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Don’t Risk it: Protect Your Finances From Coronavirus Complications

July 7, 2020

Dear Clients, Colleagues, and Friends: Many Americans spend a lot of time and effort in managing their finances. While most are worried about how the coronavirus (COVID-19) will impact their income—whether that’s because they are temporarily furloughed, find themselves suddenly without a job, or watching their investment and retirement accounts dwindle—there is another way COVID-19 can wreak havoc on American’s finances: lack of incapacity planning. As the coronavirus continues to expand across the country, thousands of Americans are unable to carry out normal financial responsibilities because they are too ill, or they are stuck abroad and unable to travel home, or from a lack of resources due to being isolated at home. While feeling healthy, individuals should plan ahead now and ensure that someone will take care of their financial duties by setting up a Financial Power of Attorney. This important legal document will not only protect your finances should you fall ill from COVID-19 but also from any events that might leave you incapacitated, like an injury or accident. Financial Power of Attorney: what is it? A Financial Power of Attorney (FPA) allows you to select a trusted family member or friend who will be responsible for managing your money and other property if you become mentally incapacitated (unable to make your own decisions) due to illness or injury. Without this document, bills won’t get paid, tax returns won’t be filed, bank and investment accounts held in your name will become inaccessible, retirement distributions can’t be requested, and property can’t be bought, sold, or managed. What happens if I don’t have one and get sick? Why would a court do that?—You may ask. As an adult, no one is automatically able to act for you, you must legally appoint them through the use of an FPA. Without it, you and your loved ones could lose valuable time, money, and control. WORD OF CAUTION: Don’t think you’re protected just because your assets are held jointly with your spouse, child, or family member. Here are three reasons why you shouldn’t rely on joint ownership: 1. Limited power. While a joint account holder may be able to access your bank account to pay bills or access your brokerage account to manage investments, a joint owner of real estate will not be able to mortgage or sell the property without the consent of all other owners. 2. Tax liability. By adding a family member’s name to your accounts or real estate titles you might be saddling them with gift tax liability. 3. Property seizure. You read that correctly. If your joint owner is sued than your property could be seized in order to pay their debt. 4. Medicaid disqualification. Putting a loved one’s name on a joint bank account or property title can disqualify them from receiving government benefits, such as Medicaid. Only a comprehensive incapacity plan will protect you and your assets from a court-supervised guardianship or conservatorship and the misdeeds of your joint owners. Do not rely on joint ownership as your plan—it’s simply too risky and unreliable. Already got one? Chances are it’s outdated. An FPA can become “obsolete” in […]

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FINANCING A NEW COMPANY: DEBT AND EQUITY DECISIONS

July 7, 2020

Dear Clients, Colleagues, and Friends: There are many forms of debt financing available to startups and young companies. Often it is a loan from a family member. This is the most common form of debt financing. There are no other commitments involved other than the terms of the note. Usually, the terms include a low-interest rate and payment due back to the note holder either on-demand or in a short period of time. You want this loan to be from your new entity, if you can, to limit your personal liability. If only the company (LLC or Corp) signs, you are not personally responsible. We all know about equity financing. This is where you sell stock to your investor. The hardest part of selling equity in a startup, once someone decides they want to invest, is to determine the value of the shares. Pre-Money valuation is the value of the company before the investment is made. Post-Money valuation is the value of the company after the investment has been made. You add the investment to the Pre-Money valuation to determine Post-Money valuation. Very simple. The higher your Pre-Money Valuation the less of the company that you have to give away to the investor. You determine the percentage that is given to the investor by dividing the amount of the investment by the Post-money valuation. Sometimes you cannot get a high enough Pre-Money valuation, and therefore would have to give away too much of the company at the start. In this case, you can talk about a Convertible Promissory Note. This is money loaned to the company that upon the happening of some event is converted to stock in the company. The value of the stock at this conversion is determined by a series of rules that are built into the convertible note. It is far more complex than the simple promissory note given to a family member. Some of the terms that are included in a convertible promissory note include: Amount of the note Outside date that the note is due, even if further funding is not met, and what happens if this date is reached What events need to occur for automatic conversion The discount that is given to the note holder upon automatic conversion Amount of new financing needed to automatically convert the note to stock Minimum Pre-money value of the company on conversion Maximum Pre-money value of the company on conversion When can the note holder convert on his own decision Provision that allows the note to adjust its terms for the better if a better deal is given to someone else Under what conditions can the company prepay the note Is there security for payment of the note What rights does the note holder have to see corporate documentation, including financials Under what conditions can the note holder accelerate payment Protective provisions regarding issuing additional stock in the company, Preemptive rights Class of stock to be purchased on the conversion Rights of that class of stock Appointment of board position for the note holder Who will pay fees for negotiating and drafting the note, and Other […]

