

§11.36

Preformation Checklist

11-037

§11.37

Formation Checklist

11-048

§§11.48-11.233

Heading and Recitals

 

§11.49

Definitions

 

§11.50

The Act

 

§11.51

Affiliate

 

§11.52

Agreement

 

§11.53

Articles

 

§11.55

Capital Account

 

§11.56

Capital Contribution

 

§11.57

Capital Contribution Account

 

§11.58

Common Equity Units

 

§11.59

Company

 

§11.60

Company Accountants

 

§11.61

Company Counsel

 

§11.62

Company Minimum Gain

 

§11.63

Confidential Information

 

§11.64

Corporations Code

 

§11.65

Distributable Cash

 

§11.67

Fiscal Year

 

§11.68

Initial Member Loans

 

§11.69

Initial Members

 

§11.70

Interest

 

§11.71

Internal Revenue Code

 

§11.72

Majority Interest

 

§11.73

Manager

 

§11.74

Member

 

§11.75

Member Nonrecourse Debt

 

§11.76

Member Nonrecourse Deductions

 

§11.77

Membership Interest

 

§11.78

Net Profits and Net Losses

 

§11.79

Nonrecourse Liability

 

§11.80

Percentage Interest

 

§11.81

Person

 

§11.82

Preferred Equity Units

 

§11.83

Securities Act

 

§11.84

Securities Laws

 

§11.85

Selling Member

 

§11.86

Selling Member’s Notice

 

§11.87

Super Majority Interest

 

§11.88

Tax Representative

 

§11.89

Transfer

 

§11.89A

Transferable Interest

 

§11.89B

Transferee

 

§11.90

Treasury Regulations

 

§11.91

Units

 

§11.92

Formation

 

§11.93

Name

 

§11.94

Office and Agent

 

§11.95

Addresses of Members and Manager

 

§11.96

Purpose and Business of the Company

 

§11.97

Initial Capital Contributions

 

§11.98

Additional Capital Contributions

 

§11.99

Capital Accounts

 

§11.100

Withdrawal, Interest, Priority

 

§11.101

Failure to Make Capital Contributions

 

§11.102

Units

 

§11.103

Limited Liability

 

§11.104

Admission of Additional Members

 

§11.105

Dissociation

 

§11.106

Competing Activities

 

§11.107

Transactions With the Company

 

§11.108

Remuneration to Members

 

§11.109

Members Are Not Agents

 

§11.110

Voting Rights

 

§11.111

Meetings of Members and Voting (Short Form)

 

§11.112

Meetings of Members and Voting (Long Form)

 

§11.113

Certificate for Membership Interest or Units

 

§11.114

Confidentiality

 

§11.115

Initial Member Loans

 

§11.115A

Waiver of Dissenting Members’ Rights

 

§11.115B

Election to Be Governed by UCC Article VIII

 

§11.116

Management of the Company; Powers

 

§11.117

Election of Manager

 

§11.118

Limitations on Powers of Managers or Member-Managers

 

§11.119

Performance of Duties; Liability of a Manager

 

§11.120

Devotion of Time

 

§11.121

Competing Activities

 

§11.122

Transactions With the Company

 

§11.123

Payments to the Manager

 

§11.124

Officers

 

§11.125

Limited Liability

 

§11.126

Membership Interests or Units of Manager or Officer

 

§11.127

Net Losses

 

§11.128

Net Profits

 

§11.129

Loss Limitation

 

§11.130

Allocations Respecting Asset Distributions

 

§11.131

Special Allocations

 

§11.132

Minimum Gain Chargeback

 

§11.133

Chargeback of Minimum Gain Attributable to Member Nonrecourse Debt

 

§11.134

Nonrecourse Deductions

 

§11.135

Member Nonrecourse Deductions

 

§11.136

Qualified Income Offset

 

§11.137

IRC §704(c) Allocations

 

§11.138

Allocation of Net Profits and Net Losses and Distributions in Respect of Transferred Interest

 

§11.139

Compliance With Law and Regulations

 

§11.140

Distributions of Distributable Cash by the Company

 

§11.141

Form of Distributions

 

§11.142

Restrictions on Distributions

 

