Ever wonder if banks are required to tell customers when
their systems are hacked? You may be shocked to learn that
they are not. The only exception to this standard has been
database hacks that effect California residents. Companies
doing business in California are required to give such
notice under the California Security Breach Information Act.
The situation is changing quickly on the federal level.

Regulations have been issued by federal finance agencies
that now force banks to tell customers when their personal
data has been exposed to unauthorized third parties. The
regulations are issued pursuant to the Gramm-Leach-Bliley
Act, which contains language requiring financial
institutions to prevent unauthorized access and use of
consumer information.

The new regulations appear to be a reaction to several
recent high-profile data leaks. They include incidents such
as Bank of America losing data tapes containing information
for over 1 million government employees and the breach of
databases for LexisNexis and ChoicePoint. It is well known
that numerous other banks have also been hacked over the
years, but the information has been hushed up.

The new regulations require financial institutions to notify
account holders if the institution becomes aware of
unauthorized access to sensitive customer information. The
directives apply to banks and savings and loan companies,
but not credit unions.

There are two serious loopholes in the regulations. First, a
financial institution that discovers a database breach must
only notify account holders if it is “reasonably possible”
that personal details will be misused. Second, the
regulations only apply to personal data, not business or
commercial accounts.

While these new regulations are a positive step, one could
drive a truck through the two loopholes. Determining whether
it is “reasonably possible” that your information will be
misused is a vague standard that many financial institutions
will use to withhold information. Put bluntly, the
notification regulations are gutless.

The best method for keeping an eye on database breaches is
to look for stories in the news. Under California law,
companies are required to give notice to California
residents when breaches occur. If you see a story about your
bank giving notice of a hack to California residents, your
personal information may have also been exposed. Hackers do
not restrict their attacks to California residents.

Richard Chapo is an attorney with
http://www.sandiegobusinesslawfirm.com - a law firm
providing legal advice to California businesses. This
article is for general education purposes and does not
address every facet of the subject matter. Nothing in this
article creates an attorney-client relationship.

As you may know, Google is making an effort to scan every book in the world. The goal is to create a giant online database of every book that can be searched. One small problem is the fact that Google is violating copyright laws.

Copyright

Google argues its book database doesn’t violate copyright laws. The company suggests it only shows short passages and accompanies the text with ads showcasing where the full books can be purchased. Of course, the ads are Google Adwords from which the company makes a tidy profit.

On Tuesday, the search goliath rolled out stand-alone book search services in 14 countries. The same day, the Text and Academic Authors Association (TAA) became the latest publishers’ organization to call Google’s opt-out strategy backwards.

Authors, Publishers and publishing associations are not happy. While Google only publishes the full text of books in the public domain, it is still copying entire books for which it has no permission. Google claims it can do this because the books are being scanned from versions owned by public libraries. Fearing an avalanche of lawsuits, Google backed off.

In August, Google stopped scanning copyrighted books in public library collections. At the same time, it gave publishers the right to submit lists of books the publishers didn’t want scanned. As you can image, publishers still aren’t happy.

The Arrogance of Google

Once viewed as the underdog to giants such as Microsoft, Google continues to act like the local school bully. In this case, the company has taken such an arrogant approach that lawsuits are inevitable. Google is going to take a beating in the lawsuits and here is why.

Consider the neighborhood you live in. What if a local crime syndicate informed every household it was going to steal everything in each household. Undoubtedly, there would be calls of outrage. In response, what if the crime syndicate then suggested you could send a list of items in your house that you didn’t want stolen? This is exactly what Google is doing.

Google’s decision to scan every book in the world is idealistic, but laughably simple minded. At a time when the recording industry is suing teenagers for file swapping, one would think Google would get a clue.

Richard A. Chapo is a San Diego business lawyer with http://www.sandiegobusinesslawfirm.com - providing legal services and legal advice to businesses in San Diego, California.

On June 1, 2005, the Federal Trade Commission issued new regulations requiring companies to destroy certain consumer records. The specific rule requires consumer information such as credit reports to be physically destroyed after it is used.

