Incorporation Service Pursued by State Bar

The State Bar of Michigan has successfully obtained a permanent injunction from the Kent County Circuit Court against the "We the People USA, Inc.," and its franchises in the state from engaging in the unauthorized practice of law.

The consent judgment was a result of action taken in response to a complaint received by the State Bar of Michigan that "We the People of West Michigan LLC," drafted a special needs trust for an individual and that the trust did not meet statutory requirements. Had the elderly individual funded the trust, she would have suffered serious financial harm. The defendants were ordered to pay the State Bar $150 in costs and to reimburse the victim $356.

"The State Bar is committed to protecting Michigan residents from entities and individuals not licensed to provide legal services or advice," said SBM President, Kimberly M. Cahill. She added that the Bar usually receives 100-150 complaints each year about persons or organizations that are practicing law or giving legal advice without a license. Most of these complaints are usually resolved through correspondence with the offender. In rare cases, litigation becomes necessary.

State Bar of Michigan Press Release 1/27/2007

FAQ: California Corporate Seal

In this post, I will address the first of many frequently asked questions (FAQs) I receive from client and potential clients regarding California business law:

Do I need a corporate seal for my California corporation or LLC? Where do I get one?

Historically, a company's official seal or stamp was applied to documents to indicate that the contract was a corporate act. Wax and a stamp was used. In modern times, the wax was replaced by a stamp that made only an impression on the paper.

California Civil Code Section 1628 states:

"A corporate or official seal may be affixed to an instrument by a mere impression upon the paper or other material on which such instrument is written."

The term "may" in the statute indicates that the use of a seal is permissive, rather than mandatory. Lest anyone interpret this code section to mean only that a modern seal must be used, instead of an old-world wax seal, Section 1629 makes it clear:

"All distinctions between sealed and unsealed instruments are abolished."

This is consistent with the laws of most if not all U.S. states which have abolished the use of seals as a requirement for corporate contracts.

Thus, while a corporate seal may be applied to a document, its legal signifigance is zilch. If your company still desires to have one, or in the rare circumstance that a third party will not complete a transaction without one (occasionally encountered in lending situations), custom seals can be purchased at most office supply stores and from many online outlets. For our clients that prefer to have one, we can also arrange to have one made as part of a corporate kit at the time of incorporation or LLC formation.

2007: Time to Incorporate Your Sole Proprietorship?

IRS to Target Schedule C Filers:

In a recent telephone conference, IRS commissioner Mark Everson said that they will be conducting more audits on individuals running unincorporated businesses (i.e. self-employed individuals).

While Schedule C filers have long been audit targets for the IRS, they are now stepping up their audit efforts because they believe that self-employed individuals represent a large portion of those individual taxpayers underreporting their income.

IRS to Target Schedule C Filers, About.com U.S. Business Law / Taxes, 25 December 2006

Incorporating, while not a panacea by any means, nor appropriate for all small businesses, entrepreneurs, and those with side businesses in addition to W-2 income, can help reduce exposure to a time-consuming audit, as well as potentially offering tax, asset protection, and other benefits to business owners.

See also: January 2009 update

Minimum Wage Increase

The Los Angeles Times reports today:

House OKs rise in minimum wage

82 REPUBLICANS JOIN DEMOCRATIC MAJORITY

By Richard Simon / Los Angeles Times

WASHINGTON - The House Democratic majority, exercising its new political clout, Wednesday approved the first increase in the federal minimum wage in a decade -- from $5.15 to $7.25 an hour over two years.

The measure heads to the Senate, where it is likely to be coupled with tax breaks for small businesses to win Republican votes in the narrowly divided chamber and to secure President Bush's signature.

The minimum wage has been unchanged since 1997, the longest period without a raise since the first minimum wage was enacted in 1938.

