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San Diego Business Organizations Law Blog

San Diego startups are thriving, according to report

Although entrepreneurs in Silicon Valley may dominate California’s dot-com industry, a recent report indicates that San Diego is home to a thriving start-up community for high-tech companies. 

In the first six months of 2014, San Diego entrepreneurs founded 228 high-tech companies. In terms of venture capital, about $470 million was provided to finance local businesses. According to one commentator, that rate of growth has set a new record for the area. 

Start-up needs might vary by business organizational model

According to statements made during a recent assembly of California lawmakers, small businesses are important to the state’s economic growth. Yet some lawmakers expressed concern about how financial help might be offered to entrepreneurs to entice even more small business development in California.

In some ways, location may not be as determinative to the success of a small business as in previous decades. Thanks to technology, even small businesses can have a strong online presence and connect with communities located hundreds or thousands of miles away. Nevertheless, chances are that a small business will spark local economic growth through vendor contracts, investors, and even considerations like neighborhood development. 

Business organizational structure can impact contractual disputes

Although co-owners or partners may assume that each party will fairly divide profits and pay off debt obligations, real life conduct can be quite to the contrary.

Funk musician Sly Stone recently learned this lesson the hard way. The musician and his group, Sly and the Family Stone, reached the height of their fame in the 1960s and 1970s with a string of hits. When that momentum cooled in the 1980s, Sly entered into a contractual arrangement with Even St. Productions Ltd. 

Is a written agreement a good idea for partnerships?

When forming a partnership with a friend or loved one, is it advisable to write a partnership agreement? Creating a legal document may seem like such a formal action to take with someone with whom you may be on very informal or even intimate terms. Nevertheless, an attorney that focuses on business organizations knows that it usually a good idea to write a partnership agreement.

As a practical matter, writing an agreement can be a useful tool for strategic thinking. Although unexpected problems may always arise during the course of a business, a partnership agreement can at least start the process of proactive planning. 

How might an online start-up approach business organization?

In our last post, we explored some of the common questions facing California start-ups. As we observed, the selection of a business organization will impact many aspects, from individual liability to filing requirements. But does the manner in which a business conducts its operations impact that selection? Specifically, does an online business have unique business organization concerns? 

Even if online or web-based transactions will not be an entity’s primary mode of operation, it is hard to deny the ubiquitous face of online shopping. From smartphones to tables and laptops, it seems that consumers want to have the convenience of making their purchases online, or at least their initial deliberations. 

Common questions facing California start-up businesses

Two of the biggest issues facing a start-up company are how to raise capital and selecting a business entity type. Although raising capital might not be easy, deciding which form of business entity to establish can be downright confusing. 

The decision should not be taken lightly, as the selection of a business organization will carry unique filing requirements, implicate specific rules about personal liability for any investments or debts of the business, and have specific tax consequences. In California, the choices for a business entity include a sole proprietorship, a general partnership, a limited partnership, a limited liability partnership, a limited liability company, and a corporation. 

Does raising capital vary based on a business' organization type?

Regardless of entity classification, one issue faced by almost every new business is raising the capital needed to cover formation costs and projected operating expenses for a limited period. In capital markets, a business may sell shares. However, small businesses or startup firms may not have that access. Is an arrangement comparable to corporate shareholders available to them?

One solution might be venture capital firms that pool funds from a group of investors. An individual may prefer this approach if he or she does not want to bear any responsibility for the debts of a business. An investor simply has a financial stake in a business entity's profits, if it is successful. If the business is unsuccessful, the worst thing that can usually happen is losing the amount of one's investment.

In California, the prevalence of start-up technology companies has given rise to a number of different venture capital firms. A business owner may find that venture capital is a convenient way to raise funds. However, a smart business owner would be well advised to seek an attorney's input regarding the documents needed to memorialize that relationship in a business agreement or other legal documentation.

Corporate form no defense to illegal price manipulation

Municipal and state entities need to enter into contracts with vendors just like other businesses. Unfortunately, that also presents the potential for contract disputes. If those disagreement remain unresolved, business entities may find themselves involved in a breach of contract litigation.

In today’s example, a whistleblower from gas and energy company BP disclosed an alleged scheme of systematic overcharging. The former BP employee alleges that the company made a higher profit margin from its sales to California than from its other customers. 

What are the benefits of an LLC?

The website of the California Secretary of State clarifies that a limited liability company’s name must include that business entity description in its name, or the abbreviations LLC or L.L.C. Ever wonder why?

As a business lawyer knows, a LLC is a type of business entity classification that provides certain protections to its owners. Some view this type of business structure as offering the benefits of both corporations and partnerships. Owners are protected against personal liability for debts incurred by the LLC. Yet unlike a corporation that is generally assigned its own tax identification number and pays its own taxes, the owners of an LLC report profits and losses of the business on their personal tax returns, similar to a business partnership.

What makes a good business organizational relationship?

When business is booming, disputes between business owners may seem unimaginable. When profits start declining, however, the potential for the type of disputes that can escalate into business litigation may increase.

At least, that seems to be storyline in a recent dispute between former partners in a California investment management company called G Squared Media Holdings. 

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Gallagher | Krich, APC
964 5th Avenue, Suite 202
San Diego, CA 92101
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