Records

The rule covers practically any consumer records. Examples include credit reports, court records, employment histories and rental histories to mention only a few.

Identity Theft

Heading complaints from constituents, Congress has been trying to figure out how to deal with growing identity theft problems. In response, the FTC rule requires all personal information to be:

1. Burned(!),

2. Pulverized,

3. Shredded, or

4. Destroyed.

Whether you shred the records or stand in the parking lot with a flamethrower, the rule requires the documents to be destroyed to the extent they cannot be read. Importantly, the rule also applies to electronic files.

As an agency rule, the new regulation does not result in any criminal penalties. Instead, the FTC penalty provisions call for a fine of up to $2,500 per violation. Individuals that have information misused can also seek damages in civil lawsuits.

Effective?

The FTC should be applauded for taking any step to help in the fight against identity theft. The flood of recent public disclosures by companies admitting to lost records is appalling. But does this new rule really help?

No.

The new regulation provides no provisions on how long the records can be held before being destroyed. This effectively neuters the regulation. Any claim of violation is going to be refuted by the defense of, “We destroy records every xxx months.” Even if you disagree with this assessment, consider the destruction of electronic files.

Electronic files are automatically backed up on hard drives. Merely deleting a file does not erase it from a hard drive. To comply with the regulations, are companies supposed to wipe all their hard drives every day or is deleting the records enough? Wiping the drives is incredibly burdensome while deleting files is useless. As you might imagine, the FTC provides no guidance on the issue.

Cutting to the chase, the FTC has issued this rule for one reason - to satisfy Congress. It has little practical impact in protecting your private information and leaves companies with another vague regulatory requirement.

Richard Chapo, Esq., is with http://www.sandiegobusinesslawfirm.com offering business law advice to California businesses. This article is for general education purposes and does not address every facet of the subject matter. Nothing in this article creates an attorney-client relationship.

When starting or expanding a business, many owners wonder if they should form a business entity and, if so, which one they should use. There is a wide variety of information and “pitches” being made on the Internet regarding the benefits of certain entities versus others. When you cut through the flak, however, the primary reason for forming a business entity is to create protection from personal liability arising from your business activities.

It is well established that up to eighty percent of businesses will fail in their first two years. Many of these businesses, and probably yours, carry a high level of personal risk for their owners. If you are not using the correct entity for your particular business, you are going to be personally liable if the business fails. Do you want to expose your home, car and other assets? How about the assets owned by your spouse or their paycheck from a regular job? Selecting the correct entity for your business prevents such nightmares from occurring. More importantly, you can sleep at night knowing that the worst thing that can happen is losing your investment in the business, not your home.

Business Structures

There are a number of business structure options that exist in the modern corporate world. Following is a short explanation of the most common business structures.

Corporations

Corporations come in two basic forms, a “C” corporation and an “S” corporation. There are a variety of differences, but the central one is a tax issue. Briefly put, “C” corporations are taxed on their revenues and you are then taxed separately on any money you take out of the corporation. An “S” corporation “passes through” all taxes to the shareholders with the information being reported on your personal tax returns.

Regardless of the tax classification, a corporation is considered an independent entity from a legal standpoint. This independent status acts as a shield between the activities of the business and your personal assets. As a practical example, Kmart recently filed bankruptcy. The individual shareholders were not required to file bankruptcy and lost nothing more than their investment in the stock of the company. Forming and using a corporation for your business activities will have the same effect, to wit, your personal assets will not be wiped out if the business fails.

Limited Liability Company

A limited liability company, or “LLC” as it is better known, was a very popular entity choice in the early 1990s. LLCs are similar to corporations, but can be taxed as a partnership. In California, the LLC can have either one owner or two. Regardless of the number, these owners carry the legal title of “member.” The LLC provides a shield for your personal assets just like a corporation.

Partnerships

In my opinion, it is better to have died a small child then be in a partnership. Unfortunately, many business owners form partnerships and don’t even know it. This occurs when they go into business with another person. If no business entity is formed, the law considers the business to be a partnership and treats it accordingly.

