CAN AN ARBITRATION CLAUSE HELP YOU GET PAID?

Will an Arbitration Clause Help You Get Paid Faster?

Get Paid Faster Through Arbitration?

Many clients ask about arbitration clauses.       Some have heard that it will help them get paid.   Well, we’ll give you a true “lawyer” response . . . .it depends.

What is Arbitration?

Arbitration is a way of determining a dispute between 2 or more people that does not use the court system.     In the court system, a judge who is paid by the government (either state or federal) decides who wins the dispute.   In arbitration, a private person, who can be either a retired judge or another professional, hears the evidence, hears the claims and makes his or her decision.

What Is an Arbitration Clause?

An arbitration clause is language or a “clause” in a written agreement.   It says that if you have a dispute about the agreement that the dispute will be resolved by arbitration.   Sometimes it will require that your arbitration occur before a certain group, such as the American Arbitration Association.   Sometimes, it requires a panel of arbitrators.   This means that there are usually three arbitrators.   This is not as common as it used to be because of the costs.

Will an Arbitration Clause Help Me Get paid Faster?

Sometimes.   (Sorry, there’s no black or white rule here.)   Arbitrations can take less time to get decided than a court trial.   Also, the parties can agree to shorten the process and limit the issues to be decided.   On the other hand, if the arbitrator you like has a full schedule (and most of the better arbitrators do), it may take a long time to get your hearing.   Because both sides have to agree on the arbitrator, it could take longer to make those decisions.

Also, if you can take advantage of some prejudgment remedies, like a prejudgment writ of attachment, with a lawsuit for breach of contract, that may be more effective and help you get paid faster.

While there can be advantages to have an arbitration clause in your agreements, it is not a guaranty that you will get paid faster.

 

WHY MAINTAIN CORPORATE RECORDS AND HOW TO DO IT

Corporate records must be maintained
Corporate records must be maintained

Maintaining corporate records helps shield your assets

Corporate records must be maintained to shield your personal assets from business liabilities.   Most business owners know that they need to form a separate entity or a corporation to protect themselves when they start a new business.  Sadly, many business owners don’t understand that if they don’t maintain their corporate records, that protection could go away.  This blog post explains what corporate records are, why they are important and how to maintain them.

What Corporate Records Are

Corporate records are those documents that describe what decisions and actions the corporation has made.  The decisions are made by the shareholders or owners.  The shareholders appoint directors.  The directors oversee the operating of the company and appoint officers to operate the company.  The corporate records show what types of actions were done.  Some types of corporate records that should be kept include bylaws, notices of shareholder meetings, minutes of shareholder meetings, resolutions (reflecting decisions made without a meeting), shareholder registers and cancelled shareholder certificates.  If the company makes major hiring decisions, opens a bank account or leases property, that should be approved by the board of directors either in the minutes of a shareholder meeting or in corporate resolutions.  Basically, any major decision of a company should be reflected in the corporate records.

Why Corporate Records Are Important

 

Corporate records are important because they show that the company was following corporate formalities and operating as if the corporation were separate from its owners.  Maintaining the corporate records will help you in litigation in case the plaintiff tries to pierce the corporate veil and make you liable for the business debts.  For more information on how you can become personally liable for business debts or avoid such liability, check out When Can You Face Personal Liability for Business Debt.  They will also help you if the IRS questions that you and your company are separate.  Finally, maintaining the corporate records will help you if you try to sell the company.

How to Maintain Corporate Records

To maintain corporate records, you need to make sure that documents reflecting all of the corporation’s decisions are in the corporate records, often a corporate book.  You also need to look at the company’s bylaws, to see what they require, both in terms of corporate records and in terms of meetings and the conduct of the corporation.  You also need to have evidence in there either of regular meetings, or, at a minimum, regular shareholder and director resolutions.  Have you issued shares?  Do you need to?  If so, they need to be recorded in the corporate register.  The types of corporate records that you will need to maintain will depend on many things.  This includes whether there have been any changes in ownership or whether any large purchases have been made.  How many directors do you have?  Does the amount of directors you have match what you promise to have in the bylaws?  Look at your bylaws.  How frequently are the directors supposed to meet?  Have you done that?

Most importantly, to maintain the corporate records, they need to be reviewed at least once a year.  If necessary, resolutions that approve prior actions must be drafted.

