In Propria Persona

Uncontested Dissolution of Marriage (Divorce): An Overview

2011-04-11T14:00:00.000-07:00

Save a bundle on legal fees if your divorce is uncontested!

What does "uncontested" mean?
A dissolution of marriage (divorce) is uncontested if both spouses agree on the division of assets and debts, child custody arrangements and payment of child or spousal support. Most divorce cases are resolved in this manner, where the terms of property division, support and custody are addressed in a written Marital Settlement Agreement (MSA), and no trial is necessary. If your case is contested, please contact an attorney or certified family law mediator to ensure your rights are protected.

There are many advantages:

Save a bundle on legal fees

Quick, efficient court processes, requiring minimal, if any, court appearances (often no court appearance is necessary)

The MSA becomes part of your judgment; you essential get to write your own court orders

You maintain control of your entire case

Types of Uncontested Divorces

Uncontested Dissolution of Marriage
This is the typical uncontested divorce case. One spouse, the "Petitioner" files the Petition; the other spouse, the "Respondent" files a Response, or an Appearance, Stipulations, and Waivers form. Both spouses must pay a court filing fee (unless a fee waiver is granted due to financial hardship). Both spouses must exchange financial disclosures with each other, and both parties must sign the Marital Settlement Agreement. All required documents can be completed very quickly, so you get your judgment back as soon as possible.

Default Case with Written Agreement
This type of divorce is similar to the Uncontested Dissolution of Marriage, above. However, in this type of uncontested divorce case, the Respondent does not file any response with the court (thereby saving the Respondent's filing fee, which varies by jurisdiction but is typically around $400). A Default may take a bit longer than the above type of case, because the Petitioner must wait until at least 30 days after the Respondent is served with the Petition before filing the Default paperwork and submitting the final judgment packet and MSA to the court. Even though the Respondent makes no appearance, he or she still must exchange financial information with the Petitioner, and must sign the Marital Settlement Agreement.

True Default Case
In a true default case, the Respondent files no documents, makes no appearance in court, and does not sign a Marital Settlement Agreement. The Petitioner must prove to the court that the Petition and financial disclosures were served on the other spouse, and must file several other forms with the court. A hearing may be necessary with this type of divorce; but you can still proceed with the dissolution of your marriage, even if your spouse is totally non-responsive.

Factors Common to All Uncontested Divorce Cases

The earliest you can be legally deemed an "unmarried" person is six months plus one day from the date the Petition was served on the Respondent

If your documents are processed and the court judgment entered before that date, you may proceed with dividing assets, changing your name, and enforcing other provisions in your MSA; however, your marital status will not change from "married" to "unmarried" until the expiration of six months plus one day, or another later date as determined by both spouses or the court

Don’t be Fooled by Solicitations from Companies that Will “File” Your Annual Corporate Minutes (for a fee, of course)

2011-01-24T13:20:00.000-08:00

After receiving a suspicious-looking solicitation on “official” letterhead bearing a Sacramento address, clients often ask:

“I got a form in the mail entitled “Disclosure Statement: Department of Annual Business Minutes (DOBM)” or “Annual Disclosure Statement” (or something similar), from a Sacramento address. It says I must fill it out and return it with a check for $125. Is this a scam? Do I need to do anything with my minutes on a yearly basis?”

Generally speaking, these are scams. I, myself, receive these solicitations several times a year. There are many companies out there that get an address somewhere in Sacramento (sometimes it’s just a mailbox store), and send envelopes with logos that somewhat resemble the official seal of the State of California, or they may look like they are from the Secretary of State’s office or the Department of Corporations. They generally tell you of some ill that will befall you and your business of you do not immediately sign the form and send it back with anywhere from $115 to $150 for annual minutes. You may receive such a solicitation within a few of weeks of filing your Articles of Incorporation.

Articles of Incorporation are public records, and these companies simply purchase lists of newly formed corporations. With so many small businesses incorporating every day, it’s like shooting fish in a barrel for them, and unfortunately their scare tactics work on a lot of people.

Here’s the real deal: Your corporation must have an annual meeting of the shareholders and an annual meeting of the directors. Meeting requirements are set forth in the Corporations Code and also in your corporation’s bylaws. These “meetings” do not have to be at a fancy conference location, and if your board of directors consists of just one person, you won’t exactly be “meeting” with yourself. But the meetings do have to be documented with minutes in your corporate record book. The bylaws further specify the requirements for the date and time of both the annual meeting of shareholders and the annual meeting of directors. In small corporations, these are usually handled as “paper meetings,” that is, minutes are generated documenting major decisions made that affect the corporation, but there is no actual “meeting” where folks sit down and conduct a discussion, etc. Failure to maintain an up to date corporate binder with all of the documents required in the Corporations Code and your bylaws (including minutes of these annual meetings) could potentially cause you to lose your corporate liability protection, and you may also be required to produce such documentation in the event you are ever audited by the tax authorities.

You can find an attorney or legal document assistant to prepare the necessary documents. However, these are all things you can do yourself, too. There are some easy-to-understand self-help books out there, like Nolo’s book on corporate resolutions. The Secretary of State will mail you a blank SOI form you can fill out and send back. But if you don’t want to hassle with it, we’re here to help.

Above all else, please understand that any solicitation you receive is likely a scam. Minutes do not get filed with the Secretary of State’s office; the only thing filed with the Secretary is the annual Statement of Information. Odds are, you will receive these bulk-mailed solicitations at various times of the year, often when you are nowhere near the annual meeting date established in your bylaws. Whatever services they are trying to sell you most likely won’t include the SOI, may not include the necessary notice waivers, and may not include the minutes of both meetings (shareholders and directors) as required in your bylaws.

Bottom line…buyer beware!

What is a Lis Pendens, and How Can I Record One if I am Not Represented by an Attorney?

2010-10-27T15:30:00.001-07:00

A “notice of pendency of action,” also known as a “lis pendens” (Latin for “a suit pending”), is a written notice that a lawsuit has been filed that may affect either the title to, possession of, or a claimed ownership interest in real property. The notice is usually filed in the county Recorder’s office. Recording the notice alerts a potential purchaser or lender that the property’s title is in question, which can make the property less attractive to a buyer or lender.

For the purposes of this article, all code sections refer to the California Code of Civil Procedure, unless otherwise indicated.

The Underlying Action
A notice of pendency of action is available in actions involving “real property claims,” which are defined in California Code of Civil Procedure § 405.04 as “the cause or causes of action in a pleading which would, if meritorious, affect (a) title to, or the right to possession of, specific real property or (b) the use of an easement identified in the pleading, other than an easement obtained pursuant to statute by any regulated public utility.”

In addition, some types of cases require that a notice of pendency of action be filed:

At the time of filing a complaint in an action to reestablish lost land records. (§ 751.13.)

Immediately upon commencement of a quiet title action. (§ 761.010(b).)

Within 10 days after filing the complaint in an action concerning real property titles affected by public improvement assessments (§ 801.5.)

Immediately upon filing a complaint for partition of real property; if, thereafter, partition of other real property is sought in the same action, a supplemental notice is also required. (§ 872.250.)

