business opportunities in california: the legal landscape · a. predicting the tax rate i....

Business Opportunities in California:The Legal Landscape

California-South KoreaGlobalizing Trade & Investment

09.2010 | www.allenmatkins.com

Globalizing Trade & Investment

J.W. Marriott HotelSeoul, Korea

CENTURY CITY | DEL MAR HEIGHTS | LOS ANGELES | ORANGE COUNTY | SAN DIEGO | SAN FRANCISCO | WALNUT CREEK

September 13, 2010presented by:

Daniel G. McIntoshPartner, Allen Matkins, Los Angeles

2Business Opportunities in California: The Legal Landscape

I. SCOPE OF PRESENTATION

II. INITIAL CONSIDERATIONS

III. COMMENCING BUSINESS OPERATIONS IN

CALIFORNIA

09.2010 | Materials Prepared for California-South Korea Globalizing Trade & Investment

CALIFORNIA

IV. MAKING AN INVESTMENT IN CALIFORNIA

V. MAKING A LOAN

VI. CASE STUDY

VII. CONCLUDING REMARKS

3Business Opportunities in California: The Legal Landscape

I. SCOPE OF PRESENTATION

1. Commencing Business Operations in California2. Inbound Investments: Buying, Investing or Joint-Venturing

in an Existing Business in California3. Making a Loan


3. Making a Loan

II. INITIAL CONSIDERATIONS

1. Business Objectives2. Tax Consequences

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Business Opportunities in California: The Legal Landscape

III. COMMENCING BUSINESS OPERATIONS IN CALIFORNIA

1. Application of U.S. and California Taxesa. Tax Ratesb. Avoiding “Double” Taxation


b. Avoiding “Double” Taxation

2. “Doing Business” in California

a. Maintaining an Officeb. Employees vs. Independent Contractorsc. Formation of California Entityd. Frequency of Transactions

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3. Enforcement of Contractsa. Qualification vs. Non-Qualificationb. Governing Law


4. California Labor and Employment Lawsa. Wages and Overtimeb. Non-Discrimination

i. Race, Ethnicity, Gender, Sexual Preference

c. Sexual Harassment

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5. California Environmental Laws6. Non-competition and Solicitation of Employees


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IV. MAKING AN INVESTMENT IN CALIFORNIA

1. Structuring the Investment

a. Predicting the Tax Ratei. Korea/U.S. Tax Treatyii. Offshore Structures


ii. Offshore Structures

b. Securities Lawsi. U.S. and California

c. Anti-Trust Lawsi. Hart-Scott-Rodino

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IV. MAKING AN INVESTMENT IN CALIFORNIA (continued)

d. Choosing an Entity: Direct Investment vs. Joint Venturei. Limited Liability

1. Requirements for Maintaining

ii. California vs. Delaware


ii. California vs. Delawareiii. Tax Pass-Through Entity vs. Tax at Entity Level

(Profits and Losses)iv. Multiple Classes of Ownershipv. Control and Governancevi. Subsequent Private Investors and Public Markets

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d. Choosing an Entity (continued)vii. Available Entities

1. General Partnerships

a) Pass-Through Tax Treatment


a) Pass-Through Tax Treatmentb) All Partners Have Joint and Several Liability

c) Partnership Agreement (Oral vs. Written)d) Separation of Control from Ownershipe) Multiple Classes of Ownershipf) Cost of Documenting

1) Indemnity Agreements

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d. Choosing an Entity (continued)vii. Available Entities (continued)

2. Limited Partnerships



a) Pass-Through Tax Treatmentb) General Partner Has Unlimited Liability; Limited Partners

Have Limited Liability—Requirements for Maintaining Limited Liability

c) Separation of Control from Ownershipd) Multiple Classes of Ownershipe) Cost of Documenting

1) Use of Limited Liability Entity as General Partner

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3. Limited Liability Companies (LLCs)



a) Pass-Through Tax Treatmentb) Entity and Members Both Have Limited Liabilityc) Separation of Control from Ownershipd) Multiple Classes of Ownership

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4. Corporations

a) Taxed at Entity and Shareholder Level


1) Shareholders’ Agreements2) Voting Trusts

b) Unless Modified, Ownership Determines Participation in Governance and Control

c) Ownership Interest Expressed as Stockd) Multiple Classes of Ownership

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d. Choosing an Entity (continued)viii. Documenting the Investment