Partnerships are dangerous for one primary reason: a partnership does not provide any protection from liability and, in many ways, invites personal liability. Under well-established law, most partnerships are classified as “general”. This simply means that all the partners are contributing to the administration and running of the partnership business. This classification can have grisly results.

In a general partnership, each partner is jointly liable for the debts of any other partner arising from the business. For instance, you and your partner go to a business dinner with a client. Your partner has a drink and then a few more. They then get into an accident on the way home. Each of the partners is liable for the damages claimed by the injured people. That means YOU! Even if you were not in the car, did not rent the car, never saw the car and don’t drink!

Partnerships are a recipe for disaster. Stay away from them whenever possible.

Limited Partnerships

Limited Partnerships [”LP”] are perhaps the most misunderstood business entity. A limited partnership is similar to a general partnership, but allows a number of the partners to limit their liability by being limited partners. It is critical to note that these limited partners are restricted to simply making a capital [cash, content, equipment] contribution to the partnership. They cannot be involved in actively running the business. If they are, they lose any protection from partnership debts. Many limited partnerships end disastrously. If you are married to the idea of pursuing a limited partnership, you must do so in combination with corporations. That particular strategy is well beyond the scope of this article, but feel free to contact me if you wish to pursue a limited partnership.

Business owners should protect themselves by forming entities for their business activities. The real issue is identifying the structure that is best for your particular situation.

Richard Chapo, Esq., is with http://www.sandiegobusinesslawfirm.com offering business law advice to California businesses. This article is for general education purposes and does not address every facet of the subject matter. Nothing in this article creates an attorney-client relationship.

If you are going to form a corporation, you might be surprised to learn a “C” corporation comes with a lot of tax benefits. While this article isn’t intended to replace the advice of a good tax professional, it may serve to open your eyes to the value of a “C” corporation.

“C” Corporation

The “C” in C corporation has a few legal ramifications, but it is primary a designation for tax purposes. Put in layman’s terms, the designation simply means the corporation will act as its own tax entity. In contrast, an “S” corporation acts as a pass through tax entity, pushing its financials down to the shareholder who report the information on their personal tax returns.

The Internet Revenue Code sets out the law on tax and it contains a few juicy provisions for corporations. Lets take a look at one of the advantages.

Incorporating

When a party transfers something of value to another party, the IRS gets interested. It views the receipt of something of value as a taxable event. In simply terms, if you pay me for forming a corporation, I have to report and pay taxes on the money. Since a C Corporation is a stand alone tax entity, what happens when you purchase stock?

You have made arrangements to form a “C” corporation. Now you have to buy stock in it to become a shareholder. If you exchange money or property for the shares, the IRS takes the position no taxable event occurred. In essence, this means the corporation will not have to report you contribution as part of its revenues. If the money isn’t considered a part of the corporate revenues, no tax must be paid on it.

The exact rules for funding a corporation are a bit more complex. With any tax issue, you can expect there to be roughly fifty exceptions and qualifiers. For instance, if you were to exchange services instead of money for the stock, the above example would not apply. Make sure you speak with a tax professional to handle your particular situation correctly.

In Closing

Many people choose a business entity without considering all relevant aspects. Taxes definitely constitute one of these aspects. Make sure you look into them prior to making your decision.

Richard Chapo is with http://www.sandiegobusinesslawfirm.com - providing legal services to San Diego businesses.

In civil court matters, a process server is someone who serves or delivers legal documents, ie. subpeonas, summonses, court orders, various legal notices and in some cases writs. Process servers normally fall into one of four (4) categories:

1. Registered or licensed process servers: In most states, process servers are registered by their county. In some states, like California a process server, once registered in one county can serve papers in any other county within that state. In some other states a process server can only serve papers in the county in which he or she is registered. Most, but not all counties, when registering a process server require the applicant to be bonded or insured.

2. Private detectives and investigators: In most states private detectives and investigators are licensed by the state and exempt from registering as process servers. They and anyone in their employ can serve legal process and when doing so are considered officers of the court.