California employers are also reminded that the state's minimum wage has risen to $7.50 per hour, effective January 1, 2007, and will rise again to $8.00 per hour on January 1, 2008.  California is amongst 29 states with a minimum hourly wage rate higher than the federal rate.  Certain localities have an even higher minimum wage, such as San Francisco ($9.14 [PDF]).

Updated 2007 mandatory California workplace postings can be found here.

Update 1/25/07: As noted in a blog concerning California employee rights, the recent minimum wage increase may also affect the eligibility of certain employees to be paid on an exempt basis:

"An employee MUST receive twice the minimum wage to be exempt from overtime pay. Commissioned salespeople MUST receive 1.5 times minimum wage to be exempt. If this criteria is not met, these employees are automatically entitled to overtime pay.

Under prior law, employees had to receive $28,080 per year to be exempt (twice the minimum wage ($13.50) X 40 hours X 52 weeks), but now that number has risen to $31,200."

California Corporate Compliance Annual Minutes

READ THIS FIRST AND BEFORE TELEPHONING OR EMAILING: Neither this blog, nor its sponsor law office or attorney is connected in any way with the companies and services discussed below. Please take the time to carefully read the ENTIRE blog post and comments before telephoning the law office. This warning is being posted because numerous people have searched for a corporate minutes company's name or address, landed on this web page, and wrongly assumed that they have found the web site of that company. Thank you, and apologies for the ugly but effective red letters.

Note that this blog post, and many of my other blog posts are updated with new information on an ongoing basis; scroll to the bottom of this post for the most recent additions.

Some of my business incorporation and LLC formation clients report recently having received in the mail official-looking documents regarding their corporations from organizations such as Corporate Compliance Recorder, California Corporate Compliance Business Division, Minutes and Compliance Affairs, Compliance Annual Minutes Board, Corporate Headquarters, and the like.  These notices at first glance appear to require the filing of annual minutes or a shareholders and directors report with a government agency, along with the annual filing fee of $125-$150; a filing deadline is usually also listed.  These letters are by no means new, or limited to California, but appear to be ubiquitous at the present time for California corporations.

California Corporations Code sections 600, 1500, and 9510(a) are also sometimes cited:

Section 600 provides in pertinent part, "An annual meeting of shareholders shall be held for the election of directors on a date and at a time stated in or fixed in accordance with the bylaws."

Section 1500:  "Each corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, board and committees of the board and shall keep at its principal executive office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Those minutes and other books and records shall be kept either in written form or in another form capable of being converted into clearly legible tangible form or in any combination of the foregoing. When minutes and other books and records are kept in a form capable of being converted into clearly legible paper form, the clearly legible paper form into which those minutes and other books and records are converted shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper record of the same information would have been, provided that the paper form accurately portrays the record."

Section 9510(a) relates to record-keeping requirements for non-profit corporations.

What these services are offering is the preparation of corporate minutes.  Annual meeting minutes for California corporations should indeed be prepared, as the mailings suggest, but neither you nor these companies file such minutes with the Secretary of State (unlike the annual Statement of Information, which is filed - along with a $25 fee - with the Secretary of State) and these minutes are best prepared either by corporate officers/directors, if they know how to do so, or by a business attorney (who can also review the corporations's prior meeting minutes and bylaws for potential areas for improvement, changes, and the like).

Unfortunately, while the mailings usually contain fine print that indicate "this is not a government document" and that the fee and service offered is not mandatory, many have been confused or misled by the mailers, resulting in a negative review for one of these companies by the Los Angeles Better Business Bureau.

The senders of these letters offer to assist California corporations with something that they indeed should be doing, preparing and filing with the corporate records annual meeting minutes, but their fees are high in relation to the limited service offered, and their advertising methods are questionable.