§11.143

Liability for Improper Distributions

 

§11.144

Obligations of Members to Report Allocations

 

§11.145

Transferable Interests

 

§11.146

Transfer

 

§11.147

Further Restrictions on Transfers

 

§11.148

Substitution of Members

 

§11.149

No Effect to Transfers in Violation of This Agreement

 

§11.150

Permitted Transfers

 

§11.151

Rights of Legal Representatives

 

§11.152

Right of First Negotiation

 

§11.153

Right of First Refusal

 

§11.154

Sale of the Company

 

§11.155

Transferable Interests

 

§11.157

Books and Records

 

§11.158

Annual Statements

 

§11.159

Financial and Other Information

 

§11.160

Filings

 

§11.161

Bank Accounts

 

§11.162

Accounting Decisions and Reliance on Others

 

§11.163

Tax Matters for the Company Handled by the Tax Representative

 

§11.164

Dissolution

 

§11.165

Winding Up

 

§11.166

Order of Payment on Dissolution

 

§11.167

Distributions in Kind

 

§11.168

Deficit Restoration Requirement

 

§11.169

Limitations on Payments Made in Dissolution

 

§11.170

Certificates

 

§11.171

Covenant Not to Compete

 

§11.172

No Action for Dissolution

 

§11.173

Indemnification and Insurance (Short Form)

 

§11.174

Definitions

 

§11.175

Indemnification of Manager and Officers

 

§11.176

Successful Defense

 

§11.177

Determination of Conduct

 

§11.178

Payment of Expenses in Advance

 

§11.179

Indemnification of Other Agents

 

§11.180

Indemnity Not Exclusive

 

§11.181

Insurance

 

§11.182

Heirs, Executors, and Administrators

 

§11.183

Right to Indemnification on Application

 

§11.184

Limitations on Indemnification

 

§11.185

Partial Indemnification

 

§11.186

Representations and Warranties

 

§11.187

Residency

 

§11.188

No Broker

 

§11.189

Accredited Investor

 

§11.190

Investment Intent

 

§11.191

No Registration of Membership Interest or Units

 

§11.192

Economic Risk; No Obligation to Register

 

§11.193

High Degree of Risk

 

§11.194

Independent Investigation

 

§11.195

Preexisting Relationship

 

§11.196

Legend on Certificates

 

§11.197

No Advertising

 

§11.198

No Recommendation

 

§11.199

Percent of Net Worth

 

§11.200

Membership Interest or Units as Speculative

 

§11.201

No Trading Market

 

§11.202

Limitation on Distributions

 

§11.203

Tax Consequences

 

§11.204

No Assurance of Tax Benefits

 

§11.205

Consultation With Advisors

 

§11.206

Indemnification

 

§11.207

Amendment

 

§11.208

Waiver

 

§11.209

Notices

 

§11.210

Successors and Assigns

 

§11.211

Governing Law

 

§11.212

Jurisdiction

 

§11.213

Attorney Fees

 

§11.214

Mediation

 

§11.215

Arbitration

 

§11.216

Further Assurances

 

§11.217

Remedies

 

§11.218

Parties in Interest

 

§11.219

No Interest in Company Property

 

§11.220

Counterparts

 

§11.221

Reliance on Authority of Person Signing Agreement

 

§11.222

Severability of Provisions

 

§11.223

Integration

 

§11.224

Interpretation

 

§11.225

References to This Agreement

 

§11.226

Exhibits

 

§11.227

Company Counsel

 

§11.228

Independent Representation

 

§11.229

Consent of Spouse

 

§11.230

Special Power of Attorney

 

§11.231

Signatures

 

§11.232

Consent of Spouse

 

§11.233

Exhibit A

CH12

Chapter 12

Converting Existing Entity to Limited Liability Company

12-041

§12.41

Checklist: Conversion

12-043

§12.43

Plan of Conversion for Partnership Converting to LLC

 

Selected Developments

April 2019 Update

The California Supreme Court approved a new set of Rules of Professional Conduct, effective as of November 1, 2018. Explanations of and citations to rules throughout this book have been revised and corrected as appropriate. See §§1.2–1.6, 1.9A, 1.16–1.19, 1.40, 3.14, 9.11, 10.7, 10.9, 10.25, 11.227.

