Happy Holidays and Fundraising in 2009

Well, the Holiday Season is in full swing and a new year is around the corner. I hope the new year sees you all doing well (despite the economists' speculation).

As we look toward a new year I think it is time to talk about fundraising post-credit market meltdown.

Interestingly, we seem to have a fairly healthy market in the angel side because the volitility in the markets has caused private equity to be viewed as less risky (or at least not as big a jump up in risk). Nonetheless, it is not all rosy because there is a lot of competition for the dollars available, since many deals that would have had other methods of finance are now looking for private investment dollars.

For new businesses the take away is really this:

"Do your homework and be the best."

If you are the best in a competitive environment then the dollars are definitely available, but due diligence is up and investors are taking a critical eye to risk, so companies need to really work on being a clean investment. This means, no sloppy contracts, unprotected IP, vague expansion plans, etc. or the investors will just pass you by for easier deals because there are other good companies that have put in the work. But if you work to be the best, good things are available.

Happy Holidays

2009 California Employer Payroll Tax Rates

The base payroll tax rates for 2009 for California employers have been announced by the Employment Development Department (EDD), and are as follows:

Unemployment Insurance (UI): 3.4% of the first $7,000 of wages per employee, per year (however, an emergency surcharge is also in effect);

Employment Training Fund (ETT): 0.1% of the first $7,000 of wages per employee, per year;

State Disability Insurance (SDI): 1.1% of the first $90,669 of wages per employee, per year (up from $86,698, and up from 0.8% in 2008 and 0.6% in 2007)

Established employers may have a higher or lower UI rate, based on various factors. An emergency UI fund surcharge is in effect for the year.

If you are an employer or prospective employer unsure whether your current or prospective worker is properly classified as an employee or an independent contractor, you should hire an employment law attorney to advise you (I offer these services). Improper classification can lead to costly penalties and interest, as well as the assessment of back taxes.

Additionally, there are a host of legal hoops to jump through - which usually aren't, exposing employers to liability - when hiring a California employee (or an independent contractor). In either case, the relationship should generally be documented in a custom-drafted written employment or independent contractor agreement.

This article, written by a former director of EDD, is a few years old, but provides some general advice for employers on keeping their UI rates as low as possible.

Study: Los Angeles, Santa Monica Among 10 Most Expensive Places to Do Business in United States

And predicted to get worse. Westlake Village rated most business friendly in Los Angeles County. The Daily News reports:

The city of Los Angeles will finish 2008 in familiar company: Among the 10 most expensive places in the country to do business, according to a study released today.

Santa Monica is also on the list compiled by the 14th annual Kosmont-Rose Institute Cost of Doing Business Survey released by the Rose Institute of State & Local Government at Claremont McKenna College.

Los Angeles' placement on the list has remained steady, but at least it hasn't gotten any worse in the past year, according to Larry Kosmont, the survey's founder and president and chief executive officer of Kosmont Companies.

"Cities that charge the highest license fees such as Los Angeles, Philadelphia, and Cincinnati are often those that have a history of uneven relations with the business community," Kosmont said.

But Robert "Bud" Ovrom, Los Angeles' deputy mayor of economic development and housing, said the city is making progress.

For example, next year the city starts the final phase of a five-year plan to reduce the business tax by 15 percent. The final installment, a 3.9 percent reduction, kicks in Jan. 1.

"When I'm talking to companies I almost never hear about business taxes. I don't even hear much about workers' comp," Ovrom said.

"Everything I hear today is (about) the quality of the work force, schools, traffic and affordable housing." ....

On the contrary, the author's clients are more concerned with the high costs of state business taxes,* local business taxes, regulation, and workers' comp. Perhaps Ovrom's conversations are primarily with larger companies...? The article continues:

Los Angeles is challenging for businesses because of its fee and tax structure, it said. And while California cities are more competitive than in the past few years, costs for businesses remain high.

It also noted that Los Angeles County continues to be one of the nation's most expensive places for business and 10 of its cities are among the 50 most costly. The Bay Area is pricey, too.

The situation will worsen next year, Kosmont said, as voter-approved tax and fee increases kick in.

"What is happening in California is the cities are going to the ballot box and winning tax increases," Kosmont said. "Some of these cities were Los Angeles County cities. That makes a bad climate even worse."

Kosmont said that California and many of its cities have been expensive for a long time, but some have tried to compensate with aggressive economic development and redevelopment programs.

But now all are struggling with the state's budget deficit, which is the largest in its history.

The survey compares 402 cities nationwide based on the array of taxes and fees each imposes. They include sales, utility, income, property, and business taxes....

It noted that the highest-cost cities, such as Santa Monica and Oakland, cluster around the aging urban cores, while newer bedroom communities in the outer suburbs charge developers for their growth and pass on the savings to businesses to stimulate their economies.

For example, Kosmont said the least costly city in the county is Westlake Village.

"It has no business tax, no utility tax and very low property taxes.

So it is one of the bargains," Kosmont said.

That's by design, said City Manager Raymond B. Taylor.

"We have strived to be one of the most business-friendly cities in California since our inception in 1981," Taylor said.

About 8,800 people live in the city that abuts the Ventura County line. But there are 850 businesses in the village that generate 11,000 jobs.

"The city recognizes the value and the role that businesses play in terms of job development and the vibrancy of the community," Taylor said.

* A domestic corporation in Utah costs a minimum of $100 in annual franchise tax payable to the state for the privilege of doing business as a corporation in the state; in California, $800, among the highest cost in the nation.