10/2007 update: Latest mailings for my clients are most frequently coming from sender and return address Corporate Compliance Center, 2740 Fulton Ave., Ste. 203, Sacramento, CA 95821-5183; Corporation Compliance Recorder, Administrative Clerk Division, P.O. Box 66186, Los Angeles, California 90066; and California Corporate Services: Business Division, 3308 El Camino Ave., Suite 300-609, Sacramento, CA 95814, all with the additional legend, "THIS IS NOT A GOVERNMENT DOCUMENT", and Corporate Business Bureau, Corporate Business Division, 8939 S. Sepulveda Blvd., #110-727, Los Angeles, CA 90045.

12/2007 addition: Board of Business Compliance, Annual Minutes Division, P.O. Box 93069, Los Angeles, CA 90093-0069 ("Business mail - Important Notice Enclosed; This is Not A Government Document").

2/2008 addition: Compliance Services, P.O. Box 1265, Studio City, California 91614-0265.

7/2008: Some readers have asked what they can do to thank me for the information provided here. While always appreciated, no thanks is necessary. Of course, if you or your friends, relatives, or colleagues are in need of the legal services I offer, please let them know about me and my website, bookmark the site, and keep me in mind for your future legal services; having you or them as my next client is the best thanks I can receive. And if your California corporation is in need of actual customized and attorney-drafted corporate minutes or attorney assistance with ongoing maintenance of your business entity, those are services we offer.

Note that some or all of these addresses may be postal or private mail box (PMB) facilities, so that other businesses may share the same address(es), and that the opinions expressed in the comments below are those of their respective authors and in general do not identify a specific company.

September 2008 update: Complaints may be filed with the California Attorney General by mail, telephone, fax, Internet, or email, as follows:

Attorney General's Office
California Department of Justice
Attn: Public Inquiry Unit
P.O. Box 944255
Sacramento, CA 94244-2550

TELEPHONE: 1-800-952-5225 (Toll-free in CA) or (916) 322-3360

FAX: (916) 323-5341

WEBSITE: http://ag.ca.gov/consumers

EMAIL: piu@doj.ca.gov

=============================

I was quoted in a Santa Monica Daily Press newspaper article on this topic earlier this year:

While there is nothing inherently wrong with the service that the AMCB is allegedly offering, the deception of business owners lies in the marketing tactic, according to Jonas Grant, a Burbank attorney who has represented a client who filed a lawsuit against one of the suspect companies.

Corporations are required by law to keep a record of minutes from the annual meeting of shareholders when officers are elected. The problem with the form is it implies that the corporation is required to file the minutes, when it actually just needs to make sure it has one on record, Grant said.

Grant noted that one of his clients who paid the fee to the compliance board did receive back the meeting minutes, though it was written in an unprofessional manner, he said.

When receiving similar types of letters, one of the warning signs that businesses can watch out for is the price of the fee, which should never be more than $25, Grant said.

Business owners should also always keep an eye out for the fine print.

The tip off in the letter sent to the Westside Economic Collaborative was the fine print at the very bottom, which states that the product or service being offered is not endorsed by any government agency. The fine print also adds that the service is not a “statement of account due,” but rather a solicitation.

“If you look at the fine print, you’ll know for sure if it’s garbage,” Grant said. “If it’s over $25, it’s probably not the right thing.”

October 2008 update: California Corporate Documentation Services, 1146 North Central Avenue #443, Glendale, CA 91202, "BUSINESS MAIL - IMPORTANT NOTICE ENCLOSED, THIS IS NOT A GOVERNMENT DOCUMENT"; CCDSquestions@aol.com; operated by CALIFORNIA CORPORATE DOCUMENTATION SERVICES, INC. Sadly, a member of the State Bar of California, Romel Ambarchyan, whose address of record with the State Bar is the same as California Corporate Documentation Services, Inc.'s, appears to at the very least be acting as the agent for service of process for this company.

November 2008 update: Department of Business Minutes, 4470 W. Sunset Blvd., #380, Los Angeles, CA 90027 ("Business mail - important notice enclosed; this is not a government document").