At the time of the commencement of an eminent domain proceeding. (§ 1250.150.)

To give constructive notice of the pendency of an action involving a claim against the state for escheated property (§ 1355.)

In an actions involving the accession to real property, by the improver of such property, who acted in good faith, against the owner and encumbrances of record. (Civil Code § 1013.5(b).)

With the clerk of the probate court in an action to enforce a claim rejected by an executor or administrator of a decedent’s estate (Probate Code § 9354.)

Within 10 days of bringing an action by a purchaser to determine adverse claims to or clouds upon the title to tax deeded property (Revenue and Taxation Code § 3956.)

With the city or county treasurer in an action for recovery on an improvement bond (Streets and Highways Code § 6619.)

Recording Requirements
Unless otherwise specified, the notice must be recorded in the office of the Recorder of each county in which all or part of the property is situated. The notice must contain the names of all parties to the action and a description of the property affected by the action.

A notice of pendency of action may not be recorded unless: (a) it has been signed by the attorney of record, (b) it is signed by a party acting in propria persona and approved by a judge as provided in this section, or (c) the action is subject to § 405.6 (eminent domain).
Except in eminent domain actions under § 405.6, the claimant shall, prior to recording the notice, cause a copy to be mailed, by registered or certified mail, return receipt requested, to all known addresses of the parties to whom the real property claim is adverse and to all owners of record of the real property affected by the real property claim as shown by the latest county assessment roll.

Immediately following recordation, a copy of the notice shall also be filed with the court in which the action is pending. Service shall also be made immediately and in the same manner upon any adverse party later joined in the action.

Any notice of pendency of action shall be void and invalid as to any adverse party or owner of record unless the above requirements are met for that party or owner and a proof of service in the form and content specified in § 1013a has been recorded with the notice of pendency of action.

Undertaking
Generally, at any time after a notice of pendency of action has been recorded, the court may, upon motion by any person with an interest in the property, require the claimant to give the moving party an undertaking as a condition of maintaining the notice in the record title.

However, a person who is not a party to the action shall obtain leave to intervene from the court at or before the time the person moves to require an undertaking.

The court may permit evidence to be received in the form of oral testimony and may make any orders it deems just to provide for discovery by any affected party.

An undertaking required pursuant to this section shall be of such nature and in such amount as the court may determine to be just. In its order requiring an undertaking, the court shall set a return date for the claimant to show compliance and if the claimant fails to show compliance on the return date, the court shall order the notice of pendency of action expunged without further notice or hearing.

Expunging a Notice of Pendency of Action
At any time after notice of pendency of action has been recorded, any party, or any nonparty with an interest in the real property, may apply to the court to expunge the notice.

However, a person who is not a party to the action shall obtain leave to intervene from the court at or before the time the party brings the motion to expunge the notice.

Evidence or declarations may be filed with the motion to expunge the notice. The court may permit evidence to be received in the form of oral testimony, and may make any orders it deems just to provide for discovery by any party affected by a motion to expunge the notice. The claimant shall have the burden of proof under §§ 405.31 and 405.32.

The court must order the notice expunged if the court finds that the pleading on which the notice is based does not contain a real property claim, or the claimant has not established the probable validity of the real property claim (e.g. it is more likely than not that the claimant will obtain a judgment against the defendant).

The court may not order an undertaking to be given as a condition of expunging the notice where the court finds the pleading does not contain a real property claim, or finds that the claimant has not established the probable validity of the claim.

In expungement proceedings, the court shall order that the notice be expunged if the court finds that the real property claim has probable validity, but adequate relief can be secured to the claimant by the giving of an undertaking.

The expungement order must be conditioned on the giving of the undertaking of a nature and in an amount as will indemnify the claimant for all damages proximately resulting from the expungement that the claimant may incur if the claimant prevails on the real property claim.

In an expungement proceeding, the court shall direct that the party prevailing on any motion under this chapter be awarded the reasonable attorney's fees and costs of making or opposing the motion unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorney's fees and costs unjust.

Withdrawing the Notice of Pendency of Action
At any time after notice of pendency of an action has been recorded, the notice may be withdrawn by recording, in the office of the Recorder in which the notice of pendency was recorded, a notice of withdrawal executed by the party who recorded the notice or by the party’s successor in interest. This notice of withdrawal must be acknowledged.

Forming a California Non-Profit Public Benefit Corporation

2010-10-25T13:55:00.000-07:00

In California, a non-profit organization that is incorporated to serve religious or charitable purposes is referred to as a “nonprofit public benefit corporation.” The legal requirements pertaining to these organizations are set forth in the California Corporations Code, beginning with § 5110. This article details the steps necessary to establish a California nonprofit public benefit corporation.

Laying the Groundwork
The philosopher Edmund Burke once said, “Good order is the foundation of all things.” In the spirit of Burke’s sage advice, we urge you to take your time with these preliminary steps, to ensure your new organization gets off to a good start with a solid foundation.

Direct your attention to your organization’s mission, funding sources, and annual budget. This is not the time to cut corners. Taking the time to write a mission statement that clearly identifies the needs your nonprofit corporation will address will assist you throughout the organization’s developmental stages, and will help you attract volunteers and donors.

Incorporate Your Nonprofit Organization
If you haven’t done so already, now is the time to choose name for the corporation and check the name availability with the California Secretary of State. Your organization’s name cannot be the same as, or deceptively similar to, other corporate names already on file (limited exceptions may apply).

You may also need to recruit directors to serve on your organization’s board. A California nonprofit public benefit corporation must have at least one director, and the number of directors must be stated in either the Articles of Incorporation or the corporate bylaws.*

Your Articles of Incorporation must be filed with the California Secretary of State. A filing fee is required; as of this writing that fee is $30. Current fees can be found on the Secretary of State’s website.

The Articles of Incorporation must contain specific language in order to qualify for tax-exempt status at the federal and state levels. Information about drafting the Articles of Incorporations, please consult California Corporations Code § 5130.

Once the Articles have been filed, you have 90 days to file a Statement of Information with the Secretary of State. This Statement is a public disclosure of information including a description of what the organization does, where it is located, and the names and addresses of its officers. After the original Statement is filed, you must file a new Statement of Information every two years. This Statement may be filed electronically via the Secretary of State’s website, or in paper format.

Draft Your Bylaws
The law requires that your organization adopt Bylaws, which are the internal governing document for your nonprofit corporation. The Bylaws establish the internal rules and procedures, including details about how business will be conducted, who has decision-making authority, and even the process by which the Bylaws can later be amended.

The Bylaws are not filed with any governmental entity, but must be kept with the organization’s corporate records at its principal place of business.

Hold an Organizational Meeting of the Board of Directors
The minutes from your Organizational Meeting of the Board of Directors will document the many of the remaining steps required to get your nonprofit organization up and running.
At this meeting, the incorporators and/or initial directors of the corporation will typically conduct the following business:

Appoint additional directors

Appoint or elect officers

Adopt the corporate Bylaws

Establish a budget

Designate a bank for the corporate account

Adopt a corporate seal

Set up a Corporate Record Book

Your corporate record book contains the important documents concerning the formation, management and due diligence of your nonprofit organization. Detailed information regarding recordkeeping requirements a nonprofit public benefit corporation must follow can be found in California Corporations Code §§ 6320-6325.