The California Supreme Court held that a law firm’s failure to disclose a known, existing conflict violated the Rules of Professional Conduct, even though the client agreed to a blanket waiver, and that therefore an arbitration decision awarding the firm unpaid contractual fees had to be vacated. Sheppard, Mullin, Richter & Hampton, LLP v J-M Mfg. Co. (2018) 6 C5th 59. See §1.4.

The California Legislature has extended the authority for architects, engineers, and surveyors to form professional LLPs until January 1, 2026, and the authority for lawyers and accountants to form professional LLPs indefinitely. 2018 Stats, ch 150. See §2.77, 2.86, 2.107, 7.3, 7.22, 7.25–7.25A.

A California appellate court held that a party pleading a subsequent incorporation of a company as a defense to the existence of a partnership had to plead and prove the incorporation as an affirmative defense. Eng v Brown (2018) 21 CA5th 675. See §2.96.

The IRS has published inflation-adjusted amounts for IRC §199A(d) and (e)(2); for tax years beginning in 2019, business owners with taxable incomes below $321,400 (if married filing jointly) or $160,725 (if single) are permitted to take the special deduction under §199A without regard to the limit for specified service businesses. Rev Proc 2018–57, 2018–49 Int Rev Bull 827. See §§2.205, 10.13.

Noncompliance with statutes requiring filing of a fictitious business name statement does not void or invalidate a contract made using the business name. U.S. v Jacobsen (ND Cal, May 22, 2018, No. 15-cr-00518-MMC-1) 2018 US Dist Lexis 85979. See §3.11.

A forum-selection bylaw adopted by a Delaware corporation headquartered in California without stockholder approval was enforceable in California. Drulias v 1st Century Bancshares, Inc. (Dec. 21, 2018, No. H045049) 2018 Cal App Lexis 1202. See §4.2.

The California Legislature amended Corp C §1601 to permit corporate books, records, and minutes to be open for inspection at the corporation’s principal office in California if the originals have been lost, destroyed, or are not normally located in California; also to permit a shareholder to request these documents by mail or electronically. Stats 2018, ch 76. See §4.2.

The IRS has issued extensive final regulations to provide guidance on the complex provisions of IRC §199A, enacted in 2017 by the Tax Cuts and Jobs Act. TD 9847, 84 Fed Reg 2952 (Feb. 8, 2019). The IRS has also published Rev Proc 2019–11, 2019–9 Int Rev Bull ___, which provides guidance on calculating W-2 wages for purposes of IRC §199A. See §5.17.

The IRS issued final regulations regarding the designation and authority of the partnership representative under the new centralized audit regime for partnerships and LLC tax returns. TD 9839, 83 Fed Reg 39331 (Aug. 9, 2018). See §§5.41A, 5.82A.

Congress enacted the Consolidated Appropriations Act, 2018 (Pub L 114–141, 132 Stat 348), which includes provisions titled Technical Corrections Related to Partnership Audit Rules (Pub L 115–141, Division U, Title II, 132 Stat 348. These technical corrections expand the scope of IRS investigation to include “partnership-related items,” as defined. See §5.17.

California enacted legislation adopting the federal partnership tax audit regime. Stats 2018, ch 729. See §5.17.

The Ninth Circuit affirmed a district court’s finding that certain general partnership interests were investment contracts, and thus securities, and the defendant violated federal securities law by selling them. United States SEC v Schooler (9th Cir 2018) 905 F3d 1107. See §6.8.

A managing partner of an LLC was entitled to attorney fees under CC §1717 in a case against the LLC, which the LLC lost, but in which the managing partner was an alter ego defendant who had obtained a judgment of dismissal and was thus the prevailing party on the alter ego claim. Burkhalter Kessler Clement & George LLP v Hamilton (2018) 19 CA5th 38. See §§7.5–7.6.

In addition, in 2018 Delaware introduced the “statutory public benefit limited liability company” (SPBLLC), a type of limited liability company. 6 Del Code §§18–1201—18–1208. See §7A.1.