February 2009 update: New Annual Review Board mailing targets LLCs with Statement of Information related letter, 333 S. Grand Ave., 25th Floor, Los Angeles, California 90071, 213-943-1320; requests $228 payment - the actual Secretary of State Statement of Information filing costs $20 and is filed every two years.

California's Secretary of State has issued a customer alert regarding what it terms "misleading solicitations".

March 2009 update: The U.S. Postal Service is interested in hearing from any consumers who have actually filed and paid for any of the above reference minutes services; if you have relevant information, please contact:

Mr. Mike McCarthy, Postal Inspector
U.S. Postal Service
281 E. Colorado Blvd.
Pasadena, CA 91101-9998
626-405-1359

April 2009 update: State Bureau of Corporations, Annual Minutes Filing for Corporations and LLCs, P.O. Box 5909, Sacramento, CA 95817.

June 2011 update: Annual Business Renewal Center (ARBC), LLC Filing and Renewal Department, P.O. Box 27265, Los Angeles, CA 90027. Charging $175 to file a $20 Statement of Information. A not particularly well chosen name considering that LLC Statements of Information are due biennially, rather than annually.

October 2016 update: California Council for Corporations, 2443 Fair Oaks Boulevard, #216, Sacramento, CA 95825-7684, services@councilforcorps.com, (888) 408-0886. Clearly marked as NOT A GOVERNMENT DOCUMENT and a solicitation on the envelope, and at the bottom of the order form; asking $150 for preparation of corporate consent minutes in lieu of meeting minutes.

New Year, New Look at Your Business Entity

With a new year comes a good time to reevaluate your business entity (or lack thereof).

Business owners with an existing corporation should make sure that they have held and documented at least their annual meeting; if this hasn't been done for a while, this should be corrected as soon as possible. Ignorning this required corporate maintenance means you are failing to follow the corporate formalities and may be one step toward negating the limited liability of the corporation ("piercing the corporate veil").

Also for existing shareholders, members, officers, and directors of California corporations and limited liability companies (LLCs), required Secretary of State filings and Franchise Tax Board tax filings should be brought up to date if in arrears. If the business entity is no longer being used, and perhaps has been neglected as a result, to avoid further tax liability (which keeps accruing, whether the entity does business or not), it should be dissolved.

If a change from C corporation to S corporation tax status is being considered for a corporation, an accountant should be consulted.

For those without a current business entity, who are either starting up a new business venture, or still filing a Schedule C as a sole proprietor, it may make sense to think about the potential benefits of incorporating or forming an LLC (which, depending on the circumstances, may include limited liability, avoiding disputes with business partners, better image for clients, self-employment tax savings, and/or decreased tax audit exposure). For a free consultation by phone or email, or for assistance with the other legal issues discussed in this post, please click here.

California Secretary of State Business Entity Processing Times for Corporations, LLCs, Etc.

The California Secretary of State generally takes 3-4 weeks to process regularly filed corporation and limited liability company (LLC) formation documents, but due to the holidays and the usual heavy end-of-year and beginning-of-year filing volume, is currently operating on a 6-week plus schedule.  The backlog will likely diminish by the end of February, after the wave of new corporations formed for the beginning of the year subsides.  One can check the updated business entity processing times (and those for other filings, as well), here.

If standard processing times are inadequate, rush filing options are available; however, these must be weighed against the slightly increased legal fees and costs and substantial additional state filing fees. When possible, filing over the counter for a small additional fee in a regional office can speed turnaround time substantially. The Law Office of Jonas M. Grant PC regularly utilizes this method to speed its incorporations for clients.

Happy New Year and Welcome!

Happy New Year, and welcome to the California Business Law Blog, a weblog (sometimes called a "blawg" when law is the topic) wherein Los Angeles, California business and entertainment attorney Jonas M. Grant, will provide occasional updates on California business, intellectual property, and entertainment law of interest to his clients, potential clients, and the general public.  Your feedback and questions are welcome via moderated blog comments or in the case of inquiries by potential new clients, by contacting Jonas M. Grant directly.