Get Your Employer Identification Numbers
Your nonprofit corporation must get a federal Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This can be obtained by phone, fax, mail or online application.
A California EIN is also required if your organization will be paying at least $100 in wages in a quarter. This EIN can be obtained online.

Apply for Tax Exempt Status
You will most likely want to apply for tax-exempt status with both the IRS and the California Franchise Tax Board (FTB). Without these exemptions, your organization may be obligated to pay at least the minimum federal and state corporate income tax.

The federal tax exemption under section IRC § 501(c)(3) is requested using IRS Form 1023, Application for Recognition of Exemption. This form may not be required, however, if your organization was established with a 501(c)(3) purpose and your annual gross receipts are normally less than $5,000.

California state tax exemption is requested on FTB Form 3500, Exemption Application. If you have already obtained a letter of determination from the IRS, you can apply to the FTB using the shorter Form 3500A, Submission of Exemption Request, and attaching a copy of the federal letter. These forms can be downloaded from the FTB’s website.

Register with the California Attorney General
Once your nonprofit public benefit corporation begins receiving donations, you must file the Initial Registration Form CT-1. This form must be filed with the Registry of Charitable Trusts within 30 days.

* Note: Under California law, no more than 49 percent of a board of directors may be interested persons. An interested person is a director who provides nondirector services to the nonprofit public benefit corporation and is paid for the services rendered. The law also extends to cover any close relative of the director. For more information, see California Corporations Code § 5227.

FAQ: Should I Incorporate My Business?

2009-07-06T10:41:00.000-07:00

The primary advantages of operating as a corporation are liability protection and potential tax savings. Like any important decision, choosing whether to incorporate involves weighing the pros and cons, and should only be done after careful research and consultation with a legal or tax professional.

Once incorporated, the business assets of the corporation are separated from the owner’s personal finances. As a result, the owner’s personal assets generally can be shielded from creditors of the business.

To maintain this legal separation (and avoid “piercing the corporate veil”), the corporation must observe certain formalities, including:

Keeping corporate assets and personal assets separate (no commingling of funds)

Holding shareholder and director meetings at least annually

Maintaining a corporate record book including bylaws, minutes of shareholder and director meetings, and shareholder records

Filing annual information statements with the Secretary of State

Filing a separate tax return for the corporation

Many people are concerned about “double taxation” of income, but you should do your own research, and compare the features of the C-corporation and S-corporation. The double taxation results when a C-corporation has profit at the end of the year, and that profit is then distributed to the shareholders. That profit is taxed to the corporation, at the corporate tax rate, and then the dividends are taxable income to the shareholders on their personal tax returns. However, the corporate tax rate is typically much lower than the individual tax rate that a sole-proprietor will pay on a 1040 Schedule C, and a competent accountant can help the corporation minimize double-taxation (or eliminate it completely).

For example, a small C-corporation will likely have a shareholder who is also an employee. Paychecks to the shareholder/employee are, of course, tax deductible to the business. To the shareholder/employee, they are taxable income (as would be the case with a paycheck from any employer). A bonus could be paid to the shareholder/employee in order to lower the corporation’s taxable profit, eliminating the double-taxation. These calculations should be performed by your accountant or tax advisor, but shifting income from the corporation to the shareholder/employee (or vice versa, depending on which has the lower tax rate) can be a great way to lower your overall tax liability. In addition, there are certain advantages that are only available with a C-Corporation, such as full tax-deductibility of medical benefits for a shareholder/employee.

The S-Corporation avoids the double-taxation by offering a tax structure similar to the Limited Liability Company (LLC, which is not an option for businesses that are required to hold a license, certification or registration). A corporation with 100 or fewer shareholders can elect to be treated as an S-Corporation. If the corporation is profitable, the shareholder/employee must draw a reasonable salary (and pay employment tax on it), but then all remaining corporate profits flow through to the shareholder’s personal tax return (thereby avoiding the FICA tax on the portion of profits that is taken as a dividend).

Before deciding to incorporate, you should seek legal and tax advice on what type of ownership best suits your business. An experienced attorney and tax advisor can help you decide which form of ownership is best for your business. For the do-it-yourselfers, we highly recommend “Own Your Own Corporation” by Garrett Sutton, Esq. (part of the Rich Dad series).

What is a Notice of Pendency of Action (Lis Pendens)?

2009-06-27T01:24:00.000-07:00

A “notice of pendency of action,” also known as a “lis pendens” (Latin for “a suit pending”), is a written notice that a lawsuit has been filed that may affect either the title to, possession of, or a claimed ownership interest in real property. The notice is usually filed in the county Recorder’s office. Recording the notice alerts a potential purchaser or lender that the property’s title is in question, which can make the property less attractive to a buyer or lender.

A notice of pendency of action is available in actions involving “real property claims,” which are defined in California Code of Civil Procedure § 405.04 as “the cause or causes of action in a pleading which would, if meritorious, affect (a) title to, or the right to possession of, specific real property or (b) the use of an easement identified in the pleading, other than an easement obtained pursuant to statute by any regulated public utility.”

Unless otherwise specified, the notice must be recorded in the office of the Recorder of each county in which all or part of the property is situated. The notice must contain the names of all parties to the court action and a description of the property.

An attorney of record in an action may sign a notice of pendency of action. Alternatively, a judge of the court in which an action that includes a real property claim is pending may, on request of a party, approve a notice of pendency of action. Such a request is usually made in the form of an ex parte application. Both the notice and the ex parte application are routine legal documents that you can prepare yourself, with a little help from the law library, or a non-attorney legal document preparer can assist you.

Federal Courts React to Tide of Pro Se Litigants

2009-03-21T14:13:00.000-07:00

From The National Law Journal

In response to a growing tide of pro se litigants in federal courts, legal centers in at least three districts have been set up to provide services and advice to parties who represent themselves in civil cases.

The newest center opened on March 5 at a federal courthouse in downtown Los Angeles. Last year, a similar one opened in the federal courthouse in San Francisco. A third program, operating out of the federal courthouse in Chicago, has been operating since 2006.

The centers reflect the increasing number of pro se litigants in federal courts, particularly in employment and certain types of civil rights lawsuits.

"It's part of a whole movement that's taking place in the courts to try to recognize, as a practical matter, that most people just can't afford lawyers these days," said Richard Zorza, coordinator of the Self Represented Litigation Network, which works with organizations on pro se litigant issues.

About 150 centers exist nationwide to assist pro se litigants, but most are part of state courts and vary from clinics to telephone hotlines to online resources, Zorza said. "It's certainly unique doing it in federal court," he said.

Unlike state courts, where pro se litigants frequently show up in divorces, the vast majority in federal court appear with employment claims, such as violations of the Americans With Disabilities Act and other anti-discrimination statutes.