3. Sheriffs, Marshals and Constables: Sworn peace officers.

4. Non registered or licensed individuals: Friends, relatives and others.

In many states as in California a non registered individual may serve up to ten (10) legal documents each year provided that individual is not a party to the action at hand. ie: a plaintiff or defendant, etc.. When the service of the paper has been completed the server must sign an affidavit that the paper was served properly. That affidavit must usually be signed under penalty of perjury.

It is not usually a good idea to have a non professional serve process. They do not normally know the laws and rules involved in process serving nor do they usually know how to fill out a proper proof of service. Either of these can cause a service to be declared invalid and possibly cause you to lose the case or at the least force you to start over. Additionally many people attempt to evade service and a professional has a better chance of completing service. Finally, process serving can be very dangerous. Many people get very angry when served and attempt to take it out on the process server. Over the years I have had many servers beat up and attacked with knives or clubs or hit with thrown rocks.
I have had several servers that were non fatal victims of vehicular attacks and three servers that were shot, several more were shot at but not hit.

At one time, Sheriffs, Marshals and Constables were considered good choices for serving papers, however that is not now usually the case. Most Marshals no longer serve papers and many Sheriffs and Constables are so busy doing other things that your papers may sit for weeks or longer before or if they are taken out for service. Additionally, many people, when the see a Marshal’s or Sheriff’s uniform, just do not answer their door. The Sheriff or Marshal walks away and the papers are returned unserved.

Licensed private detectives and investigators can sometimes make the best servers, however not all of them serve papers and many believe that since they are “big shot” investigators they should charge far more than registered process servers. Others serve so few papers that they sometimes “make a mountain out of a molehill” and turn a fairly easy service into a difficult one. Other investigators turn every service into an investigation in order to run up billable hours. Then again, if you find a good detective agency, they will have numerous service assignments and investigators that can serve papers fast and efficiently for a reasonable fee.

Most licensed investigators can be trusted to be honest about the papers they serve. It is not easy to obtain a license and if they get caught commiting perjury by saying they served a paper when they did not or if they get caught billing a client for work that was not done, they can lose their license. If they lose their license they are out of business as they usually can not get a license reinstated. Additionally, in most states, complaints can be filed against a licensee and those complaints are investigated. Prospective clients can contact the state licensing board and obtain a record of adjudicated complaints.

Registered process servers usually know the laws and rules and for the most part are honest and hard workers. In most counties it is, however, easy to register and there is usually no licensing body to keep an eye on them. Therefore, if the registration is revoked the server can usually get a friend or relative to register and then the server can list himself or herself as an independant contractor working for the new registrant. Also there is no experience required in order to register. Finally there is usually no place where a prospective client can check for or file a complaint against a registrant. The only recourse a client usually has against a registered process server is to file a law suit against the party and then if a judgment is obtained to go against the registrants bond. Note, however that not all registering counties or states require a bond and those that do usually require a bond of $2000.00 or less.

When searching for a process server take care. Do not choose just anyone. Never use a friend or relative. If you find a server over the internet do not just go by the looks of the web site. A person can be a poor web site designer and a good server or vice versa. Call the server and ask questions based on the foregoing information in this article. If the server refuses to speak with you do not use his or her services. If the server is a licensed investigator check out the license. Contact the Better Business Bureau and see if they have any information. Try not to use a one person operation as he or she may not be able to keep up with the workload or may be forced to charge high fees in order to make up for a lack of steady business.

When making your choice do not go by price. Expensive servers are not necessarily the best just as inexpensive servers are not necessarily the worst. Hallstrom Detective Agency was considered to have one of the best process serving divisions in the United States, yet we charged less than almost any other service in the country. Ask about addirtional fees. Many companies quote a low initial fee and then tack on a fortune in incidental fees.

For links to directories listing process servers, private investigators, detective agencies, court reporters, people finders and more, offered for attorneys and other legal practitioners visit http://services.resourcesforattorneys.com a directory of directories listing links to services of use to the legal profession.