If you can’t remember the last time you updated your corporate records, if your corporate records book is covered with dust, or (even more scary), you don’t know even know where your corporate records are, make that one of your goals this year.  Just do it!  And, if you need help, by all means get it.  The cost for getting help and getting it DONE will be far less than the cost of not doing it.  This is particularly so if or when you are ever sued and face personal liability for your corporation’s debts.

WHEN CAN YOU FACE PERSONAL LIABILITY FOR BUSINESS DEBT?

Personal liability for business debt
Personal liability for business debt

You Can Become Liable for Corporate Debt if You’re Not Careful

Avoiding personal liability for business debt is why most business owners form a corporation or limited liability company (LLC).  With a corporation or LLC, an individual and their business are separate legal entities. An owner has no personal liability for debts that their business incurs.

However, even if you do form a corporation or LLC by filing the proper papers with the Secretary of State to start your corporation or LLC, there are various ways an owner can negate the premise that the corporation is a separate entity and face personal liability for business debts.

Most banks, finance companies, and landlords know that LLC members don’t have personal liability for their company’s debts, so they often won’t extend credit or lend money to small LLCs without a personal guarantee from the owner (i.e., the owner promises to pay back the loan personally if the business doesn’t.)

If an LLC business owner puts up their house or other real estate as collateral for a business loan, then they’re personally liable for the debt. If the business defaults, the creditor can sue the owner to foreclose on the property and use the proceeds to pay off the debt.

Simple carelessness may sometimes have an owner assume personal liability.  For instance, if you inadvertently sign an agreement with your personal name rather than your company’s name, you’re now personally liable for any debt—even if it was a supplier’s mistake.   Sometimes, in fact, it is not a mistake and the contract prepared by the supplier is designed in such a way that when the owner completes his or her name and signs, the owner is signing both for the company and on his own behalf, thus facing personal liability.

Using a personal credit card or home equity loan to supply funding to your business automatically makes you face personal liability for those debts.   However, you can also create personal liability when you use business credit cards to pay for personal debts because a creditor can then argue that your corporation was a sham and was just your “alter ego.”   If they can show that the corporation was just your “alter ego,” this is also called “lifting” or “piercing” the corporate veil.  This, again, means that the creditor can go after your personal assets for the business debts.

You also can expose yourself to personal liability if you don’t follow such corporate formalities as having regular board meetings or minutes.  In some cases, for some federal wage violations, an owner of a corporation can be personally liable if the corporation does not follow federal wage laws.   Finally, if you’re caught lying or misrepresenting the facts when applying for any business loan for your corporation or LLC, you’ll likely be personally responsible for the debt.

Filing with the secretary of state to start your corporation or LLC and to create a separate legal entity is a good and essential step to protecting your personal assets from your business liabilities.   However, it is only a start and it is not a guarantee.   As you can see, you still need to be careful to preserve that legal protection, to follow legal formalities and to protect yourself from personal liability for your business debts.   When in doubt, seek help or advice.

CAN YOU CHOOSE YOUR CALIFORNIA JUDGE?

Can You Choose Your California Judge?
Can You Choose Your California Judge?

Can You Choose Your Judge?

I am often asked whether you can choose your California judge.    The answer is “No,” but sometimes you can reject your California judge.

Huh?

In California, there is a a statute, California Code of Civil Procedure section 170.6.    With that statute, you can “170.6” or “affidavit” your California judge.

This is how it works.   After you learn who your judge is, if you are in California state court, you may have a right to file an affidavit about that judge.   In the affidavit, you or your lawyer states that you believe that the particular judge is prejudiced against the lawyer or you.   If the declaration is filed on time, normally it will be granted.   The supervising court will then take control of the case and assign it to another judge.   Sounds like a good thing, right?

It can be, if you know what you are doing.   Here’s what you need to now about filing an affidavit against a California judge.

The Time Limits Are Absolute

If you are assigned one California judge for the entire case, you normally have only fifteen (15) days to file an affidavit to reject the judge.   (In some cases, you only have ten days.   Have your lawyer double check section 170.6.)   You can do this whether you are the plaintiff or the defendant.   When you learn who the California judge is, act quickly or you may lose the ability to reject a judge that you believe is prejudiced against you.

Only One Affidavit Per Side

Normally, there is only one affidavit allowed per side.   The two sides are the plaintiff’s side and the defendant’s side.   So, if you are a defendant who is brought in later in the case and the defendant who was there before you already exercised the right to reject the California judge, you may be out of luck.