The California Legislature has enacted provisions permitting a corporation that does not have outstanding securities listed on major securities exchanges to adopt provisions in its articles of corporations authorizing corporate records to be recorded and kept by means of blockchain technology. Corp C §§204, 2603 (as amended by Stats 2018, ch 889). See §§7A.9, 8.15.

The California Legislature has also added provisions to the General Corporation Law requiring that a domestic or foreign corporation with principal offices in California must have at least one woman on its board of directors by the end of 2019, and, depending on the size of the board, two to three woman directors by the end of 2021. Corp C §§301.3, 2115.5 (as added by Stats 2018, ch 954). See §8.25.

An employee may exclude from gross income up to $265 per month in 2019 for “qualified parking.” IRC §132(f)(2). See §10.12.

The following forms have been revised:

  • Business Entities Fee Schedule (Secretary of State Form BE FEES). See §2.209.

  • General Partnership/Limited Liability Partnership Check Sheet and Partnership Application for Licensure (Board of Accountancy Forms 11L-35 and 11A-19). See §7.41.

  • Partnership Application for Licensure (Board of Accountancy Form 11A-19). See §7.42.

  • General Partnership/Limited Liability Partnership Name Change Check Sheet and Partnership Name Change Application for Licensure (Board of Accountancy Forms 11-L-42 and 11A-36). See §7.43.

  • Architect’s Business Entity Report Form (California Architects Board). See §7.44.

  • Secretary of State Articles of Organization Limited Liability Company (LLC) (Form LLC-1). See §11.39.

  • Secretary of State Amendment to Articles of Organization of a Limited Liability Company (LLC) (Form LLC-2). See §11.40.

  • Secretary of State Restated Articles of Organization of a Limited Liability Company (LLC) (Form LLC-10). See §11.44.

About the Authors

BRAD J. BRIGANTE received his B.S. in 1990 from California Polytechnic State University (San Luis Obispo) (cum laude), his J.D. in 1995 from Tulane University Law School (cum laude), and his LL.M. in 1996 from New York University Law School. Mr. Brigante practices with Garrett DeFrenza Stiepel LLP in Costa Mesa, specializing in business and tax law in the areas of joint ventures, general corporate and business transactions in real estate and other industries, and related federal and state tax planning. His practice also includes advising transactional clients on complex federal income tax matters, with a focus on pass-through entities. A former certified public accountant, Mr. Brigante was named a Southern California “Super Lawyer Rising Star” by Los Angeles Magazine. He is a member of the Orange County Bar Association; the Business, Tax, and Real Property Law Sections of the State Bar of California; and the Partnerships and LLC Committee of the Business Law Section. Mr. Brigante is a coauthor of Chapter 12, “Converting Existing Entity to Limited Liability Company.”

CAROL A. BRITTAIN received her A.B. in 1974 from Miami University in Ohio, her M.B.A. in 1977 from the Thunderbird School in Arizona, and her J.D. in 1983 from the University of California, Hastings College of the Law. Ms. Brittain practices in San Francisco in the areas of business and corporate law, including general business counseling, entity formation, and mergers and acquisitions. She has special expertise in licensing matters and in ownership expansion and transition for privately held companies. Ms. Brittain has served as an adjunct professor at the University of California, Hastings College of the Law, and as a member of the executive committee of the International Law Section of the State Bar of California. A frequent speaker on panels and programs, Ms. Brittain is a coauthor of Chapter 2, “Evaluating Entity Choices.”

CHRISTINE M. CHACON received her B.A. in 2005 from the University of California, Irvine, and her J.D. in 2010 from the University of San Diego School of Law. She is an attorney at the Walsh Law Firm, San Diego, practicing in the areas of business consulting, entity formation, probate and trust administration, and estate planning. Ms. Chacon was admitted to the State Bar of California in 2010. She is a member of the San Diego County Bar Association, the Trusts and Estates Section of the State Bar of California, the Probate Attorneys of San Diego, and the Lawyers Club of San Diego, where she serves as a member of the Community Outreach Committee. She is a coauthor of Chapter 12, “Converting Existing Entity to Limited Liability Company.”