The foregoing information is not given as legal advice. It is instead given as information and opinion gathered and developed through experience over the last thirty years. David G. Hallstrom, Sr. is the owner of Hallstrom Detective Agency and although the agency no longer offers process serving services, it has, through it’s servers, completed service of several hundred thousand legal documents. Although the author believes the information to be accurate no guarantee is made or implied.

This article may be reprinted, at no charge, provided that credit is given to the author and that any links contained herein are retained and kept active. ©Copyright 2005 Resources For Attorneys. All Rights Reserved Worldwide.

David G. Hallstrom, Sr. is a retired private investigator and currently publishes several internet directories including http://www.resourcesforattorneys.com a legal and lifestyle resources directory for attorneys, lawyers and the internet public.

Many people are surprised to learn that the LLC business entity is a fairly recent phenomenon. Wyoming was the first state to legislate the creation of LLCs in 1977. Most states didn’t jump on the LLC bandwagon until 1988 when the IRS classified the LLC as a pass through entity for tax purposes. This ruling turned LLCs into the popular monster they are today. Now every state has legislation allowing the creation of LLCs and California is no different.

What Are The Advantages To Forming A LLC?

The LLC business entity offers many advantages to small businesses. An LLC is going to provide a shield between your business activities and personal assets identical to a corporation. Unlike a corporation, there are far fewer corporate formalities. Instead of setting up payroll, you can take draws from the entity. You are not required to maintain a balance sheet, although this is recommended. In short, the LLC entity is all about flexibility.

Should I Form A California LLC For My Business?

Maybe. While LLCs offer significant flexibility to small businesses, California charges an LLC tax that can really cramp your profits. This tax is charged on your gross revenues for the “privilege of doing business in California” as an LLC. Lucky you. Depending upon your situation, forming an “S” corporation may be a better option in California.

Additional Tax Issues

California allows a single person to own an LLC. This causes problems from a tax perspective. The IRS doesn’t really acknowledge the existence of LLCs owned by one person. The IRS takes the position that you must have two people to be taxes as a partnership. Accordingly, it treats single owner LLCs as sole proprietorships. The problem with this result is that you end up paying self-employment taxes.

While LLC structures provide significant flexibility, the structure is not always the best choice for a small business. Make sure you speak with competent tax counsel prior to forming an LLC for your business.

Richard Chapo, Esq., is with http://www.sandiegobusinesslawfirm.com offering business law advice to California businesses. This article is for general education purposes and does not address every facet of the subject matter. Nothing in this article creates an attorney-client relationship.

Qui tam is law terminology associated with whistleblower protection laws for individuals who inform the government about fraud or other corporation misdoings. The phrase is derived from the Latin expression ‘qui tam pro domino rege quam pro seipse’, which translates to ‘he who sues for the king as for himself’. In general a Qui tam lawsuit is filed by private individuals on behalf of the government in an attempt to prevent abuse of funding and finances.

Many people who are whistleblowers realize that they will often face retaliation and harsh consequences if the speak out against their employer. This generally causes most individuals who witness these types of illegal activities to remain silent. Fortunately, these laws are in place to protect the brave people who have the courage to stand up for what they believe in. These laws are strictly designed to encourage and compensate these individuals who have taken this incredible risk to protect their country.

While it might seem like a noble idea to report illegal corporate activities to the government, the thought of losing everything you have worked for is often to overwhelming. Without employment and financial security, reporting illegal business activities is often the last thing on an employee’s mind. The United States government recognizes this and stipulates that 10% of the punitive settlement will go to the person acting on behalf of the government and its citizens.

To learn more about Whistleblower Laws and Qui Tam, please visit http://www.sddefenselawyers.com/quitam/ This article may be freely reprinted as long as this resource box is included and all links stay intact.

A business name can be a huge factor in the ultimate success or failure of the entity. Unfortunately, many people fail to give a lot of thought to it prior to moving forward. There are many factors to consider including something memorable, a name related to your area of work and, potentially, the availability of the domain name.

Married?