See also:

California Legislature Plans To Increase Taxes

2009 California Employer Payroll Tax Rates

Proper (Business Attorney Assisted) Set Up and Maintenance Crucial to Limited Liability Protection of Corporations and LLCs

Couldn't agree more with this excerpt from today's article by fellow Southern California WealthCounsel attorney Alexis Martin Neely:

You'll recall from last week, that I said the purpose of your business entity is to limit your liability as a business owner. This is to encourage business owners to take risks that they would not take if they had unlimited personal liability.

Here's the thing though, the shield is only intact if certain formalities are maintained, such as proper filings with the State, annual meetings of the shareholders (for corporations), and separation of all financial activities between you and the entity.

Far too often, I've come across business owners who used an incorporation service, a shoddy lawyer, or a CPA to incorporate their business and when I asked these business owners where their operating agreements, bylaws, annual meeting minutes and state filings were kept, they couldn't tell me.

Why is that? Because they didn't realize that merely filing articles of incorporation with the State does not provide liability protection.
Your corporate entity must be established correctly from the beginning with governing documents and then maintained on a yearly basis.

If you don't do that, you may come to find out too late that your business entity doesn't provide the protection you thought it did.

So, make sure that once you decide what kind of an entity to use, you set it up right and then maintain that entity.

While I'm open to a pleasant surprise one day, thusfar I have yet to review one corporation or limited liability company that was properly set up and maintained by a do-it-yourselfer (including those who used online incorporation services, paralegals, CPAs, non-business attorneys).

Holiday Parties: How Businesses Can Avoid Sexual Harassment Lawsuits

Guest Post by Jessica Hawthorne

As holiday decorations start to go up around the office and everyone is full of seasonal cheer, many businesses may find that work parties, along with a more relaxed environment, can lead to sexual harassment claims.

Much too often – especially if the event is off-site and the alcohol flows freely – the office holiday party becomes a breeding ground for this sort of behavior. It seems that some employees can get the impression that professional behavior isn’t necessary at the festivities.

But that’s not the case. If it’s a work-sponsored event, workplace etiquette applies. And unfortunately for employers, liability can be the unexpected Christmas delivery if things aren’t handled properly.

Every year, claims and lawsuits over sexual harassment problems cost companies millions of dollars. In 2007, for example, the Equal Employment Opportunity Commission received nearly 25,000 sex-discrimination complaints and fined businesses more than $135 million for violating these workplace protections, the highest level since 2002.

But businesses can protect employees against legal turmoil by taking simple steps to prevent harassment from occurring at the office holiday party – or anywhere else:

• Advise employees of all relevant policies, such as harassment, dress code and appropriate workplace behavior.
• Make sure all supervisors have received sexual harassment training.
• Make sure everyone knows how to report unwanted or unwelcome behavior.
• Remind all employees that the company's sexual harassment policies will be in full force and effect during the event.

Despite training and preparation, sexual harassment claims could arise, so employers should also be aware of how to mitigate the situation. It’s important to act swiftly if there are any complaints to determine what happened and how best to deal with the claim. That way, you will have done your harassment prevention due diligence if any legal situation arises later.

The best way to accomplish this – and follow California law – is to conduct proactive employee training and awareness against all forms of harassment.

All organizations, and that includes businesses, government agencies and non-profits, with 50 or more employees are required to train all supervisory personnel in sexual harassment prevention. Employers must prove that all of these employees take an interactive, two-hour harassment prevention course within six months of hire and every two years thereafter.

So keep in mind that while sexual harassment prevention is relevant all year round, now is a good time to give your office a refresher course. Your business should enjoy this festive time of year by keeping employees aware and preventing sexual harassment before it starts.

Jessica Hawthorne is an employment attorney the California Chamber of Commerce. More information on sexual harassment prevention training and many other workplace issues can be found at www.CalBizCentral.com.

Initial Birmingham Angel Network Screening Meeting

The 1st BAN screening meeting is set to be held at the Summit Club on Wednesday Oct. 29th at 7pm.

Members and Board members will be discussing the over 30 companies that have submitted and selecting the few that will be asked to present to the entire group later this year.

www.birminghamangels.com

Freehold Licensing Ltd.

I had an interesting company pass my way that we have begun to work with that I think has some real application to our current financial and liquidity crisis.

Freehold Licensing Ltd. (http://www.freeholdlicensing.com/) of Texas is helping their clients create long-term revenue streams by creating for-profit transfer fee rights in property owned by their clients.

The company says:

Freehold Licensing enters the world of Real Estate Transfer Fee Rights as the creator of a unique business process and the leading experts at advising property owners how to restructure property rights by easily and efficiently creating a long-term income stream.

The process was originally developed in response to a common problem faced by virtually every real estate developer: How To Add Improvements Without Unfairly Burdening The Initial Buyer?

The result is a fully collateralized income stream that continues to grow year after year. The existence of Transfer Fee Rights benefits both current and future buyers and sellers alike. This approach to structuring real estate transactions is well suited for many different types of owners of large portfolios of real estate such as builders, developers, REIT's, bank REO departments and more, as well as work-out professionals and bankruptcy trustees seeking to maximize the value of estates with large real property holdings.

After looking at the process, these revenue streams seem to be ideally suited for banks to utilize as additional assets that can help shore up lagging balance sheets. Furthermore, it appears that recent SEC and FASB guidance (http://www.sec.gov/news/press/2008/2008-234.htm) provides a pretty clear standard opinion on the valuation of non-market assets such as these rights. (Although the company has plans to create a securitized product option that would likely have a market.)

Given that the world governments are being forced to take extraordinary actions to protect our world economy from what appears to be an indirect run on the banks by rapidly deflating balance sheets due at least in part to disfunctional actions of the mortgage backed securities markets it would appear that it is in all our best interests to locate every alternative available for our banking system to "re-flate" their balance sheets and this appears to be a very viable option.