STEVEN R. CHIODINI received his B.A. in 1994, magna cum laude, from Harvard University where he was Phi Beta Kappa. He received a Fulbright Scholarship to Germany in 1994, and earned his J.D. in 1999 from Yale Law School, where he was the editor of the Yale Law Journal. Mr. Chiodini, an associate at Adler & Colvin, San Francisco, focuses his practice on the representation of nonprofit and tax-exempt organizations. He is admitted to the bar in both California and New York and is a member of the American Bar Association, the Tax Exempt Organizations Committee of the California State Bar Taxation Section, and the Bar Association of San Francisco. Mr. Chiodini is a coauthor of Chapter 7A, “Flexible Purpose Corporations and Benefit Corporations.”

ELSPETH DELANEY-PAUL received her B.A. in 1994 from Brandeis University (summa cum laude) and her J.D. in 1998 from the University of California, Berkeley, School of Law. Ms. Delaney-Paul is senior counsel with Catholic Healthcare West (CHW) in Pasadena, where she focuses on business, compliance, and privacy issues. Before joining CHW, Ms. Delaney-Paul was a partner with the Los Angeles firm of Hooper Lundy & Bookman and an associate with Latham & Watkins. Ms. Delaney-Paul’s practice includes the purchase and sale of hospitals, syndications, financing and leasing, professional corporations, hospital/physician joint ventures, physician contracting, and board governance and tax exemption issues. Ms. Delaney-Paul specializes in federal and state patient privacy compliance, and has spoken and written widely on these matters. She is a board member of the California Society of Healthcare Attorneys and of the Health Law Section of the Los Angeles County Bar Association. Ms. Delaney-Paul is a coauthor of Chapter 10, “Professional Corporations.”

DEMETRIOS DIMITRIOU received his B.A. in 1954 from the University of California, Berkeley, and his J.D. in 1959 from the University of California, Hastings College of the Law. Mr. Dimitriou, a San Francisco sole practitioner and specialist in the law governing attorneys, counsels individual attorneys and law firms on ethics and internal business practice management issues. He has spoken and written widely on these subjects and has served as an expert witness on the law governing attorneys. He is the author of Chapter 1, “Attorney-Client Relationship.”

EDWARD GARTENBERG received his B.A. in 1971 and his J.D. in 1974 from Columbia University. Mr. Gartenberg, a founder of the Los Angeles firm of Gartenberg Gelfand Hayton & Selden LLP, practices in the areas of securities and business litigation and arbitration. He is a former staff attorney and special counsel for the Division of Enforcement of the United States Securities and Exchange Commission, and a former special assistant United States attorney for the United States Attorney’s Office. Mr. Gartenberg is an arbitrator for the National Association of Securities Dealers. He is chair of the Partnerships and Limited Liability Companies Committee of the Business Law Section of the State Bar of California, a past chair of the Business Section of the Beverly Hills Bar Association, and a former member of the Board of Governors of the Beverly Hills Bar Association. Mr. Gartenberg has spoken and written widely on partnerships, limited liability companies, and securities law. He is a coauthor of Chapter 6, “Limited Partnerships.”

DAVID A. HATCH received his B.A. in 1998 from the University of Michigan and his J.D., with honors, in 2002 from the University of Texas at Austin. A partner at Hooper, Lundy & Bookman, Inc., Mr. Hatch’s practice involves business and corporate representation of various health care businesses, including physicians and physician groups, private and public hospitals, medical equipment providers, and others. He is experienced in the affiliation, merger, purchase, and sale of health care facilities; start-up, formation, and organization of entities; and private offerings and syndications. He has written and spoken widely on these issues and is a member of the American Health Lawyers Association, the Health and Business Law Sections of the American Bar Association, the Executive Committee of the Health Law Section of the Los Angeles County Bar Association, and the California Society for Healthcare Attorneys. Mr. Hatch is a coauthor of Chapter 10, “Professional Corporations.”

