Understanding California Business Law and the Legal Landscape

A Guide to California Business Law

California business law is an inextricable part of the overall legal definition of a business, and of course California laws concerning business constitute a substantial portion of the state’s entire legal code. Entrepreneurs and small business entities starting a new company or expanding an existing one in California must navigate the complexities of many legal requirements and restrictions, including business licensing, zoning and land use, board member and corporate meetings, stock issuance, following all corporate formalities, maintaining all annual requirements, paying state taxes, complying with what is often a very complicated tax structure, and properly disbursing corporate profits to owners and shareholders. Corporations headquartered in California also must be aware of what is called the California "long arm statute," which can result in California’s jurisdiction over many companies operating in other states, and indeed many entities domiciled in other countries. Any company with its headquarters or even just operations in California must become familiar with regulations including the International Foreign Bank Account Reporting (FBAR) requirements as well as compliance with the Foreign Corrupt Practices Act (if engaged in international business activities), the Bank Secrecy Act, the PATRIOT Act, and the Anti-Money Laundering (AML) and Know Your Customer standards. Failing to comply with these complex requirements can lead to severe legal liabilities for the owners and officers of a company; an example of the type of risk to which businesses are subject is demonstrated in the prosecution by the United States of the former CEO Paul Risenhoover of Cobalt International Energy based in Houston, Texas whose actions were prosecuted under the FCPA in the U.S. District Court for the Southern District of Texas.
Business lawyers have the responsibility to represent client companies in complying with the wide array of federal and state laws and regulations applicable to every aspect of the business. Even the process of starting a new business can be complicated by the requirement of obtaining permits from the state and sometimes the county for actual business operations at a location , or by the need to comply with disclosure and reporting requirements to federal agencies which monitor the nature and extent of commercial activities. Some new businesses that require permits or licenses include builders, contractors and construction workers, alcohol and drug dealers, bars, taverns, grocery stores, restaurants, gyms, health clubs, salons, concert halls and sporting arenas. The necessary forms and applications to obtain the requisite licenses can be time-consuming to complete, taking months or longer to finally obtain the business permits for a location or operation. However, a business that commences operations without the required licenses could be subject to serious liabilities resulting in fines or even an order to vacate the physical premises. There are also a large variety of business practices which are illegal (or at least require disclosure or other regulatory compliance) including insider trading, embezzlement, kickbacks, bribery and perks, false advertising, technology theft, collusion and price fixing, anti-competitive activities, various real estate violations and bribes, payoffs and kickbacks to public officials.
The different types of business entities recognized under California and the related procedural requirements for each type of organization is also vast and complicated. In addition to for profit businesses, there are non-profit corporations, joint ventures, partnerships, limited liability companies, professional corporations and limited liability partnerships, limited liability partnerships and trusts. Nonprofit organizations in California have specialized rules and regulations, and extensive compliance procedures including completing the Form 990 Annual Information Return for tax exempt organizations. Among the provisions of the California Corporations Code which are crucial to understand are those relating to marketing and selling securities stock, the issuance of bonds and notes, stock options and warrants, transfer of stock, accounting books and records, stock book and other required disclosures.

Laws Governing California Businesses

California is known for having stringent regulations that govern a range of business activities, from environmental protection to consumer rights. Key statutes and regulations that impact businesses include the Fair Employment and Housing Act (FEHA), the Occupational Safety and Health Administration (OSHA) standards, and the California Consumer Privacy Act (CCPA).
The FEHA regulates workplace environments, making it illegal for an employer to discriminate against, harass, or otherwise retaliate against an employee for filing a complaint. Often referred to as "California’s civil rights law," FEHA places more legal responsibility for creating a discrimination-free workplace on employers than the federal law it was patterned after—the federal Title VII of the Civil Rights Act of 1964.
In California, an employer can be held vicariously liable for the misconduct of its employees or agents, even if the company itself did not engage in wrongful conduct. This means that an employee who has been discriminated against, harassed, or retaliated against, may be able to file a lawsuit against both the supervisor and the employer.
Every year something new gets added to California’s labor laws, making them some of the most complex in the nation. A few examples of common labor law violations are:
The CCPA is the first of its kind in the nation, with an effective date of January 1, 2020. It gives California residents the right to know what personal information is collected by a business, including the sources of that information, how that information is used and who it is shared with. Similar to the European General Data Protection Regulation (GDPR), the CCPA gives consumers the ability to review their personal information and request deletion of it.
The CCPA also provides a private right of action for consumers. If a consumer’s data privacy rights, as opposed to their privacy rights, are violated by a business, the consumer has the right to sue the business for statutory damages ranging from $100 to $750 per incident. In addition, a business can be ordered to pay the consumer’s attorney’s fees and costs.
California environmental protection laws, including the California Environmental Quality Act (CEQA), the Porter-Cologne Water Act (PCWA), the Toxic Mold Protection Act (TMPA) and Proposition 65 (Prop 65), create a comprehensive legal framework for the regulation of businesses. CEQA requires state and local agencies in California to identify and analyze the potential environmental impacts of a proposed project and reduce those impacts to the extent possible. The PCWA established the State Water Resources Control Board, which is responsible for protecting the state’s water supply by regulating water quality, water rights and drinking water.
The TMPA, enacted in 2001, requires building owners in California to disclose known toxic molds to potential renters and/or home buyers. The act also establishes standards for mold clean-up that include removing contaminated materials breeding mold and thoroughly cleaning affected areas.
Prop 65, officially known as the Safe Drinking Water and Toxic Enforcement Act of 1986, requires that businesses notify California residents of any hazardous chemicals to which they might be exposed. Illnesses caused by this exposures include cancer, birth defects and other reproductive problems.