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California Gets Back On-Track – Tips to Re-Ignite Your Business

July 7, 2020

Dear Clients, Colleagues, and Friends: As the California economy opens up again and companies begin to invite employees to the workplace, common questions arise from employers on what they are permitted to do with respect to their returning employees. In addition, many questions remain on how the Paycheck Protection Program (“PPP”) loan may be used to qualify for forgiveness. Below, we provide five of the most common questions recently asked in hopes that it gives you some helpful tips – used for informational purposes only. Should you have any follow-up questions on the topics or on any related matters, do not hesitate to call or email us. 1. If your employee took paid or unpaid COVID-related leave, can he/she return to the old job upon return to the office? Yes. In most circumstances, an employee returning from a Families First Coronavirus Response Act (“FFCRA”) paid sick leave or family leave must be restored to the same or equivalent position prior to the office closure. However, the employer may deny accepting the employee back to his/her former position if (i) the employee would not have otherwise been employed if, due economic reasons, the employer would have terminated that position (e.g. due to a company layoff), or (ii) if denying restoration is necessary to prevent “substantial and grievous economic injury” to the employer’s operations. Under the FFCRA, an employee working for an employer with fewer than 25 employees may be denied restoration to his/her former position if: (i) the employee took leave under the Emergency FMLA for child-care reasons; (ii) the employee’s position no longer exists because of economic conditions or other changes caused by the public health emergency during the leave period; and (iii) the employer makes reasonable efforts to contact the employee if an equivalent position becomes available during the one-year period after the employee’s leave. 2. Is an employee eligible for unemployment if he/she had to quit due to reasons related to COVID-19? Yes. An employee is generally not eligible for unemployment if he/she quit without good cause. However, if he/she quits for reasons related to COVID-19 (for example, having to stay home to take care of a sick family member, for kids that are out of school, or for children when no childcare can be obtained), he/she may be eligible for unemployment benefits under the CARES Act. Please note that quitting without good cause simply to obtain unemployment benefits is considered fraudulent and may result in having to pay back the benefits and prosecution. 3. For the Paycheck Protection Program (“PPP”) to be forgiven, how must the company use the funds? For eight weeks from the date of funding, at least 75% of the funds must be used towards “Payroll Costs,” and the other 25% must be used toward Rent and Utilities. Contact us for a spreadsheet or any related guidance. “Payroll Costs” include: -Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee); -Employee benefits including costs for vacation, parental, family, medical, or sick leave; an allowance for separation or dismissal; payments required for the provisions of group health care benefits including […]

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Update to the Paycheck Protection Program Provides Flexibility to Borrowers