Be Careful

When you exercise your right to file an affidavit to reject a California judge, you need to be careful.   First, you may always get a worse judge.   So, before you file the affidavit, you need to know who the other judges in the courthouse are.   Second, don’t use up this right to affidavit if you don’t have to.  If your judge is changed later in your case, you don’t want to be stuck going to trial with a judge that you’re unhappy with just because you can’t challenge them.   In California, and, in particular, in Los Angeles County, it is taking longer for cases to get trial.   This means that you have an increased chance of having a change in judges.  If you have already used up your right to file the 170.6 affidavit, you may be stuck with a judge right before you go to trial.   So, it is important not to waste this important right.

Knowing when to exercise — or to refrain from exercising — this right to file an affidavit to reject a California judge is important.   This is why if you or your business is involved in litigation, you should be represented by a lawyer experienced with litigation and with judges.

SMALL CLAIMS COURT: CAN IT HELP YOU GET PAID?

Small Claims Court May Be an Effective Way to Get Paid
Small claims court may help you get paid

Small Claims Court May Be an Option

Small claims court can sometimes be an effective way to get paid for debts less than $5,000 for a corporation or $10,000 for an individual.   Here’s what you need to know about small claims court in California.

HOW IT WORKS:

In California small claims court, there are no lawyers, juries or rules of evidence in California.   You pay between $30-$100 to file it.    After you file and start your small claims court case, the court will set the date for the hearing.   You then must serve notice of the hearing and a copy of your complaint on the person who owes you money (the defendant).    He or she can respond and even seek money they think you owe him or her.

On the day of the hearing, you – not a lawyer — appear before the small claims court judge and present evidence about why the defendant owes you money.  Defendant has an opportunity to respond or say why you owe  them money.   Normally, the small claims court judge does not give you an answer at the hearing but mails out their decision as to who wins.

If the plaintiff loses, they cannot appeal the decision.  If the defendant loses, they can appeal.   Even if the plaintiff wins, they normally must wait 30 days before trying to collect on the judgment.

POTENTIAL PITFALLS OF SMALL CLAIMS COURT:

There are unfortunately, several potential pitfalls to Small Claims Court:

INADEQUATE SERVICE.    Proper service is required for the small claims court to be able to give you a judgment or to have any control over defendant.  If you get it wrong, the court can refuse to hear your case or give the defendant a grown to attack the judgment.

INADEQUATE PREPARATION.   Even in small claims court, you need evidence to prove your case.   This is one occasion where you need to practice and prepare and, if necessary, get help.

COUNTERCLAIM.    A counterclaim is when the defendant claims you owe them money.     If you know that the defendant has a counterclaim, you should consider whether it even makes sense to pursue your claim in small claims court against them.

COLLECTIONS.   Even if you win your case against the defendant, you will have to collect that judgment.    If the defendant does not have assets, it’s problem not worth suing them in small claims court.

Although an attorney cannot appear for you in small claims court, to avoid these pitfalls, it may make sense to consult with an attorney either to help avoid these potential pitfalls.  Despite, the potential pitfalls and limits to small claims court, in many cases, this is an effective way to collect on your debts.

SOCIAL HOST LIABILITY IN CALIFORNIA: CAN YOU GET SUED FOR SERVING ALCOHOL?

Social host liability - could you be liable for a guest?

In California, can you face social host liability?  What IS social host liability?   Briefly, social host liability means that someone sues the social host for serving alcohol when a guest hurts someone (or him or herself) while inebriated.

So, picture  this – you’re hosting a big event for the holidays.  You’ve invited a lot of people and made sure that the food, desserts, and gifts are ready.  But that’s not all, you’ve also arranged for alcohol to be available

Social host liability - could you be liable for a guest?

Could you be liable as a host?

throughout the party.  Everyone has a great time sharing stories, reminiscing, and having a few drinks.  Around midnight, everyone begins to head out and make their way home.

Just a few hours later, though, you receive a call that someone who was at your party had too much to drink and was involved in a car accident driving home. In some states, under social host liability for servicing alcohol, you could potentially be held responsible for the accident and be forced to pay for some or even all of the damages.  Because December is National Drunk and Drugged Driving Prevention Month and because we all look forward to the holidays, it’s helpful to know where social hosts stand in California and whether they face social host liability.