Picking a business name is like getting married. You are going to have to stick with it till the bitter end. It is estimated a prospect will need to see your advertisement and business name at least 22 times prior to doing business with you. Once they associate your business with a certain name, making a change will be disastrous. Once you pick something, stick with it.

Naming Your Business

If you are going to be married to your business name, you need to make sure the bride isn’t already married to another suitor. There are four significant issues to consider.

Initially, you must determine whether the name is already being used in your state. The Secretary of State controls the names of all corporations, LLCs and partnerships. Most also have a web site where you can conduct name searches. Even if you are a sole proprietor, you should check the name against those already registered in the state database. If the name is being used, you will need to consider an alternative.

Assuming the name passed must with the Secretary of State, you should check it against existing trademarks file with the Patent and Trademark Office. The “PTO” maintains an online database. As with the Secretary of State, you can conduct an online search to make sure no other business is using it.

In this day and age, many businesses incorporate a web site as part of their business model. If you are in this boat, you need to check to see if the business name is available as a domain. If it is, you should register it immediately. If not, you can either change your business name again or focus on a domain name incorporating your service or product instead of the business name.

Avoiding Problems

You business could be devastated if you do not take these precautionary steps. Imagine the negative impact on your business if the name has to be changed three years down the line. Take a breath before you select a business name. Like a spouse, it can be either a good or bad choice.

Richard Chapo, Esq., is a business lawyer with http://www.sandiegobusinesslawfirm.com - offering legal advice to San Diego businesses. This article is for general education purposes and does not address every facet of the subject matter. Nothing in this article creates an attorney-client relationship.

Every business owner says it; “Do I really need a written
contract?” The answer is “YES, YES and YES!” Using a written
contract is like buying insurance for your business deals,
but much better.

What Is A Contract?

Simply put, a contract is an enforceable agreement between
two or more parties. The contract contains the promises made
by the parties to one another, which is legally known as
“consideration.” These promises define the relationship
being undertaken as well as what happens if the business
relationship doesn’t work out. If one party fails to act
according to their promises, then they have “breached” the
contract and can be found liable for damages. The damages
typically equate to what the non-breaching party would have
received if there had been no breach.

Oral Contract v. Written Contract

You go to a party with a friend and meet someone interested
in your product or service. Eventually, you agree to provide
him with 1,000 units of your product in exchange for a
discounted price. You have created what is known as an “oral
contract.” He has promised to order products and you have
promised to provide them at a discounted price. Is the
agreement worth anything? Unfortunately, the answer is
probably no. Why? In most states, oral contracts are not
enforceable if they carry an inherent value in excess of
$500. Since it is so difficult to establish the terms of an
oral contract in a dispute the legal system tries to
discourage them. In fact, this legal restriction is
generally known as the “Statute of Frauds.”

Turning back to our example, what if you thought you were
going to give a 10 percent discount and he thought it was 20
percent? What if you can’t resolve it and he insists you
provide the discounted products? You will end up in court
with the dispute coming down to which party the judge or
jury believes. Are you really willing to take that gamble?

With even a simple written contract, you can create a clause
containing language that states you will give a 10 percent
discount. If the dispute ends up in court, he is asked if
his signature is on the bottom, the clause is read and you
win. The contract should also contain a clause requiring the
“prevailing party” to be reimbursed for their attorneys fees
and costs. In short, he has to pay your legal bills as well.

An additional benefit to using a written contract is the due
diligence element. I realize you will be shocked to learn
that there are unethical businesses. In negotiating a
contract, very specific requirements are put in writing.
What if the other party starts squirming? It may be a sign
they are unable to meet their obligations. Might that give
you pause before you commit to tying up your inventory? You
can save yourself a lot of headaches by discovering this
information in advance.

In summary, even a simple written contract should be a
mandatory bullet in your arsenal. Much like car insurance,
you will be glad you have one if a business transaction
falls apart.

Richard Chapo is the lead attorney for the law firm
http://www.SanDiegoBusinessLawFirm.com - a firm providing
legal advice to California businesses. This article is for
general education purposes and does not address every facet
of the subject matter. Nothing in this article creates an
attorney-client relationship.