San Diego Business Lawyer Blog
One of the first decisions new partners face in pursuing a new business venture is what type of business entity to form. Options include forming formal business entities such as a corporation or limited liability company (LLC) which are registered with the State of California or forming a partnership. While formal business entities offer many advantages (most notably protection of personal assets from liability), many new business owners prefer partnerships because of the ease of formation and the maximum flexibility in operations. This article focuses on the partnership. However, it is prudent to consult with an experienced San Diego partnership lawyer and accountant regarding the benefits of a more formal business entity before moving forward.
Although California law does not require a written partnership agreement, there are significant risks associated with informal oral agreements to form partnerships. If after careful consideration, the prospective partners opt to go with the partnership, there is little doubt that a written partnership agreement should be entered into. A written agreement of some sort is an essential part of any good business venture. A well drafted written partnership agreement helps insure that there will be no future misunderstandings regarding each partner’s intent. Often, partners rely on the default provisions governing partnerships under California law without realizing that many of these default provisions are inapposite to the partners’ expectations. Or in some cases, the partners will merely rely on oral agreements to deal with key provisions. However, enforcing oral agreements comes with a host of problems that can result in significant future conflict. See “Why Oral Partnerships Are a Bad Idea“. California’s Revised Uniform Partnership Act (RUPA) sets forth the default rules that govern oral partnerships.
Important Provisions in Partnership Agreements
A complete analysis of every possible provision in a partnership agreement is beyond the scope of this article. However, there are key issues that prospective partners should pay particular attention to:
- Limitations on Outside Pursuits: It is common for partners to commit varying amounts of time towards the operation of the business. Some maintain full time employment while committing resources and after hour time towards operation of the partnership. Others maintain partnership interests in other business ventures. A well-written partnership agreement will address whether these options are permissible. Whatever the case, the partnership agreement needs to clearly delineate each partners obligations and limitations with respect to time and resources towards business operations.
While option clauses are prevalent in commercial leasing, most landlords would probably prefer not to have to deal with them. This is especially so where the rental rate during the option period is fixed. Option clauses prevent landlords from leasing the premises on the open market and ultimately obtaining the highest possible rent. Options give tenants a choice which necessarily reduces a landlord’s flexibility. Once a tenant exercises its right to the option term, the terms of the option clause govern regardless of how good the market is at the time. That is why most landlords prefer that the rental rate during the option period be determined by the actual market rate for the premises at the time the option is exercised. This is generally a fair approach for both landlords and tenants because each side is equally exposed to the vagaries of the market. 
The public policy behind derivative actions is to protect corporations (especially publicly traded corporations) from the whims of fickle shareholders unhappy with share values. Even though it may be difficult for these fickle shareholders to win, the ability to bring actions without limitation can create significant waste. In essence, the goal is to reduce the number of frivolous suits and to encourage informal resolution, and there is a plethora of corporate law dictating the procedures necessary for bringing derivative actions. In general, derivative law requires shareholders to make a written demand on the corporate officers requesting that action be taken to investigate and if necessary file a lawsuit on the corporation’s behalf seeking to remedy the wrongs. This gives the corporation the opportunity to address the shareholders’ concerns in an effort to avoid 
Most importantly, under California law, these types or indemnification clauses are generally enforceable, at least in the commercial lease context. Of course, there are public policy considerations even where commercial leases are concerned. For instance, landlords cannot contract against future claims for their own intentional misconduct or gross negligence. It is advisable, given this limitation, for tenants to seek reciprocal indemnification language for any intentional conduct or gross negligence by landlords. Moreover, depending on the parties’ relative 
What Information is Included in a Tenant Estoppel Certificate?
Registering with the SEC vs. Qualifying for an Exemption
Most people would be surprised at the number of business owners (in San Diego alone) that choose to ignore lawsuits only to find out later that judgment has been entered against them for tens of thousands of dollars or even hundreds of thousands of dollars. The existence of the judgment is often discovered only after bank accounts are attached or a Sheriff shows up one day to conduct a till tap (collecting money from the cash register at the end of the day to satisfy the judgment). Others will rush to resolve the matter without the assistance of an experienced business litigator hoping that they can avoid the problem by agreeing to resolve the dispute informally. While informal resolution is certainly preferable, signing agreements without legal representation is extremely risky. The attorney representing the other side is armed with tools to maximize the benefit to their clients. The harm to business owners under this scenario can be incalculable. Usually, unrepresented business owners have no idea of the true extent of what they are agreeing to. For instance, a business owner who agrees to pay off a debt in twenty-four monthly payments may unknowingly stipulate to forfeiting all of her shares in a corporation (a disastrous outcome) if she is late even one time on her payments. An experienced business lawyer will build a cushion regarding late payments into any agreement settling the matter.
Two Common Approaches – The Stated Dollar Amount Approach and the Turn-Key Approach: 
There is a school of thought in both the legal and non-legal communities that discovery can also be used as an effective bulldozing tool (often referred to as “guerrilla discovery”), and the sad truth is that this is indeed true. The idea is to propound so much discovery (whether via written requests or deposition testimony) and to provide as much resistance to discovery propounded on you that the other side cowers in response to the onslaught. Between attorney fees, court reporter fees, transcript costs and expert fees, the total cost for the discovery phase alone can be astronomical. Even in a relatively simple case between two San Diego business owners, an attorney can propound hundreds and hundreds of interrogatories, requests for production of documents and requests for admissions (a discovery tool that allows parties to ask the other side to admit certain important facts in the litigation). If the propounding party feels that the discovery responses are inadequate for any reason a round of negotiation and motions to compel follow. By the time all of this is accomplished, the opposing party’s attorney may spend fifty to one hundred hours dealing with this written discovery alone. Even the most affordable litigator whose fees are in the low $200.00 per hour range, fifty to one hundred hours for a single battle over written discovery adds up fast. In addition, a guerrilla campaign will include taking the depositions of every possible witness resulting in significant additional cost. It is not uncommon for a party to notice the depositions of twenty or more witnesses. Some of these depositions are of business owners or managers and can last for days. The above scenario is an example of what can occur even with the simplest of cases. In more complex cases like patent litigation, attorney fees can be hundreds of thousands of dollars (for the discovery phase alone). As one might imagine, this type of onslaught can be daunting to the opposing party. 
Under Generally Accepted Accounting Practices, capital expenditures are defined as the costs of obtaining items that last beyond the current accounting period and increase the value or the life of an asset. Capital expenditures include things like additions, improvements, renovations, repairs and upgrades to existing facilities, and can be thought of as investments that are intended to yield long-term benefits. Commercial leases deal with capital expenditures in a variety of ways. Many, but not all, commercial leases contain a general capital expenditure exclusion that excuses tenants from having to contribute to the costs of such expenditures with two major exceptions: expenditures necessary to comply with new laws and improvements that reduce operating expenses. In some cases, these lease exclusions will also exempt those capital expenditures when the costs of replacing equipment (an HVAC system for instance) would be greater than the replacement cost of the equipment.