Starting a Business in California

The process of launching a new business in California requires entrepreneurs to navigate several specific legal requirements. These often-adaptable steps, which individuals should take when forming a business, serve as an excellent starting point. However, the legal complexities facing each entrepreneur can vary based on the details of their operations. Therefore, it may help for newcomers to seek guidance from an attorney regarding their particular circumstances.
At the outset, entrepreneurs should contemplate the scope of their operations as they decide which business entity is most appropriate. For example, sole proprietorships are easy-to-manage, egalitarian structure. At the other end of the spectrum, limited liability companies (LLCs) and corporations demand greater attention, but offer some unique asset protections.
Subsequently, owners must complete all the necessary registration documents. California-based businesses that operate under a fictitious name must file "fictitious business name statements" with the county clerk’s office. If they possess federal trademarks, they are not required to register as fictitious business names.
Next, owners should start obtaining all necessary permits and licenses needed to legally operate their businesses. For instance, there is the employer identification number (EIN) to consider. The EIN is an identification number for businesses and it is used by state and federal tax agencies. In California, for example, EIN permits owners to complete income tax and payroll forms. It also facilitates various other business activities.
For those who will employ workers, they may need to look into registration with the labor commissioner. The process, which can be administered through the California Department of Industrial Relations, is relatively straightforward. The agency serves as the legal watchdog over hiring, firing and compensation practices, and its role demands that employers register with the office and adhere to various continuing processes.
Finally, entrepreneurs should contemplate establishing a written agreement among their business owners. Such agreements, which are helpful in many situations ranging from business sales to death to divorce, can be invaluable in preventing disputes from escalating. In California, if a formal agreement does not exist, the courts may impose a company dissolution on the business when owners disagree.

Labor and Employment Law in California

Employment law in California encompasses all matters pertaining to the relationship between employer, employee and the government. The conduct of employers is regulated by several federal and state statutes to guarantee the most fundamental of employee rights such as private property, equality, health and safety. California is an employee friendly state with a high density of employee protections; the California Department of Industrial Relations website boasts that California labor laws "are designed to protect a worker’s right to a fair day’s pay for a fair day’s work."
Federal employment law covers many of the same areas as state law; both federal and state laws dictate the minimum wage, working hours, child labor, work permits, and workplace safety. Federal employment laws include the Equal Pay Act of 1963, Fair Standards Labor Act, Family Medical and Leave Act, Americans with Disabilities Act, Occupational Safety & Health Act, The Family and Medical Leave Act, The Employee Retirement Security Act and Title VII of the Civil Rights Act of 1964.
The Fair Labor Standards Act (FLSA) establishes minimum wage rates and overtime laws in California.
Workers’ Compensation laws ensure the employees’ rights to medical attention and financial benefits if the employee becomes injured on the job.
Termination Laws determine regulations for settling disputes about wrongful termination.
While many employer laws are directed at protecting employees’ rights, there are just as many laws to protect the employer. California law dictates how an employer should respond to union activity, mandates the harassment training that every employer should take, laws about retaliation and lays out the legal requirements for an employee handbook.

