0 comments on “Is VC Funding Right for Your Business?”

Is VC Funding Right for Your Business?

Accepting venture capital funding is one of the biggest decisions many entrepreneurs face during the infancy of their start-ups.  Over the next few weeks, TechInsurance Blog will explore how new tech businesses secure the capital they need to get started.  In  TechInsurance Blog’s most recent post, Clark & Trevithick’s Peter Hogan talks about what VCs are looking for in return for their investment.  Here’s what Peter has to say: http://www.techinsurance.com/blog/business-tips/is-vc-funding-right-for-your-business/

Following your review, if you have any questions for Peter, please feel free to contact him at (310) 629-5700 or via email at phogan@clarktrev.com

0 comments on “Dangerous Liaisons – Be Careful When Transferring Assets”

Dangerous Liaisons – Be Careful When Transferring Assets

By Leslie R. Horowitz |

Clients often ask how to protect their assets.  Some refer to this as “asset protection,” a term that connotes the hiding of assets. Sometimes the request is based on a genuine concern for preservation of assets for family and retirement purposes, and sometimes based on a genuine concern that creditors from business transactions will be unrelenting in attempting to recoup potential losses.  Either way, depending upon the purpose and timing of the transfer, any transfer of assets that is not well thought out and carefully planned may be undone by third party creditors, bankruptcy trustees, assignees for the benefit of creditors and State or Federal Court appointed receivers.

Uniform Voidable Transactions Act

The area of law which governs asset transfers is known as the Uniform Voidable Transactions Act (“UVTA”), which was adopted into law by California commencing January 1, 2016.  Previously, the law governing voidable transfers was referred to as the Uniform Fraudulent Transfer Act and, before that, the Uniform Fraudulent Conveyance Act. The name change is relevant, because of the frequent misconception that common law fraud was being committed with regard to the transfer of assets.  Indeed, the elements of fraud are not required under the UVTA or its predecessors to recover transferred assets.

Transfer to Hinder, Delay or Defraud

The UVTA states that a transaction is voidable under two sets of circumstances.  The first circumstance is when the purpose of the transfer is to hinder, delay or defraud creditors.  This is called “actual fraud” and is judged by a subjective standard.  There are eleven “badges of fraud” that determine actual intent which are set forth in the statute as follows:  (1) Whether the transfer or obligation was to an insider; (2) Whether the debtor retained possession or control of the property transferred after the transfer; (3) Whether the transfer or obligation was disclosed or concealed; (4) Whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; (5) Whether the transfer was of substantially all of the debtor’s assets; (6) Whether the debtor absconded; (7) Whether the debtor removed or concealed assets; (8) Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (9) Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; (10) Whether the transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) Whether the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.  The more “badges” that a court finds applicable to a transaction, the more likely it is to be determined to be voidable.

If the purpose of the transfer is to hinder, delay or defraud creditors, such a transfer tends to occur in situations such as when a party has a lawsuit against him/her, sets up a new legal entity, such as a corporation or limited liability company and transfers personal or real property into the new legal entity, thus attempting to transfer legal ownership to another party. Some parties attempt to transfer assets directly to their children for similar purposes.  Some parties attempt to transfer assets into a trust, seemingly for estate planning purposes, however many such circumstance may be interpreted to fall within the definition of hinder, delay or defraud creditors. The statute of limitations is generally four years.

Transfer for Less than Reasonable Value

The second kind of voidable transfer occurs when a party makes a transfer without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either (1) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction, or (2) intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.  This is generally called “constructive fraud” and is judged on an objective standard.  Similar to “actual fraud,” parties may sell personal or real property to a friend or family member for less than the value of the asset (intending to recover it later), thus preserving value for him or herself.  The statute of limitations is generally four years from the date of the transfer.

Protections are Available

There are methods available to protect a person’s assets.  For business purposes, corporations or limited liability companies may be formed to own assets, such as income producing real property.  If such a legal entity holds assets, generally, neither the shareholder of a corporation nor a member of a limited liability company is liable for the debts of the entity.  If a shareholder or member owns interests in other legal entities, the legal entities are not liable for the debts of the other legal entities.  So, if a bankruptcy is needed for one, it will not affect the assets of the other.

Trusts are a useful and valuable tool for family estate planning purposes, but, in California, a trust does not protect the settlors from their own creditors.  Some trusts may protect assets of from future creditors.

Keep in mind, the new entity, either a trust or a corporation/limited liability company, may be set up to protect assets as long as the “purpose” is not to hinder, delay or defraud creditors and does not render the transferor insolvent at the time of the transfer.  The same rules under the UTVA apply. Again, the statute of limitations is four years, but may be seven years from the transfer if actual fraud can be proven. Should the applicable statute of limitations expire, otherwise voidable transfers of assets may be protected from future creditors.

There are no sure fire ways to protect assets, but consulting with a lawyer for business and family estate planning in advance could avoid future problems.

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.  You should certainly consult legal counsel of your choice when considering this or any other asset protection issue.  If you wish to consult with the author of this post or another attorney at Clark & Trevithick, please contact Leslie R. Horowitz by email  lhorowitz@clarktrev.comat or telephonically by calling the author at (213) 629-5700.