The new pro se centers focus on civil cases and, for the most part, litigants who are not prisoners. The services are free. At the Pro Se Clinic in Los Angeles, which covers the Central District of California, a poster advertising its services in the courthouse lobby already had drawn up to 15 people a day before its official opening on March 5, said Janet Lewis, supervising attorney of the clinic.

Lewis works for Public Counsel, a nonprofit legal organization that operates the clinic, which came about after judges grew frustrated with pro se litigants.

Many of their problems are procedural. "The complaints are not put together in a way so that the court actually feels comfortable they can use them," she said.

Lewis is one of two attorneys in the clinic who provide legal advice, review briefs or refer litigants to pro bono attorneys, said Hernán Vera, president of Public Counsel. But they stop short of writing briefs or appearing in court.

In San Francisco, the Legal Help Center, sponsored by the Bar Association of San Francisco's Volunteer Legal Services Program, opened in September.

"Often, there are people who are misguided in terms of not really understanding what the cause of action is, and what's recognizable, and the fact that they don't have a viable cause of action for one reason or the other," said U.S. Magistrate Judge Edward Chen of the Northern District of California, who came up with the idea of the clinic. "Often, people do have a cause of action but are at a loss as to how to prosecute their case."

He said the court has a handbook available to help pro se litigants with terms. But the handbook doesn't explain legal theories, he said.

Unlike attorneys at the other two centers, the supervising attorney of the San Francisco clinic, Jennifer Greengold, can give limited legal advice and write pleadings. But she can't go to court and can't do outside research for pro se litigants.

C-Corporation vs. S-Corporation

2008-10-27T14:04:00.000-07:00

The difference between a C-Corporation and an S-Corporation is in the way each is taxed. Under the law, a corporation is considered to be an artificial person. Shareholders who work for the corporation are employees; they are not “self-employed” as far as the tax authorities are concerned.

The C-Corporation

In theory, before a C-corporation distributes profits to shareholders, it must pay tax on the income, at the corporate rate. Then, leftover profits are distributed to the shareholders as dividends, which are then treated as investment income and taxed to the shareholder. This is the “double taxation” you may have heard about. In reality, most (if not all) of a small C-Corporation’s earnings are paid out to its employees as wages, bonuses, fringe benefits, etc. Often, there is no “income” for the small C-Corporation to owe tax on, unless the shareholders choose to keep taxable earnings in the company to reinvest for future growth. Should you choose to keep profits in the corporation and pay tax on that income, it will be taxed at the corporate tax rate, which is typically lower than the individual tax rate the shareholders are subject to.

C-Corporations enjoy many tax-related advantages :

Income splitting is the division of income between the corporation and its shareholders in a way that lowers overall taxes. By working with an experienced tax advisor, you can determine exactly how much money the corporation should pay you, as an employee, to ensure the lowest tax bill at the end of the year.

C-Corporations enjoy the greatest variety of tax-favored fringe benefits of any business entity. Fringe benefits may include things like health insurance, retirement accounts, and medical reimbursement plans.

With a C-Corporation, medical costs, including health insurance premiums, are 100% tax-deductible to the corporation and tax-free to the recipient.

C-Corporations can also pay for an employee’s education expenses (if they are directly related to the job), and these expenses are also deductible to the company and tax-free to the employee. The company can also contribute – and deduct – up to $5,250 per year for an employee’s non-job-related education expenses.

A C-corporation can provide tax-free financial and tax planning to help employees, provided this benefit is part of a written employee benefit plan.

C-Corporations can deduct insurance disability insurance premiums for employees, and can provide employees and/or former employees with $50,000 in tax-free life insurance. Premiums paid for these policies are tax-deductible to the corporation.

A shareholder can borrow up to $10,000 from a C-Corporation, interest-free. Tax-free loans are not available to sole proprietors, partners, LLC members, or S-Corporation shareholders.

S-Corporation

S-Corporations pass income through to their shareholders, who pay tax on it according to their individual income tax rates. To qualify for S-Corporation status, the corporation must have less than 100 shareholders; all shareholders must be individual U.S. citizens, resident aliens, other S-Corporations, or an electing small business trust; the corporation may have only one class of stock; and all shareholders must consent in writing to the S-Corporation status.

Electing S-Corporation tax treatment eliminates any possibility of the “double taxation” referenced above. S-Corporations pay no federal corporate income tax, but must file annual tax returns. Because losses also flow through, shareholders who are active in the business can take most business operating losses on their individual tax returns.

S-Corporations must still file and pay employment taxes on employees, as with a C-Corporation. An S-Corporation may not retain earnings for future growth without the shareholders paying tax on them. The taxable profits of an S-Corporation pass through to the shareholders in the year they are earned.

S-Corporations cannot provide the full range of fringe benefits that a C-Corporation can.

Further Reading:
Own Your Own Corporation, by Garrett Sutton, Esq.
Tax Savvy for Small Business, by Frederick W. Daily
Publication 15B, Employer’s Tax Guide to Fringe Benefits, Internal Revenue Service

Corporations: An Overview

2008-10-25T15:06:00.000-07:00

Corporations are the most commonly used business entity. Corporations are, generally, a more complex form of business operation than either a sole proprietorship or partnership, and are subject to more state regulations regarding both their formation and operation.

In California, a corporation is created by filing Articles of Incorporation with the Secretary of State. The Articles of Incorporation serve as a public record of certain formalities of corporate existence. Adoption of corporate bylaws, or internal rules of operation, is often the first business of the corporation. The bylaws of the corporation outline the actual mechanics of the operation and management of the corporation.

There are two basic types of corporations: C-corporations and S-corporations. These prefixes refer to the particular chapter in the U.S. Tax Code that specifies the tax consequences of either type of corporate organization. There are significant differences in the tax treatment of these two types of corporations, however, they are both generally organized and operated in a similar manner.

In its simplest form, the corporate organizational structure consists of the following levels:

Shareholders: who own shares of the business but do not contribute to the direct management of the corporation, other than by electing the directors of the corporation and voting on major corporate issues.

Directors: who may be shareholders, but as directors do not own any of the business. They are responsible, jointly as members of the board of directors of the corporation, for making the major business decisions of the corporation, including appointing the officers of the corporation.

Officers: who may be shareholders and/or directors, but, as officers, do not own any of the business. Officers (generally the president, vice president, secretary, and treasurer) are responsible for day-to-day operation of the corporate business.

Disadvantages

Due to the nature of the organizational structure in a corporation, a certain degree of individual control is necessarily lost by incorporation. The officers, as appointees of the board of directors, are answerable to the board of management decisions. The board of directors, on the other hand, is not entirely free from restraint, since it is responsible to the shareholders for the prudent business management of the corporation.

However, in most small, family-owned incorporated businesses, only one or two people may occupy all roles, from shareholder to director to officer to employee. In this type of situation, the shareholder/directors continue to exercise full control over the operation of the business.

The technical formalities of corporation formation and operation must be strictly observed in order for a business to reap the benefits of corporate existence. For this reason, there is an additional burden of detailed recordkeeping. Corporate decisions must be reflected in the corporate records. Corporate meetings, both at the shareholder and director levels, must be formally documented.