In California, you cannot be found civilly liable as a social host.   That means that you cannot be forced to pay damages if one of your guests drives from your house inebriated and causes an accident.  Does that mean you should break out your best tequila and shot glasses and then send your guests on their merry way?     Not exactly.    While there is no social host  liability just for serving alcohol, you could be criminally liable for furnishing alcohol to an obviously inebriated person or to a minor if the minor has a blood alcohol concentration of .05 percent or greater and gets into a car.

So you can enjoy your party and your guests without having to think about “social host liability,” how about taking the following steps?

  • Never allow minors to be served alcohol
  • Encourage guests to drink responsibly or use designated drivers
  • Hire a professional bartender to serve drinks and refuse alcohol to those too intoxicated
  • Provide transportation for guests that shouldn’t drive home
  • Take keys away from those who are intoxicated and let them stay in your home overnight

Hopefully, by following these simple steps, you can avoid criminal liability – and tragedy – over the holidays.

CAN PRE-JUDGMENT WRITS OF ATTACHMENT HELP ME GET PAID?

Pre-judgment writs of attachment can help you get paid

Pre-judgment writs of attachment can help you get paidYes, pre-judgment writs of attachment can sometimes help you get paid.   Pre-judgment writs of attachments are orders you get from a court.   They let the sheriff seize the assets of the person who owes you money.  This can even happen before you win your lawsuit against them.  So, when can you get pre-judgment writs of attachment?

First, to get a pre-judgment writ of attachment, there has to be a breach of contract claim.   If the claim, for example, is that someone did not pay you as they agreed to do so, that is a breach of contract claim.   On the other hand, a claim that you slipped and fell in their store because they negligently had grease on the floor, is not a breach of contract claim but a negligence claim.

The second thing you need for a pre-judgment writ of attachment is for the claim to be for more than $500.

The third requirement for a pre-judgment writ of attachment is that your claim for a prejudgment writ of attachment can’t be secured.   That means that if you have a UCC-1 or a mortgage securing your claim or some other type of collateral, you probably can’t get a pre-judgment writ of attachment.

Fourth, you need to show that you have a chance of winning on your breach of contract claim at trial.   So, if you have no way of proving your claim, a court won’t give you a pre-judgment writ of attachment.

A pre-judgment writ of attachment is a way of securing your breach of contract claim while the lawsuit is still going on.  In some parts of the country, such as Los Angeles County, it can take at least two years for a case to get to trial.   That means that even if you win against them after two years of trial, you can’t be sure that you can collect on that judgment.

Often, once pre-judgment writs of attachment are issued and the sheriff seizes the debtor’s assets, the debtor is finally willing to pay you and you can settle the lawsuit.  In the experience of the legal professionals at Penners Bergen,  ALC, that can be one of the main benefits of pre-judgment writs of attachment.   However, even if the case does not settle after the sheriff seizes the debtor’s assets, at least you have some security for your breach of contract claim.

A pre-judgment writ of attachment can be a very effective way of helping you collect your debts.  However, it a very technical and procedural motion.   If you think this could help you, you should speak with an experienced business litigation lawyer.

GET PAID FASTER BY YOUR CUSTOMER: STEPS TO TAKE

Getting Paid Faster: What to Do
Getting Paid Faster:  What to Do

There are steps for getting paid faster

If you are interested in getting paid faster by your customers, there are certain procedures that you should set in place.   We are assuming that when you work with your customers, that you are working with a sense of urgency.   We all want our customers to pay us with the same sense of urgency so that we are getting paid faster.  Here are some easy steps and a procedure to getting paid by your customers by treating their obligation to pay you as an urgent matter requiring follow up as well.

  1. Send your bill or invoice out when you ship or provide the service.
  2. Call or email your customer a few days before the due date for your payment to follow-up on their satisfaction.
  3. If the payment is paid when due, thank them profusely.   Yes, I know, it’s their obligation to pay you.  But part of any type of teaching is reinforcement.   Now’s the time for positive reinforcement if you are serious about developing a practice of getting paid faster.
  4. If they don’t pay, then call your contact 3 business days after the payment was due.  Start the conversation on a positive note and then tell them that you are calling them because although the payment was due  [3 business days prior], it wasn’t yet received.   You wanted to let them know so that they could follow-up on it and, if necessary, stop payment on the check.   You can tell them that you will be in their area today and you can swing by and pick up the replacement check.    If you are serious about getting paid faster, you must assume and treat your customer as if they, in fact, did send the check.
  5. If your customer tells you that the check did not go out, offer to come pick it up.  When you arrive, bring them a latte or some type of baked goods and heartfelt thanks.
  6.  If they tell you that it will not be sent out until later, ask them when.   If it’s within the next week, say great, confirm the date and send a confirming email.    If it’s longer than a week, ask them why.   If it’s because that’s when the company issues payments (for example, their bookkeeper comes in), make a note for your records and then offer to come pick it up.   Then, send a confirming email which includes their reason for their delay.
  7. Then, calendar the new due date.   Repeat steps 3-5.