Intellectual Property Law Considerations

Intellectual property (IP) in the business context is what distinguishes your products and services from others in a competitive market. IP includes a wide variety of intangible assets, but especially refers to concepts in trademark, patent, and copyright, for example. In the California business environment where virtually every sector is within a hyper-competitive, high-tech, global marketplace, IP and its protection is increasingly important.
Generally speaking, trademark protection prevents others from using the same or a similar brand name or mark, avoiding customer confusion. Often the brand name or mark is the single most valuable asset of a business because it creates customer loyalty and goodwill. It is also the intangible asset that may be the most vulnerable to harm by an unforeseeable event or to another person taking actions that damage or otherwise harm the business’s brand or reputation.
Patent protection effectively gives the patent holder ownership of an invention for a limited period of time , usually 20 years. Although there are situations where a business may want to operate without obtaining a patent in order to preserve trade secrets, the patent process ensures that the invention is legally protected.
Copyright protects original works of authorship, including books, websites, software, logos, etc. Copyright protection does not consider whether the work has any commercial value. Even a failed commercial enterprise is entitled to copyright protection. The important thing to remember with copyright is that the protection is automatic and does not require any registration, but registering the copyright with the Copyright Office provides additional legal benefits.

Business Dispute Resolution

Businesses in California may encounter legal disputes in a variety of forms. Companies may engage in lawsuits with strategic partners, competitors, or even their employees. Such disputes require careful planning so that disputes can be resolved in a cost and time efficient manner.
Some common disputes include:
• Contract disputes
• Class actions
• Intellectual property disputes
• Franchise-related disputes
• Premises liability claims
Negotiation is a common method used to resolve disputes. In this process, the parties seek an outcome agreeable to both parties. Professional negotiators, attorneys, and other third-party professionals can be used to facilitate the process. The goal of negotiation is to have both parties reach a voluntary agreement. Mediation and arbitration are also mechanisms for resolving disputes. In mediation, a third-party neutral party, or magistrate, will facilitate discussions in which the parties will attempt to complete a contract or agreement. Arbitration is similar to litigation but is often considered to be a less formal proceeding than trial. A third-party professional, called an arbitrator, can make a binding decision which will resolve the dispute. Litigation is the process of civil action between the parties. This process generally involves the filing of a civil case. The filing of the case leads to discovery. Discovery is defined as the disclosure of facts or data to the adverse party. During discovery, the parties gather evidence through depositions, requests for information, requests for admission, and motion to compel.
The entire litigation process can take anywhere from 6 months to two years. The process involves the filing of a complaint, answering the complaint, discovery, attempts to resolve the conflict, and a final trial by jury. Oftentimes, cases are resolved before reaching trial. In fact, most cases that businesses face are resolved through out of court settlements that involve both mediation and negotiation. While litigation can be open to the public, or closed, there are some matters of confidentiality.
Typically, larger businesses choose to litigate because of the necessary time and resources involved. However, smaller businesses may choose different forms of dispute assessment. Businesses are responsible for planning for anticipated disputes and how to process the dispute when it occurs. A business may even choose to consult an attorney before entering into a legal agreement. Legal professionals can work with the business to preserve all legal option for handling the dispute. Some provisions that can be employed by contract professionals include the provision for alternate dispute resolution, provision that would limit liability, and provision regarding compliance with the applicable law.
Attorneys can help businesses prevent disputes through the processes discussed above. This process involves the issuance of a demand letter prior to filing the lawsuit. The letter allows a business to evaluate the situation and determine whether or not it is worth going forward with the demand. Legal professionals may also send other notices to problem parties, terminate contracts, and make settlement offers.
Legal professionals can help businesses prevent or navigate disputes so they can focus on essential business operations.

The Legal Environment in California

Navigating the legal climate in California can be a daunting task. With a constantly evolving legal landscape, it is imperative that business owners remain proactive and informed of the latest changes to the law. One of the most reliable ways to stay abreast of these changes is to actively consult with legal experts who are well-versed in both state and federal laws. These professionals can help guide you through the complexities of California’s legal requirements and can provide valuable advice on how to best position your business for success.
Another useful tool in your compliance arsenal is the California state agency websites. The websites for various state agencies such as the California Secretary of State, Department of Consumer Affairs, Employment Development Department, and the State Bar of California provide a wealth of information about the laws and regulations that govern businesses in their respective industries . These sites often feature up-to-date information on licensing requirements, fee structures and a variety of forms and resources that can be of great assistance to business owners.
Unfortunately, unscrupulous business owners sometimes attempt to circumvent the law through unlawful practices. While such tactics may be initially successful, they will be more likely to have long-term negative consequences than lawful business practices. Examples of such unlawful practices include selling goods or services to minors and violating minimum wage and overtime laws. In the event that you discover that such activities are taking place in your business, you would be strongly advised to immediately stop any such conduct. In addition, it is typically best for your business if the individuals responsible for the misconduct are terminated from employment.