Advantages

One of the most important advantages to the corporate form of business structure is that it limits the liability of the founders of and investors in the corporation. Liability for corporate debts is generally limited, to the amount of money each owner has contributed to the corporation. Certain requirements must be met, however, to assure that the limitation on liability remains in effect. Courts may be able to pierce the corporate veil, that is, hold shareholders personally liable, for the following reasons:

Failure to observe corporate formalities. The corporation must hold the required shareholders’ and directors’ meetings (or sign consents), keep a corporate minute book, comply with all state filing requirements, etc. Even a corporation with just one shareholder/director must still comply with these formalities. In addition, corporate officers must always sign all documents with the corporate title (e.g. John Doe, President).

Commingling of assets. Shareholders must take care to avoid mixing their personal assets with those of the corporation. Corporate assets should not be used to pay personal debts. Corporate and personal funds should be kept in separate accounts. Transfers between the corporation and the shareholder, whether a loan, reimbursement, paycheck, etc., must be appropriate and clearly documented.

Inadequate capitalization. If corporate founders fail to raise or contribute enough operating capital, the courts may require the shareholders to pay the corporate obligations. If the shareholders do not have sufficient capital to fund the corporation, they should purchase adequate liability insurance.

Fraud. A corporation may not be used to shelter fraud. Even if the fraud is committed in the name of the corporation, the shareholders may be held personally liable.

Depending on your personal situation, there may be significant tax advantages to incorporating.

Every corporation should have an experienced accountant or tax attorney on its team, to help determine whether tax treatment C-Corporation or an S-Corporation provides the most benefit, and to help with tax planning strategies before the close of each fiscal year.

In many cases, it is possible to reduce taxable profit to the point that the corporation pays only the corporate minimum tax. If the corporation stands to show a substantial profit at the end of the year, that tax is paid at the corporate tax rate (often much lower than individual tax rates), and that income can be reinvested in the corporation to further grow the business. Hiring a qualified tax advisor will pay for itself many times over.

Partnerships: An Overview

2008-10-25T08:56:00.000-07:00

The General Partnership

A partnership is a relationship existing between two or more persons who agree to share profits and losses. A partnership is usually based on a partnership agreement of some type. No formal, written document is required in order to create a partnership. If a formal agreement is not signed, the partnership will be subject to the applicable state laws governing partnerships.

Disadvantages

Like the sole proprietorship, owners of a partnership have no asset protection. Each partner’s personal assets are at risk. However, with a partnership, the owners face twice the liability exposure of a sole proprietorship. Any partner may obligate the partnership, and each individual partner is liable for all of the debts of the partnership, regardless of which partner may have been responsible for their accumulation.

In addition to the risk of personal financial liability, general partners also face potential personal legal liability for the negligence of another partner. Furthermore, each partner may also be liable for the negligence of an employee of the partnership if such negligence takes place during the usual course of business of the partnership.

Continuity is also an issue for the partnership. A partnership terminates when one partner dies, leaves, or goes bankrupt. In addition, it often very difficult to sell an interest in a partnership. Most sophisticated buyers do not want the risk associated with a general partnership.

Finally, certain benefits of corporate organization are not available to a partnership. Since a partnership cannot obtain financing through public stock offerings, large infusions of capital are more difficult for a partnership to raise than for a corporation. In addition, many of the fringe benefit programs that are available to corporations (such as certain pension and profit-sharing arrangements) are not available to partnerships.

Advantages

For a business in which two or more people desire to share in the work and in the profits, a partnership is often the structure chosen. It is, potentially, a much simpler form of business organization than the corporate form. There are fewer start-up costs and regulation of partnerships is limited. However, this simplicity can be deceiving. A sole proprietor knows that his or her actions will determine how the business will prosper, and that he or she is, ultimately, personally responsible for the success or failure of the company. In a partnership, however, the duties, obligations, and commitments of each partner are often ill-defined. This lack of definition of the status of each partner can lead to serious difficulties and disagreements. In order to clarify the rights and responsibilities of each partner and to be certain of the tax status of the partnership, it is good business procedure to have a written partnership agreement.

The Limited Partnership

A limited partnership is similar to a general partnership, except that it has two types of partners: general partners and limited partners.

General partners have broad powers to obligate the partnership (as they do with a general partnership). General partners are also personally liable for the debts and claims against the partnership. If there is more than one general partner, each of them is liable for the acts and omissions of the remaining general partners.

Limited partners are “limited” to their contribution of capital to the business, and may not become actively involved in running the company.

As with a general partnership, limited partnerships are flow-through tax entities.

Disadvantages

General partners are personally liable for all partnership debts. However, a corporation or an LLC may be formed to serve as the general partner, thereby limiting the limiting the potential for personal liability.

Because limited partners are prohibited from participating in the management activities of the enterprise, the general partners maintain complete control of the partnership’s business affairs. Limited partners have no control of their investment.

Advantages

Limited partners are not liable for the partnership’s debts beyond the value of their capital contribution into the business. Creditors of a limited partnership can only reach the partnership assets and those of the general partner (which is further limited by utilizing a corporation or LLC as a general partner).

Creditors of the individual partners can only reach the partner’s ownership interest in the partnership, but not the partnership assets themselves.

With proper estate planning, family assets can be transferred from one generation to the next at discounted rates. By using a family limited partnership, gifting can be accelerated with an IRS-approved discount. If you are considering this option, you should consult with an attorney.

Limited partnerships afford a great deal of flexibility to the partners. A written partnership agreement can be tailored to the business, family and estate planning needs of any situation.

The Sole Proprietorship: An Overview

2008-10-20T18:06:00.000-07:00

The sole proprietorship is the simplest and least regulated of all business entity structures (e.g. corporation, LLC, general partnership, etc.). For legal and tax purposes, the sole proprietorship’s owner is the business. The liabilities of the business are personal to the owner and the business ends when the owner dies. On the other hand, all of the profits are also personal to the owner and the sole owner has full control of the business.

Disadvantages

The primary consideration in choosing this type of business structure is liability. With a sole proprietorship, you have no asset protection. With just one lawsuit against the business, your house, savings and personal assets can be lost. If the demands of the business’ creditors exceed those assets which were formally placed in the name of the business, the creditors can tap the owner’s personal assets. This unlimited liability is a significant drawback to the sole proprietorship.

Depending on the profitability of the business, a sole proprietorship may incur a larger tax liability than other business structures. Profit from a sole proprietorship is reported on Schedule C of the owner’s personal income tax return, and is subject to self-employment tax (the “employer’s match” of Social Security and Medicare taxes). You are taxed on all profits in the year they are earned, whether or not you actually take money out of the business. When you reinvest in your sole proprietorship business, you must do so with “after tax” money. Additionally, certain fringe benefit plans are not tax-deductible to the sole proprietor.

Sole proprietorships also face potential difficulty in obtaining business loans. Often in starting a small business, there is insufficient collateral to obtain a loan and the sole owner must use his own personal assets as collateral to obtain the loan. This, of course, puts the owner’s personal assets in a direct position of risk should the business fail.