ALAN M. INSUL received his B.A. in 1973 from the University of California, Los Angeles, and his J.D. in 1978 from the Southwestern University School of Law, where he was a member of the Moot Court Honors Program (Roger Traynor Competition). He limits his practice to transactional corporate, business, and commercial real estate matters. He has extensive management experience, having acted as CEO to telecommunications companies in the late 1980s and early 1990s. Mr. Insul is past Vice-Chair for Membership Services of the Business Law Section of the State Bar of California and a past chair and editor-in-chief of the Business Law News (the official State Bar publication for the Business Law Section). Mr. Insul is the author of Chapter 3, “Selecting a Business Name,” and Chapter 7, “Limited Liability Partnerships.”

DAVID A. LEVITT is a principal with the San Francisco law firm of Adler & Colvin, a firm that specializes in the representation of nonprofit organizations and their donors. His focus includes the representation of nonprofit and tax-exempt organizations, with an emphasis on nonprofit corporate governance, social enterprise, and program-related investments. He received his B.A. in 1993 from Cornell University and his J.D., cum laude, in 1996 from Harvard Law School. He is a former officer of the Exempt Organizations Committee of the American Bar Association Taxation Section, as well as secretary and vice-chair of the San Francisco chapter of the Social Enterprise Alliance. He has spoken and published widely on tax-exempt organizations law and has served as an adjunct professor at the University of San Francisco. Mr. Levitt is a coauthor of Chapter 7A, “Flexible Purpose Corporations and Benefit Corporations.”

THOMAS A. MAIER received his B.A. in 1976 from Southern Illinois University, his J.D. in 1979 from the University of California, Berkeley, School of Law, and his LL.M. in 1980 from New York University Law School. A partner at Futterman Dupree Dodd Croley Maier LLP, San Francisco, Mr. Maier specializes in general business and tax law. He is a member of the California Bar Association, the International Fiscal Association, the San Francisco Bar Association, and the Alameda County Bar Association. Mr. Maier has served as an adjunct lecturer at Golden Gate University in San Francisco, a presenter at the University of California, Berkeley, School of Law, cochair of the East Bay Tax Club, and chair of the Alameda County Bar Association Section on Business. He is a coauthor of Chapter 10, “Professional Corporations.”

DAVID C. McCUAIG received his B.A. in 2004 from the University of California, San Diego, and his J.D. in 2008 from American University, Washington College of Law. Mr. McCuaig is the principal of Sona Legal APC, a business law and estate planning firm specializing in the areas of formation and operation, commercial transactions, sale and succession, licensing, and internet and e-commerce. He has been named “Best of the Bar” by the San Diego County Business Journal and is an active member of the Business and Corporate Law and Estate Planning Sections of the San Diego County Bar Association. Mr. McCuaig is a coauthor of Chapter 12, “Converting Existing Entity to Limited Liability Company.”

CHARLES E. McKEE received his B.S. in 1976 from Oregon State University (summa cum laude) and his J.D. in 1983 from the University of Southern California School of Law. An attorney with Homeier & Law, P.C., Sherman Oaks, Mr. McKee specializes in the purchase and sale of companies; the formation, operation, and financing of closely held entities and emerging growth companies; and the formation and governance of businesses and related matters. He also has broad experience in corporate transactions; private placement of securities; intellectual property; technology licensing; and general corporate, limited liability company, and business matters. Mr. McKee is the chair of the Business Law Section of the State Bar of California. He is the author of Chapter 11, “Limited Liability Companies.”

DAVID M. SEREPCA received his B.S. in 1989 from Cornell University and his J.D. in 1992 from the University of San Francisco School of Law. Mr. Serepca, a partner in the San Carlos firm of McMahon Serepca LLP, specializes in corporate and securities law. He has broad experience in practicing general corporate and securities law. He practices in the areas of counseling, structuring, drafting, and executing business entity formations, as well as capitalizations, syndications, shareholder agreements, and securities law compliance and disclosure. He also represents clients in governance and compliance, asset transfers, mergers and acquisitions, and buyouts. Mr. Serepca is a member of the State Bar of California, the District of Columbia Bar, and the New York Bar Association and serves on the Corporations Committee of the Business Law Section of the State Bar of California. He is the author of Chapter 4, “Choosing the State of Organization.”