0 comments on “AIR Lease Forms – Good for the Goose or Good for the Gander? A View From the Tenant’s Perspective”

AIR Lease Forms – Good for the Goose or Good for the Gander? A View From the Tenant’s Perspective

By James S. Arico

Despite what a landlord may tell a prospective tenant, there is nothing “standard” about any lease form.  This is true even for pre-printed leases labeled as “standard,” like the AIR Commercial Real Estate Association lease forms (collectively, the “AIR Form”) for both net (where tenant pays a base rent amount plus its share of taxes, maintenance and insurance) and gross (where tenant pays a base rent amount plus its share of increased taxes, maintenance and insurance over a base year amount) lease transactions.  Traditionally, the AIR lease forms have been landlord orientated and designed to protect the commercial real estate brokerage community.  While the AIR lease forms have become more tenant-friendly in recent years, tenants should take care in reviewing an AIR Form prepared by either landlord or landlord’s broker.  Preferably, tenant should seek the assistance of commercial real estate counsel to review and negotiate the AIR provisions, since the form itself is generally favorable to landlord.

With respect to changes to the AIR Form made by landlord, any revisions using the copywrited AIR Form or AIR software are easily recognizable.  Form language landlord wishes to delete will appear as strike throughs and additions or revisions will either appear in the AIR Form in conspicuous type (i.e. different from the form type font) or will be addressed in a separate lease addendum.

The following are some examples of lease items that you, the prospective tenant, should be aware of that are in both the net and gross AIR lease forms:

Condition of the Premises.  In paragraph 2.2 of the AIR Form, landlord warrants that, among other things, the existing plumbing, electrical, and heating, ventilation and air conditioning (“HVAC”) systems are in good working order and the structural condition of the building in which the premises is located is free of material defects.  While this landlord warranty is a benefit for tenant, the warranty period is only thirty (30) days, with the sole exception being the HVAC system, which carries a six (6) month warranty.  Any problems incurred with these items following the expiration of the warranty period are tenant’s responsibility to fix at tenant’s sole cost.  Since a prospective tenant needs to “live” in its new premises for some to determine which building systems may be defective, tenant should request that, at a minimum, landlord’s warranty for all building systems and the building structure be extended to six (6) months.

Security Deposit.  The security deposit section of the AIR Form (paragraph 5) provides that if the base rent increases during the term of the lease, landlord has the right to increase the amount of tenant’s security deposit to maintain the same proportion as the initial security deposit bears to the initial base rent amount.  To avoid surprises, tenant should seek to strike this provision of the lease.

Tenant Improvements and Surrender of Possession.  Paragraph 7.3 of the AIR Form provides for tenant’s right to make alterations/improvements to the premises.  Tenant should keep in mind that, except for movable items of personal property used in tenant’s business (called trade fixtures), landlord has the right to keep or require removal of any other alterations or improvements tenant makes to the premises at the end of the lease term.  Since some alterations may be as expensive to remove as to install, tenant should request that all tenant improvements (other than trade fixtures) remain with the premises or, alternatively, that landlord make the “remove or remain” decision on all tenant improvements prior to installation.

Partial Damage that is an Insured Loss.  Under paragraph 9.2 of the AIR Form, if damage to the premises occurs that is insured and the cost to repair is $10,000 or less, landlord has the option to give tenant the insurance proceeds and have tenant undertake the repairs.  Two immediate issues arise with this concept.  First, tenant is usually not in the construction business and undertaking repair responsibilities, even if of minor nature, is a distraction to the ability of tenant to conduct its business.  Second, tenant may be responsible for any gap between the insurance proceeds received by landlord and the actual cost of the damage repair.  Tenant should carefully review its responsibilities in the event of damage or destruction and make sure that the provisions are “even handed.”

Accessibility ADA.  The last numbered paragraph of the AIR Form (Paragraph 50 on the net form and Paragraph 49 on the gross form) identifies three important things.  First, whether the premises has been inspected by a Certified Access Specialist (a “CASp”); second, that landlord makes no guarantees that the premises is ADA compliant; and third, that any ADA modifications required by tenant’s use will be the sole responsibility of tenant.  Tenant should consider the following:  First, if the premises have not been inspected by a CASp, tenant may want to retain its own CASp to inspect the premises; and second, tenant should negotiate a fair resolution of the allocation of costs related to any required ADA modifications.  For example, tenant should be responsible for only those non-structural modifications related to the unique nature of tenant’s use of the premises (as opposed to any other use of a tenant in the building, or a general office/warehouse use) and landlord should be responsible for all other modifications.

NOTE: THE ABOVE LEASE ITEMS ARE ONLY EXAMPLES OF POTENTIAL PITFALLS A TENANT MAY ENCOUNTER.  For this reason I reiterate the suggestion to seek the assistance of a commercial real estate counsel.

Good luck!

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.  You should certainly consult legal counsel of your choice when considering your real estate needs.  If you wish to consult with the author of this post or another attorney at Clark & Trevithick, please contact Jim Arico by email at jarico@clarktrev.com or telephonically by calling the author at (213) 629-5700.