The sole proprietorship suffers from the lack of continuity that is inherent in the business form. It is difficult to sell a sole proprietorship, since its value is based on the owner and not the business. Upon the owner’s death, the assets of the sole proprietorship become part of the estate, and may face estate tax and probate consequences.

Advantages

The sole proprietorship is the simplest of all business structures. Aside from the maintenance of records for tax purposes, this type of business is not subject to legal requirements for how it must be operated (e.g. annual documentation and filings with the Secretary of State).

Legal Information or Legal Advice?

2008-07-09T18:30:00.000-07:00

Clarifying the Role of Legal Document Assistant (LDA)

As a Legal Document Assistant (LDA), I have often found myself in a quandary about how to provide the best service to my clients, enabling them to truly accomplish their self-help legal objectives, without crossing the line into forbidden territory. It is commonly understood that practicing law is exclusively within the domain of lawyers.

But what, exactly, is the “practice of law?”

Throughout the United States, courts, bar associations and legislative bodies have grappled with this issue and come up with a variety of tests to determine whether a particular activity constitutes the practice of law:

The “commonly understood” test defines the practice of law as composed of activities that lawyers have traditionally performed.[1] There are exceptions to this test, including:
~Non-attorneys may undertake activities usually performed by attorneys, if those activities are incidental to the profession or business of the non-attorney.[2]
~Lay people are permitted to provide services that are commonly understood to be the practice of law as long as those services do not involve difficult or complex questions of law.[3]
The existence of an attorney-client relationship is sometimes used as a determining factor.[4]
Other tests include whether the client believes he or she is receiving legal services, whether the activity involves the application of legal knowledge to the specific situation of an individual, and whether the services provided affect the recipient’s legal rights.[5]

Chapter 5.5 of the Business & Professions Code makes several references to the prohibition against non-attorney LDAs engaging in the practice of law. While the Business & Professions Code expressly prohibits the practice of law by individuals who are not active members of the State Bar,[6] the Code is silent on what, specifically, defines the “practice of law.”

The California Supreme Court addressed this issue in 1922, before the State Bar Act was enacted, but that definition is by no means carved in stone. In People v. Merchants Protective Corp., the court adopted the definition set forth by the Indiana Court of Appeals in 1893.[7] “As the term is generally understood, the practice of the law is the doing or performing services in a court of justice, in any matter depending therein, throughout its various stages, and in conformity to the adopted rules of procedure. But in a larger sense it includes legal advice and counsel, and the preparation of legal instruments and contracts by which legal rights are secured although such matter may or may not be depending in a court.”[8] This definition was reaffirmed in 1970 by the California Supreme Court in Baron v. Los Angeles.[9]

This definition, however, continues to evolve. “Defining the practice of law has been a difficult question for the legal profession for many years. The emergence of new technologies such as the Internet has expanded the number of ways in which legal advice and information can be disseminated, which has increased the complexity of the task,” as noted in comments made by the Federal Trade Commission and Department of Justice, in response to the American Bar Association’s proposed Model Definition of the Practice of Law. “The boundaries of the practice of law are unclear and have been prone to vary over time and geography.”[10]

In 2006, the California Supreme Court, referring to Merchants, held: “Notwithstanding the foregoing historical rule, a number of sources provided for exceptions to the rule. First, legislation was enacted that eroded the broad rule against the corporate practice of law and the practice of other professions. As noted, the 1968 Professional Corporation Act[11] permits the corporate practice of law even for profit, subject to various restrictions that are intended to safeguard client interests against the profit motive, including registration with the State Bar and a requirement of corporate ownership and governance solely by attorneys.”[12]

Similarly, legislation enacted in 1998 specifically authorizes non-attorneys to provide legal document preparation services.[13] Such activities necessarily include “the preparation of legal instruments and contracts by which legal rights are secured although such matter may or may not be depending in a court,” and clearly fall within the scope of prohibited activity under the previously-accepted definition of the practice of law.

In Baron, the Court has also noted that “ascertaining whether a particular activity falls within this general definition may be a formidable endeavor.”[14] In reaching its conclusion, the Baron Court stated, “In close cases, the courts have determined that the resolution of legal questions for another by advice and action is practicing law ‘if difficult or doubtful legal questions are involved which, to safeguard the public, reasonably demand the application of a trained legal mind.’”[15]

In recent years, several organizations and agencies have also weighed in on the issue, proffering their own opinions about what constitutes the practice of law.

In 2003, the American Bar Association (ABA) published the following recommendation regarding the definition of the “practice of law”:

"RESOLVED, That the American Bar Association recommends that every state and territory adopt a definition of the practice of law.
FURTHER RESOLVED, That each state’s and territory’s definition should include the basic premise that the practice of law is the application of legal principles and judgment to the circumstances or objectives of another person or entity.
FURTHER RESOLVED, That each state and territory should determine who may provide services that are included within the state’s or territory’s definition of the practice of law and under what circumstances, based upon the potential harm and benefit to the public. The determination should include consideration of minimum qualifications, competence and accountability.[16] "

This common-sense definition was recommended following a lengthy process which included significant public comment from government agencies, attorneys, non-attorney legal service providers, bar associations, and advocacy organizations.[17]

The draft version of this recommendation, released in 2002, was significantly broader in scope and thus heavily criticized. The 2002 draft stated that an individual was engaged in the practice of law when engaging in any of the following activities on behalf of another:

Giving advice or counsel to persons as to their legal rights or responsibilities or to those of others;
Selecting, drafting, or completing legal documents or agreements that affect the legal rights of a person;
Representing a person before an adjudicative body[18], including, but not limited to, preparing or filing documents or conducting discovery; or
Negotiating legal rights or responsibilities on behalf of a person.

This proposed Model Definition came under heavy fire, with accusations that it is overbroad, contrary to the public interest, does not protect consumers from harm, and could restrain competition between lawyers and non-lawyers.

In an article addressing the ABA’s proposed Model Definition, Attorney James C. Turner wrote, “There is a better approach. We should limit the concept of unauthorized practice by establishing a common-sense, brightline test that equates it to fraudulent practice – that is, saying you’re a lawyer when you’re not…Consumers understand this, and so should the profession.” In conclusion, Turner stated, “Whether the ABA likes it or not, lawyers cannot fully serve the legal needs of the public, and non-lawyer legal providers are here to stay. It is time to come into the 21st century and repudiate protectionist practices that hurt consumers and justifiably engender disdain for the legal profession.”[19]

In public comments made by the Federal Trade Commission and Department of Justice, Acting Assistant Attorney General Pate, et al., wrote, “If adopted by state governments, the proposed Definition is likely to raise costs for consumers and limit their competitive choices. There is no evidence before the ABA of which we are aware that consumers are hurt by this competition and there is substantial evidence that they benefit from it. Consequently, we recommend that the proposed Model Definition be substantially narrowed or rejected.”[20]

“We conclude that the proposed definition is not in the public interest because the harms it imposes on consumers by limiting competition are likely much greater than any consumer harm that it prevents.”[21]

In 2007, a similarly draconian definition of the “practice of law” was proposed in Hawai’i.[22] In public comments regarding the proposed rule, Thomas O. Barnett, United States Assistant Attorney General, et al., wrote, “The Justice Department and the [Federal Trade Commission] believe that the definition of the practice of law should be limited to activities for which specialized legal knowledge and training is demonstrably necessary to protect consumers and an attorney-client relationship is present.” [23] Barnett, et al. went on to urge the Hawai’I Supreme Court to “consider adopting language similar to that found in Rule 49 of the District of Columbia Court of Appeals. Rule 49 defines the practice of law as ‘the provision of professional legal advice or services where there is a client relationship of trust or reliance.’[24] The Commentary to Rule 49 makes clear that giving advice or counsel to others as to legal rights or responsibilities is not necessarily the practice of law. Rather, such services may be the practice of law if they are provided in the context of an attorney-client relationship.”[25]

So what does all of this mean in the context of the LDA-client relationship? How do we, as LDAs, best serve the interests of our clients and ensure that we further the access to justice movement while maintaining sound business practices that are appropriate and correct under the law?

