California C Corporations

Business Law

C Corporations, the Standard Model for California businesses

A California C corporation is a standard business model for California businesses. Though not a very flexible structure for some businesses, they often will offer the best protection for shareholders. The defined structure of a C corporation may be a necessity for your business, if you are seeking financing for your business, be it through a bank or through venture capital funds.

Shares are issued by a C corporations and each shareholder becomes an owner in the company. There can be multiple classes of shares each with its own restrictions and benefits, and shares can be sold and new shares can be issued, as needed. A corporation must have at least three directors under California law, unless there are less than three shareholders. In that case, the number of directors may be equal to or greater than the number of shareholders. For example, if the corporation has only one shareholder, the number of directors may be one or two. If the corporation has two shareholders, the number of directors may be two (or three, which is the normal minimum).

How and when taxes are paid for C corporations

California C corporations do have some advantages in how and when taxes are paid. They are taxed as separate entities from their owners. Therefore, they do not undergo pass-through taxation. The income of the California C corporation is taxed before being divided amongst shareholders, when the corporation files its own tax return. Hence, most taxes are paid at the corporate level and are not “passed through” to the shareholder level.

However, the income is taxed again when shareholders file individual tax returns after receiving dividends. This is called double taxation, and can be avoided with S – corporations and California LLCs. As these dividends have already been taxed at the corporate level, they usually qualify for a lower rate of 15 percent upon being taxed at the individual level.

Employees and managing shareholder’s salaries can be deducted from a C corporation’s taxable income. The ability to control the distribution of your profits is the primary tax advantage of California C – corporations. Taxation is controlled by keeping money in the corporate bank account until you are ready distribute the funds the shareholders as dividends, thus paying taxes at the most advantageous time.

DiJulio Law Group
https://www.dijuliolawgroup.com

Adverse Possession and California property owners

Adverse Possesion, Residential

Adverse possession a concern for California property owners

The relatively obscure principle of “adverse possession” may be demonstrated by the story of a Bay area man who found a suitably abandoned house and simply moved in. The concept of adverse possession is rooted in the belief that society’s best interests are met when property and land are utilized productively rather than sitting fallow.

Steve DeCaprio had become aware of a turn-of-the-century bungalow that had sat vacant for many years. He also knew that the previous owner of the house had died in the early 1980s and that no one had come forward to claim it. The house was in major disrepair.

DeCaprio and a group of friends got to work making the place habitable. He got the water flowing, bought storm doors and painted the exterior, planted vegetation in the front yard, and cut down another backyard tree that posed a hazard to the house next door.

DeCaprio didn’t buy this house but adverse possession says he owns it

DeCaprio didn’t buy this house, but, after more than a decade of struggle, he now owns it through the process of adverse possession. The obscure law called “adverse possession” allows ownership not through purchase or inheritance (the usual paths to home ownership), but through occupation. It only applies when no one else can prove they are the real owner.

In California, adverse possession requires five years of continued use

In California, adverse possession requires five years of continued use which is “open and notorious” and “adverse” to the owner’s interest. The maintenance and upkeep and improvement of the property is required and for the five years of use the property taxes must be paid for the property being adversely possessed.

Through adverse possession, it is possible to gain ownership of just a few feet of property or many acres. Adverse possession is not necessarily intentional on the part of the party that gains possession. It can happen through a legitimate mistake. For example, a neighbor may have relied upon a faulty property description in a deed when building a fence on an adjoining property.

DiJulio Law Group
https://www.dijuliolawgroup.com

Foreclosure by Power of Sale

Foreclosure, Residential

Foreclosure by power of sale may be preferable

California allows foreclosure by the power of sale which is generally a more expedient way of foreclosing on a property, when compared with foreclosure by judicial sale. Foreclosure by power of sale involves the sale of the mortgaged property by the mortgage holder (usually a bank or other lender), rather than a sale supervised by the court. As it reduces the time spent in selling a foreclosed property considerably, foreclosure by power of sale may be preferable.

The majority of states allow foreclosure by power of sale. After the sale, proceeds go first to the mortgage holder. If there is any money left over, it will go to those who are holding liens on the property and then to the borrowers. Foreclosure by the power of sale accomplishes the same thing as a judicial sale.

When a “power-of-sale” clause is included in a deed of trust or mortgage, the borrower pre-authorizes the sale of the property to pay off the balance on a loan if the borrower defaults (fails to make the loan payment when due).

The power given to sell the property is generally given to the trustee who acts on behalf of the beneficiary (lender) by recording and sending Notice of Default and Notice of Sale.

However, there are some legal questions associated with this method of foreclosure.