July 7, 2020

Dear Clients, Colleagues, and Friends: As we have reported in recent newsletters, the Paycheck Protection Program (“PPP”), brought upon by the CARES Act, helps small businesses by keeping employees on the payroll through this difficult time. Please see our previous entries for PPP details. Today’s significant update is that the U.S. Congress drafted changes to the PPP giving borrowers more flexibility in terms of loan forgiveness. It passed Congress almost unanimously. The key update with this new bill is that borrowers now have 24 weeks rather than eight weeks to use the funds from the date it is funded. The issue solved here is that many employers could not use the PPP funds within that initial eight week period because their employees filed for unemployment insurance benefits and were resisting returning to the office (especially due to the extra $600 per week provided by the federal government). We received daily calls and emails from clients asking what they can do when employees refuse to return to work as they are making more on unemployment than when they are employed. This update will give those employers more time to use the PPP funds. Now, employers will not be penalized when an employee refuses to return to work when it comes time for the forgiveness calculation. Another important update with this bill is the reduction from 75% to 60% that the loan proceeds must be used on payroll with respect to loan forgiveness. Now, this new amount gives employers more flexibility on how to use the money to keep their business afloat. More of the funds can be used towards rent and utilities. In addition, the businesses have a longer time period to keep the loan as it is now five years instead of the original two years. The interest rate remains at 1%. Although these changes are beneficial, we would still like to see more updates. For instance, we would like to see clearer guidance on how to obtain forgiveness, especially for smaller loans. We would also like to see forgiveness extended to other categories that are required to keep the business viable – other than payroll, rent, and utilities – such as marketing, paying for those who make more than $100,000 annually and helping sole proprietors and independent contractors with additional guidance. As we receive additional information, we will keep you updated. In the interim, feel free to call or email us with any questions.

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Top Five Items California Employers Should Consider When Re-Opening Their Offices

July 7, 2020

Dear Clients, Colleagues, and Friends: Each day, we receive many questions from clients about steps employers should take when returning to the workplace. Although each scenario is unique, there are common themes that we receive as well as guidelines that we recommend. First, upon deciding to return to the office, employers should perform a risk assessment to see if the business establishment is ready for a return. This means before opening its doors to the public, the business should purchase the proper amount of sanitizer, masks, hand-wipes, and line up other relevant protections. Next, the employer should carefully plan how many employees will be initially invited, whether clients will be permitted and how many, and how often the business will be thoroughly cleaned and/or sanitized other than the routine cleaning services provided by the landlord. Please note that this is an evolving area and guidelines frequently change. Employment – Employers should review local ordinances as well as city, county, and state orders for guidelines and best practices. For Los Angeles County, employers should review such resources as the Mayor’s Office’s Orders (https://www.lamayor.org/COVID19Orders) and Toolkits for Business (https://corona-virus.la/Business). Moreover, employers should consider having employees fill out questionnaires about potential exposure and symptoms before returning to the office. There are permitted and prohibited questions and these should be reviewed by your legal counsel. Certain cities and counties also have specific requirements regarding face covering and other protective measures. Phased return to work can also present potential discrimination claims. It is best to first to ask employees to voluntarily return to work. Then, employers can invite certain individuals or departments gradually. Employers should keep these questionnaires in the employee’s confidential file since these are confidential medical records. When considering who will return to the office, gauge whether the individual must work in the office or if he/she could complete the work from home. Make sure you do not single anyone out due to his/her age or due to any other protected category (gender, ethnicity, race, religion, disability, etc.). However, if there are employees who fall into high-risk areas, you can ask the employees to contact you or your HR person to seek out a reasonable accommodation. The key here is to engage in an interactive process. Employees do not have the right not to return to work because he/she is scared or he/she is making more money under unemployment. Instead, he/she must have a reasonable belief of death or serious injury if required to return to the office. For employees who are afraid to return to the office because of a medical condition such as anxiety or underlying medical condition, employers must have reasonable accommodation in place (and can even require that the employee provide medical documentation). Employers may ask the employee what the concerns are and then address the concerns through accommodations to alleviate the concerns. If this does not work, and the reasonable accommodation still does not resolve the issue, the employer should consider reassigning the employee to a different, less exposed, position. However, at the end of the day, the employer may have to consider termination if it is a […]

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