California case law has established that providing the client with legal information – even a detailed manual containing specific advice – does not constitute the practice of law if the LDA refrains from personally advising the client regarding his particular case.[26]

Furthermore, significant First Amendment concerns are raised in connection with the outright prohibition of “any kind of advice, explanation, opinion, or recommendation to a consumer about possible legal rights, remedies, defenses, options…”[27] if such comments fail to meet California’s accepted definition of what constitutes the practice of law, e.g. providing advice if difficult or doubtful legal questions are involved which demand the application of a trained legal mind.[28]

By refraining from directly resolving a a client’s legal questions “by advice and action…if difficult or doubtful legal questions are involved which, to safeguard the public, reasonably demand the application of a trained legal mind,” the Legal Document Assistant should remain free from any finding of the unauthorized practice of law, or violation of Business & Professions Code section 6400, et seq.

[1] State Bar of Arizona v. Arizona Land Title and Trust Co., 366 P2d 1, 5-11 (Ariz. 1961)
[2] Virginia v. Jones & Robins, Inc., 41 S.E.2d 720, 727 (Va. 1947)
[3] Agran v. Shapiro, 127 Cal.App.2d Supp. 807, 818 (1954)
[4] Va. Sup. Ct. Unauthorized Practice Rules, Section B, Definition of the Practice of Law
[5] See Guidelines on Mediation and the Unauthorized Practice of Law, Department of Dispute Resolution Services of the Supreme Court of Virginia, (2001)
[6] Cal. Bus. & Prof. Code § 6125, et seq.
[7] Ely v. Miller, 34 N.E. 836 (Ind. 1893)
[8] People v. Merchants Protective Corp., 209 P. 363, 365 (Cal. 1922)
[9] Baron v. Los Angeles, 2 Cal.3d 535 (1970)
[10] Ltr. from the R. Hewitt Pate, Acting Assistant Attorney General, United States Department of Justice, et. al. to the ABA Task Force on the Model Definition of the Practice of Law, p. 2 (December 20, 2002)
[11] Cal. Corp. Code § 13400, et seq.
[12] Frye v. Tenderloin Housing Clinic, Inc., 38 Cal.4th 23, 38 (2006) (login required to access link)
[13] Cal. Bus. & Prof. Code § 6400, et seq.
[14] Baron, 2 Cal.3d at 543
[15] Id. at 543, citing Agran, 127 Cal.App.2d Supp. at 818 (emphasis added)
[16] Recommendation, Task Force on the Model Definition of the Practice of Law (ABA 2003) (emphases added)
[17] For complete details of the public comments submitted and presented at the hearing, click here
[18] For the purposes of this recommendation, an “adjudicative body” includes a court, mediator, arbitrator, legislative body, administrative agency or other body acting in an adjudicative capacity.
[19] James C. Turner, Lawyer vs. Nonlawyer, 26 Legal Times (February 3, 2003)
[20] Ltr. from R. Hewitt Pate, et al., p. 3
[21] Id., at p. 4
[22] Proposed Addition to the Rules of the Supreme Court of the State of Hawai’i
[23] Ltr. from the Thomas O. Barnett, Assistant Attorney General, United States Department of Justice, et. al. to the Judiciary Public Affairs Office of the State of Hawai’i, p. 1 (January 25, 2008)
[24] D.C. Court of Appeals Rule 49(b)(2) (2004) (emphasis added by Barnett, et al.)
[25] Ltr. from Barnett, et al., p. 8 (emphasis in original)
[26] People v. Landlords Professional Services, 215 Cal.App.3d 1599 at 1608 (4th Dist. 1990)
[27] Cal. Bus. & Prof. Code § 6400(g)
[28] Baron, 2 Cal.3d at 543

New Statewide Task Force Appointed to Improve Fairness, Efficiency in Family Law Cases

2008-06-04T09:28:00.000-07:00

San Francisco—William C. Vickrey, Administrative Director of the Courts, today announced the appointment of members to the Elkins Family Law Task Force, a new statewide panel that will strive to improve efficiency and fairness in family law proceedings.

To be chaired by Associate Justice Laurie D. Zelon of the Court of Appeal, Second Appellate District (Los Angeles), the task force will conduct a comprehensive review of family law proceedings and recommend changes to increase access to justice, ensure due process, and provide for more effective and consistent rules, policies, and procedures.

“The diverse membership of this impressive group will permit a thoughtful and thorough review of the many challenges involved in family law proceedings,” stated Chief Justice Ronald M. George. “The courts and public we serve will greatly benefit from improvements to the administration of justice in this important area.”

“In the lives of the parties, the significance and importance of family law cases cannot be overstated,” Mr. Vickrey observed. “The courts have a vital role to play in these cases, where critical issues are involved. The parties deserve policies and procedures that can be understood and navigated, and the rules must ensure due process and the opportunity to be heard to ensure the trust and confidence of parties involved in family law proceedings.”

Justice Zelon noted, “I look forward to working with this impressive group of family law experts and to hearing from the many interested groups and individuals who care about improving the way we handle family law cases. It is my hope that this task force, as a group, will quickly come to understand the challenges faced by litigants in family court. More importantly, we will then determine how we can put in place rules, practices, and procedures to better serve the people of California.

“The Supreme Court and the Judicial Council have asked us to deal with important and challenging issues, and I am confident that we will discharge our responsibilities well,” Justice Zelon continued. “We need to ensure that the interests of all parties in family law cases can be served and that justice and due process for all remains paramount. In recent years, the number of parties who are self-represented in family law proceedings has increased dramatically. This fact adds complexity to the issues, but also creates an opportunity for innovation and new approaches.”

The task force was appointed in response to a California Supreme Court opinion, Elkins v. Superior Court, 41 Cal.4th 1337, filed August 6, 2007. Authored by Chief Justice George, the unanimous opinion held that marital dissolution trials should proceed under the same general rules of procedure that govern other civil trials.