Foreclosure when the mortgage holder is a government entity

Some state “power of sale” laws have resulted in questions of constitutionality. It has been argued in several cases that foreclosure by power of sale legislation fails to comply with the notice and hearing requirements of the Fourteenth Amendment of the U. S. Constitution. Courts have consistently rejected this theory when it comes to private foreclosure actions when there is no public official conducting the foreclosure sale. With no public official present, there is no state action necessary to invoke the terms of the Fourteenth Amendment.

However, there have been rulings indicating that if the mortgage holder is a government entity or if a public official conducts the foreclosure sale, the Fourteenth Amendment might be invoked and stricter notice requirements might apply. The case law on this issue is so far unsettled.

DiJulio Law Group
https://www.dijuliolawgroup.com

Investing in the United States: The E-2 Business Visa

Business Law, Immigration , , ,

Establishing a New Business in America

Entrepreneurs from other countries wishing to establish a new business in America, or purchase an existing one, may qualify for an investor visa, also known as an E-2 visa. The Treaty Investor Visa (nonimmigrant E-2 classification) is intended for nationals of a foreign country with which a qualifying Treaty of friendship, commerce, navigation, or a similar agreement exists with the United States. In order to develop and direct their investments with the US, nationals (individual persons or companies) of countries with such treaties with the United States can obtain visas to work in this country.

These non-immigrant visas allow foreign investors and employees to live and work in the U.S., or foreign companies with U.S. subsidiaries to send employees to work here. The DiJulio Law Group has been assisting clients for over 35 years in addressing a wide range of legal matters, including their immigration and business needs.

Guidelines for an E-2 Business Visa

As with any type of visa, there are guidelines that apply for an E-2 visa. The U.S. Department of State website lists many, but the following information provides highlights of those guidelines.

Generally, a citizen of a foreign country who wishes to enter the United States must first obtain a visa, either a non-immigrant visa for temporary stay, or an immigrant visa for permanent residence. Treaty Trader (E-1) and Treaty Investor (E-2) visas are for citizens of countries with which the United States maintains treaties of commerce and navigation.

You must be coming to the United States to engage in substantial trade, including trade in services or technology, in qualifying activities, principally between the United States and the treaty country; or develop and direct the operations of an enterprise in which you have invested a substantial amount of capital.

Examples of types of enterprises that constitute trade under E visa provisions include international banking, insurance, transportation, communications, or tourism.

You must be coming to the United States to develop and direct the enterprise. If you are not the principal investor, you must be considered an essential employee, employed in a supervisory, executive, or highly specialized skill capacity. Ordinary skilled and unskilled workers do not qualify.

It must generate significantly more income than just to provide a living to you and family, or it must have a significant economic impact in the United States.

The investment must be a real operating enterprise, an active commercial or entrepreneurial undertaking. A paper organization, speculative or idle investment does not qualify. Uncommitted funds in a bank account or similar security are not considered an investment.

DiJulio Law Group
https://www.dijuliolawgroup.com

Fences and Boundary Line Disputes

Easements, Mediation, Residential , , ,

Fences are frequent sources of boundary line disputes

Fences are frequent sources of boundary line disagreements and disputes. A business or a homeowner decides to erect a fence without first determining where the actual property line lies. His neighbor then learns that the fence was not placed on the actual boundary line, but on his property. The neighbor might decide that the fence being on his property (encroachment) doesn’t bother him and does nothing about it. This approach has the advantage of preserving good will between the neighbors. However, if either owner decides to sell their property, they will need to disclose the encroachment to any potential buyers so that they can consider the issue as part of their purchasing decision.

Equal Contributions to Boundary Line Fence Maintenance

California code requires adjacent landowners equally contribute to maintain walls and fences between them, unless one of the two landowners chooses to let the remaining sides of his property remain unfenced. However, if that landowner later fences in his property, he will be responsible for payment of his proportional share of the original value of the common fence.

Spite Fences and boundary line disputes

What have become known as “spite fences” are also regulated by code. They are defined as “a fence or other structure in the nature of a fence unnecessarily exceeding 10 feet in height maliciously erected or maintained for the purpose of annoying the owner or occupant of adjoining property is a private nuisance.” Trees and hedges that are planted in a row to form a perimeter may be deemed a fence. The law provides strong remedies, including injunctions, against “spite fences.”

Encroachment

A common question posed to real estate attorneys are in regard to a dispute with an adjoining landowner involving an encroachment. An example of encroachment would be when another person puts up a structure like a fence that intrudes on your property. This issue might come up if when one of your neighbors builds a structure that is partially on your property. Typically, the courts will apply one of three legal theories to resolve such a case. They are the doctrine of adverse possession or prescriptive easements, the agreed boundaries doctrine, or the relative hardship doctrine. Which method that would be most applicable in your particular situation is best determined by a qualified real estate attorney.

DiJulio Law Group
https://www.dijuliolawgroup.com

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