In the next part, we will talk about subsequent steps for getting paid faster in case your customers don’t pay you by the due date that they gave you.

GET PAID FASTER BY HAVING A WRITTEN AGREEMENT

Get paid faster with a written agreement

 

You can get paid faster with a written agreement

How To Get Paid Faster

To get paid faster by your customers, consider having a written agreement or contract.    For many people, there is no written document or no written invoice for the work they do for their customer.   Instead, a customer asks you for your rate, asks you to do the work, you do the work and then look for payment.    No one wants to have the “hard talk” about money up front and you trust that – just as you take care of your customer – they will take care of you in the end.   Sometimes they do and sometimes they don’t’.   When they don’t, you’re left holding the (empty) bag.

So, let’s start at the beginning and to get paid faster, consider having a written agreement and deciding how you are going to get paid.

  • How about getting paid up front?   If that’s not possible, get some money up front.  Get the rest in stages, based on what you are accomplishing for your client.
  • Give a discount for prompt payments.   Be specific.   Spell it out.   For example,  “If you make your Stage 2 payment on or before December 1, you will pay $900.   From December 2, you will pay the invoiced amount $1,000.”
  • Give a time limit for reporting problems with the goods or services.   For example, “Please let us know within 30 days if there are any problems with the goods or services so we can fix them promptly to your satisfaction.”   When you have this language and the customer later tries to claim they are dissatisfied so they don’t have to pay, you can point to this clause.
  • Include a finance charge of interest cost if the payment is not made on time.
  • Include language that says that if there is any dispute, the winning party can recover their attorneys’ fees against the losing party.   That way, the other side knows that if you have to sue, you will also get — and they will have to pay — attorneys’ fees if you win.
  • If possible, give yourself the option to STOP WORK – even mid-project—if the second or third stage payments are not made.    No one should have to work for free.  That’s called slavery and it was abolished at least 150 years ago.

There may be other language that you want to put in your written agreement.  The important thing is to have the “hard talk” in advance so that each side knows what to expect.   By putting the contract in writing,  each side has a written record of those promises made.   This should help you get paid faster.

CLOSING A COMPANY: MORE THAN JUST SHUTTING YOUR DOORS

Closing a company is more than just walking away

Closing a company?  It requires more than just shutting your doors and returning the key to the landlord.  You need to do more than just walk away.   If you don’t take certain steps to properly dissolve your corporation,

Closing a company is more than just walking away

Closing a company – Steps You Need to Take

including, if necessary, paying off creditors, you could face liability for back taxes or even personally owe money to creditors.

Here are the steps you should take when closing a company

  1. Identify your company’s creditors.  If you can, pay them off.
  2. Does your company have an Operating Agreement (for an LLC)?   If so, follow the procedures in that agreement.
  3. If you have a corporation, look at the Shareholders Agreement?  Follow the steps in that agreement.
  4. Cancel any business licenses  that you won’t need anymore.
  5. Contact the Secretary of State to file documents to dissolve your company.
  6. Notify any relevant agencies that you are going to stop doing business.

Just as with opening a business, there are proper steps to take when closing a company.     Don’t just stop paying the yearly taxes and let your California entity go on “suspended” status.   Closing a company means having  the corporation or LLC  merged, dissolved or cancelled.    If your company is suspended, you will need to revive it before you can dissolve it.    Reviving a suspended corporation can require the filing of delinquent tax returns and having to pay taxes, interest and even penalties.    Indeed, tax penalties continue to accrue  until the corporation or LLC is formally dissolved.  If you don’t follow the proper procedure, a creditor will use that against you to go after your personal assets for the company that you closed.

For all of these reasons, closing a company is more than shutting the doors.   If you need help, talk with your business lawyer so that you learn and complete the proper steps for closing a company..