The ruling further provided: “We recommend to the Judicial Council that it establish a task force, including representatives of the family law bench and bar and the Judicial Council Advisory Committee on Family and Juvenile Law, to study and propose measures to assist trial courts in achieving efficiency and fairness in marital dissolution proceedings and to ensure access to justice for litigants, many of whom are self-represented. Such a task force might wish to consider proposals for adoption of new rules of court establishing statewide rules of practice and procedure for fair and expeditious proceedings in family law, from the initiation of an action to postjudgment motions. Special care might be taken to accommodate self-represented litigants. Proposed rules could be written in a manner easy for laypersons to follow, be economical to comply with, and ensure that a litigant be afforded a satisfactory opportunity to present his or her case to the court."

Members of the legal community and public who wish to share ideas with the Elkins Task Force may do so by writing to Elkinstaskforce@jud.ca.gov.

“Attorney Supervision,” Running & Capping, and the Rogue Paralegal

2008-05-23T13:18:00.000-07:00

You’ve seen the ads. Countless “rogue” paralegals, who are nothing more than illegal, unregistered legal document rogues, advertise their services as being “provided pursuant to Business & Professions Code section 6450, et seq.,” or “attorney supervised,” or “attorney available for consultation.”

Most of the California legal community is aware that sections 6450-6456 of the Business & Professions Code set forth the education and experience requirements for paralegals, as well as restrictions on advertising for freelance paralegals. Unfortunately, most of the general public does not possess such awareness. The majority of consumers do not know that a paralegal is prohibited from performing services for non-attorneys, nor are they aware that advertising and business cards must include the name of the law firm employing the paralegal or a statement that the paralegal is employed by or contracts with a licensed attorney.

It’s a convenient misunderstanding – for the illegal operator, anyway. The first part of Section 6451 almost appears to support the rogue paralegal’s contention that what he or she is doing is codified in California law. “It is unlawful for a paralegal to perform any services for a consumer except as performed under the direction and supervision of the attorney…” So far, so good, right? Just state in the ad, “attorney supervision pursuant to Business & Professions Code section 6450, et seq.”; the document preparer is exempt from registering as a legal document assistant because he or she works “under the direction” of a supervising attorney, right? Wrong. This section goes on to state, “…law firm, corporation, government agency, or other entity that employs or contracts with the paralegal.”

It really boils down to the age-old saying, “Follow the money.” As far as a bona fide independent, freelance paralegal is concerned, the “client” is the attorney who has requested and directs the work; that is who the paralegal must have a contract with. That is the only client a paralegal is permitted to have. An attorney must have the contractual relationship with the consumer, and that attorney may or may not choose to delegate some of the work to a paralegal employee or freelance independent contractor. Nothing in the law permits a paralegal or even a legitimate LDA practice to employ an attorney for the purposes of advising clients or circumventing Business & Professions Code section 6450, et seq. In fact, the California Rules of Professional Conduct state that an attorney “shall not form a partnership with a person who is not a lawyer if any of the activities of that partnership consist of the practice of law.” (Rule 1-310)

After establishing that paralegals are not permitted to have an ownership interest in a law practice, we must turn to the referrals generated by such “paralegal” advertising. Let’s assume that “Everytown Paralegal” advertises their paralegal services, with “attorney supervision” or “consultation,” and it is abundantly clear that this individual is nothing more than an unregistered LDA offering legal document preparation services to members of the public. But Everytown Paralegal claims to comply with section 6450 et seq. because the consumer signs a fee agreement with the “supervising attorney.” Everytown Paralegal is no longer an illegal, unregistered LDA; however we now have a business engaged in running and capping, which is explicitly prohibited under section 6450(b)(4).

No matter how you look at it, these “paralegals” and their business practices are nothing short of fraudulent, preying upon the ignorance of an unsuspecting public. Why does this infuriate me so much? Aside from the obvious lack of consumer protection, this represents a business practice that is significantly unfair to those of us who operate our businesses within the parameters of the Business & Professions Code by properly registering, advertising in accordance with the law, and utilizing the LDA Contract required by the Department of Consumer Affairs. On the other hand, they avoid the expense and hassle of proving their education and experience, obtaining a bond and registering as a Legal Document Assistant.

To add insult to injury, this type of advertising conveys the impression that the illegal operator actually provides “more” or “better” services than the typical registered LDA. Whereas the LDA’s advertising explains that we are not attorneys and cannot give legal advice, the illegal “paralegal” has an attorney “on staff” who can advise her clients, affording the consumer a “value-added” service. Our contract is long and full of disclaimers and explanations about what the LDA cannot do for the client, while the “paralegal” is free to dispense with the written contracts, take cash without so much as a receipt, and “advise” the client how to proceed. And the average consumer is none the wiser. Unfortunately, the LDA profession is too new, and enforcement too lacking, for the general public to see these “paralegals” for the charlatans that they are.

On May 30, the Alliance of Legal Document Assistant Professionals (ALDAP) is sponsoring a seminar presented by Orange County Deputy District Attorney Tracy Hughes. Ms. Hughes has successfully prosecuted both civil and criminal cases against non-attorney legal document preparers who refuse to comply with the registration and bonding requirements to become a Legal Document Assistant. She will speak about her successes with previous cases and the consumer harm caused by rogue document preparers; share what can be done to stem the tide of “paralegals” and other unregistered document preparers who prey upon the uninformed self-represented litigant.

State Bar Shuts Down Illegal Immigration Practice

2008-05-21T09:31:00.000-07:00

In a coordinated effort with the Los Angeles County District Attorney’s office, The State Bar of California shut down operations of RZ Services, Inc. in Montebello on April 28, 2008. The company had been providing immigration legal services without being licensed to practice law or bonded and registered as an immigration consultant. A team of State Bar investigators entered the offices at 9 a.m. and seized client files.

Investigators also served a court order on several banks to freeze the company’s accounts and notified the phone company and the postal service to reroute phone calls and mail to the State Bar. Romina Aida Zadorian, owner of RZ Services, was arrested by Los Angeles County sheriff’s deputies at her office. She is charged by the district attorney with 46 counts of grand theft, four of forgery and one of identity theft.

"Through the cooperative efforts of the State Bar and the Los Angeles County District Attorney’s Office, we have successfully closed down an operation that preys upon and defrauds our immigrant population,” said State Bar Chief Trial Counsel Scott Drexel. “We believe that this and other similar operations will provide a critical deterrent for those who seek to take advantage of immigrants and others who are in need of legal advice and assistance."

According to a petition filed by the State Bar in Los Angeles County Superior Court, Zadorian is not a licensed California attorney nor a duly bonded immigration consultant, yet she and RZ Services, Inc. provided legal services in connection with a variety of immigration applications, petitions and proceedings. Zadorian established a practice of collecting and then misappropriating filing fees intended for payment to the United States Department of Homeland Security Citizenship and Immigration Services.

The shutdown took place immediately after the State Bar obtained an interim order from the Superior Court assuming jurisdiction over Zadorian’s practice because of her unauthorized practice of law. The State Bar applied to the Superior Court under Business and Professions Code Section 6126.3, which became effective in January 2006.

Assumption of a law practice by a Superior Court under Business and Professions Code Section 6126.3 is based upon the court finding that a person has engaged in the practice of law without being an active member of the State Bar or otherwise authorized to practice in California and that the interest of a client or interested person or entity will be prejudiced if the court does not assume jurisdiction.