1. Letter of Intent vs. Definitive Agreements

a) Binding vs. Non-Binding


b) Lock-Up and Broken Deal Provisionsc) Expense Considerations

2. Due Diligence3. Representations, Warranties and Indemnities4. Closing Conditions5. Hart-Scott-Rodino

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V. MAKING A LOAN

1. Applicable Law2. Usury Laws

a. California Constitutionb. Risks

3. Servicing the Loan


3. Servicing the Loana. UCC Applicationb. Mixed Collateral (Real and Personal Property)

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VI. CASE STUDY:Chinese Company Purchasing Interest in Existing U.S. California-Based Company that Co-Finances Motion Pictures in Exchange for an Interest in Each Co-Financed Picture

1. Structuring of Transactiona. Tax Considerations


a. Tax Considerations

i. U.S./China Tax Treatyii. Offshore Alternativesiii. Blocker Corporationsiv. Need Expert Counsel and Advice

b. Purchase of Ownership of Existing Delaware LLC

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VI. CASE STUDY (continued)

1. Structuring of Transaction (continued)

c. Choice of Entity for Purchaser

i. New Entityii. Special Purpose Entitiesiii. Place of Organization


iii. Place of Organization

1) U.S. Partners vs. No U.S. Partners2) Extent of Legal Precedent3) Principal Place of Business4) Protection of Shareholders

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1. Structuring of Transaction (continued)d. Partnership (General or Limited) vs. LLC vs. Corporation

i. Limited Liabilityii. Tax Attributesiii. Confidentiality


iii. Confidentialityiv. Control and Ownership

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1. Structuring of Transaction (continued)e. Transaction-Based Considerations

i. Asset Purchase vs. Purchase of Ownership Interests

1) Tax Consequences2) Transferability of Seller Ownership Interests


2) Transferability of Seller Ownership Interestsa) Rights of Owners under Seller Organizational

Documentsb) Loans and Credit Agreementsc) Higher Tier Interest Purchases

3) Effect on Target Contracts4) Loan and Credit Agreements5) Customer and Supplier Contracts6) Leases and Other Occupancy-Related Issues

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1. Structuring of Transaction (continued)e. Transaction-Based Considerations (continued)

i. Asset Purchase vs. Purchase of Ownership Interests (continued)7) Employment Contracts

a) Change of Control Clauses


a) Change of Control Clausesb) Change of Authority

ii. Period of Exclusive Negotiationsiii. Filing/Approvals

1) Lenders2) Governmental Filings

a) Hart-Scott-Rodino

3) Confidentiality and Public Announcement

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1. Structuring of Transaction (continued)f. Due Diligence

i. Business vs. Legalii. In-House vs. Outside Counsel


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VII.ALLEN MATKINS (www.allenmatkins.com)

1. 240-Attorney California-Based Firma. Offices in Los Angeles, Century City, Orange County, San Diego,

Del Mar, San Francisco, Walnut Creekb. Full Range of Practice Areas and Specialties

i. Corporate


i. Corporate1) Securities2) Finance and Capital Markets3) Private Equity4) Emerging Companies and Venture Capital5) Mergers and Acquisitions6) Trade Secrets and Non-Competition Covenants

ii. Tax and Joint Ventures

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VII.ALLEN MATKINS (www.allenmatkins.com) (continued)

a. 240-Attorney California-Based Firm (continued)ii. Full Range of Practice Areas and Specialties (continued)

a) Trademarksb) Patents

3. Technology and Intellectual Property


4. Entertainment and Media

b) Patentsc) Trade Secretsd) Green Technology and Business

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1. 240-Attorney California-Based Firm (continued)b) Full Range of Practice Areas and Specialties (continued)

1) Purchases and Sales2) Financings, Refinancings and Workouts

v. Real Estate


2) Financings, Refinancings and Workouts3) Land Use, Environmental and Natural Resources4) Governmental Advocacy5) Hotels and Resorts6) Water Rights and Resources7) Construction8) Green Construction

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1. 240-Attorney California-Based Firm (continued)c. Energy (Including Alternative Energy)d. Litigation (Court Actions, Mediations and Arbitrations)e. Labor and Employmentf. Employee Benefits


f. Employee Benefitsg. Bankruptcy and Creditors Rightsh. Health Care Law

2. Chambers USA Rankings3. Large and Middle Market Clients4. Committed to Achieving Client Objectives5. Emphasis on Partner Level Service

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VIII.CONCLUDING REMARKS

Questions

Daniel G. McIntoshPartnerCentury City

Kaylynn L. Kim AssociateLos Angeles


Century City(310) [email protected]

FocusCorporateEntertainment & Media

EducationJ.D., University of California, Berkeley, School of LawA.B., University of California, Berkeley

Los Angeles(213) [email protected]

FocusLand use, environmental & Natural Resources;Real Estate

EducationJ.D., Southwestern University School of Law (2002)

D.C., Southern California University of Health and Sciences (1997)