WHITNEY M. SKALA received his B.A. in 1980 from the University of California, Berkeley, and his J.D. in 1983 from Georgetown University. Mr. Skala is the principal of Whitney M. Skala, A.P.C., in San Diego, and practices in the areas of corporate and real property acquisitions and financings as well as corporate and partnership formation and operating matters. He is the author of Chapter 8, “S and C Corporations,” and a coauthor of Chapter 9, “Close Corporations,” and Chapter 12, “Converting Existing Entity to Limited Liability Company.”

W. ROD STERN received his B.A. in 1977 from the University of California, Los Angeles, his J.D. in 1983 from the University of California, Hastings College of the Law, and his LL.M. in 1989 from New York University. Mr. Stern is a partner with the firm of Murtaugh Meyer Nelson & Treglia LLP in Irvine and focuses his practice on business, corporate, transactional and tax counseling; representation in tax collection and litigation matters; estate planning; and probate and conservator matters. He is a member of the Tax Sections of both the Orange County Bar Association and the State Bar of California and is also a member of the Orange Coast Estate Planning Council. He is a coauthor of Chapter 2, “Evaluating Entity Choices.”

CHARLES E. TOOMBS received his B.A. in 1974 from the University of California, Berkeley, his J.D. in 1984 from the University of San Francisco School of Law, and his LL.M. in taxation in 1987 from New York University. Mr. Toombs is an attorney and shareholder with the law firm of McInerney & Dillon, P.C. in Oakland, and specializes in tax, business, corporate, nonprofit, and real estate matters. He has served as chair of the Business Law Section Executive Committee of the Alameda County Bar Association and as a member of the Budget Committee of the Kensington Community Service District, and he is a past member of the Kensington Community Council. He is an author of Advising California Partnerships (3d ed Cal CEB) and is the author for this book of Chapter 5, “General Partnerships.”

ELLIS G. WASSON received his B.S. in 1982 from the University of Southern California, his M.B.T. in 1989 from the University of Southern California, his J.D. in 1995 from Western State University, and his LL.M. in corporate law and international business in 2001 from the University of San Diego School of Law. Mr. Wasson, a partner in the Corporate, Securities, and Tax Section of the Costa Mesa firm Rutan & Tucker, LLP, specializes in corporate transactions, taxation, and mergers and acquisitions. He is a member of the Tax and Corporate Law Sections of both the Los Angeles County Bar Association and the American Bar Association, a member of the Orange County Bar Association, and a member of the American Institute of Certified Public Accountants. He has taught national continuing education courses on partnership and limited liability company taxation as well as tax planning for closely held businesses. He is a coauthor of Chapter 6, “Limited Partnerships.”

About the 2019 Update Authors

STEVEN R. CHIODINI is an update author of Chapter 7A, “Flexible Purpose Corporations and Benefit Corporations.” Please see his biography in the “About the Authors” section.

EDWARD GARTENBERG is an update author of Chapter 6, “Limited Partnerships.” Please see his biography in the “About the Authors” section.

DAVID A. HATCH is an update author of Chapter 10, “Professional Corporations.” Please see his biography in the “About the Authors” section.

ALAN M. INSUL is the update author of Chapter 3, “Selecting a Business Name,” and an update author Chapter 7, “Limited Liability Partnerships.” Please see his biography in the “About the Authors” section.

DAVID A. LEVITT is an update author of Chapter 7A, “Flexible Purpose and Benefit Corporations.” Please see his biography in the “About the Authors” section.

THOMAS A. MAIER is an update author of Chapter 10, “Professional Corporations.” Please see his biography in the “About the Authors” section.

DAVID C. McCUAIG is the update author of Chapter 12, “Converting Existing Entity to Limited Liability Company.” Please see his biography in the “About the Authors” section.

DAVID M. SEREPCA is the update author of Chapter 4, “Choosing the State of Organization.” Please see his biography in the “About the Authors” section.

WHITNEY M. SKALA is the update author of Chapter 8, “S and C Corporations,” and Chapter 9, “Close Corporations.” Please see his biography in the “About the Authors” section.

CHARLES E. TOOMBS is the update author of Chapter 5, “General Partnerships.” Please see his biography in the “About the Authors” section.

ELLIS G. WASSON is an update author of Chapter 6, “Limited Partnerships.” Please see his biography in the “About the Authors” section.

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