CORPORATE LAW

Chugh, LLP has more than 100 professional staff members in its seven offices across the United States and in India. Our team provides a wide range of corporate services to businesses of any size and in any stage of development. Chugh, LLP represents clients from a broad array of corporate and business enterprises, ranging from sole proprietorships, to entrepreneurial start-ups and large multinational conglomerates.

Chugh, LLP is committed to creating and fostering longstanding relationships with our business clients. In many cases, we provide incorporation services and continue on as general counsel, advising on operational issues that the business may encounter. Some of the services we provide for our clients include: business entity formation, regulatory compliance, maintaining corporate records, structuring business acquisitions, handling employee immigration issues, advising on employment issues, complex corporate mergers, and outside general counsel advisory.

Chugh, LLP is experienced in Merger & Acquisition transactions. Chugh, LLP has completed Merger & Acquisition transactions for its corporate clients, totaling over $2 billion in asset transfers.

With offices in the United States and India, we are experienced in advising domestic businesses looking to open locations in India, or India based companies looking to venture into the United States market. Our attorneys and Certified Public Accountants have a deep understanding of the rules and regulations of both countries. We use our experience to guide our clients through the complex process of opening and operating a business, whether it is in the United States or abroad.

Chugh, LLP’s Corporate Practitioners have the collective expertise to advise a business on every phase of a company’s life cycle. Chugh, LLP has worked with Fortune 500 companies on billion dollar joint ventures, mergers and acquisitions and forming corporations in India. Chugh, LLP has worked with some of the largest Indian companies looking to expand into the United States markets.

For more information, please contact us at info@chugh.com.

1.Which U.S. state should we incorporate in?

The choice of state for incorporation should align with corporate objectives and be cost-effective. 

Important factors are to be considered include:

  • Demographics of customers/staff
  • Specifications of supply chain
  • Local competition
  • Risk
  • Infrastructure
  • Labor flexibility
  • Property rental or purchase
  • Connectivity
  • State and local rules, regulations 
  • Utilities

Delaware and Nevada are popular choices due to their favorable corporate laws and tax regimes. Consider the location of primary business operations as this impacts the ideal state for incorporation.

2. Can a non-US citizen be the director/shareholder in a U.S. company?

The answer is Yes. 
Non-US citizens and foreigners can be directors or shareholders in a U.S. company. There are no federal laws in the United States that prevent foreign nationals from occupying these roles in a U.S.-based corporation. However, depending on the type of business, state-specific laws, and industry regulations, there may be limitations or additional requirements for non-resident individuals starting or participating in certain business entities. Top of Form

3. Which type of business structure should we choose: C Corp or LLC?

Deciding whether to form a Limited Liability Company (LLC) or incorporate as a C Corporation depends on the specific needs and goals of the business. Both structures offer significant legal benefits, including asset protection and limited liability for owners. LLCs are generally simpler and more flexible, with fewer formalities and the advantage of pass-through taxation, where business profits are taxed only at the personal income level of the owners. The owners' personal assets are safeguarded, and instead, the LLC itself assumes responsibility for the business' debts and obligations. This structure is often preferable for small to medium-sized businesses due to its simplicity and tax efficiency.
In contrast, C Corporations are incorporated and provide an ability to issue various classes of shares, making them suitable for businesses seeking outside investment; the stockholders are not personally accountable for the debts and liabilities of the business. They are subject to corporate taxation on their profits and face a separate tax rate if dividends are distributed to shareholders. C Corporations may offer certain advantages such as deductibility of employee benefits and a broader range of tax planning opportunities. 
The choice between an LLC and a C Corporation should consider factors such as the scale of the business, the need for external funding, long-term growth objectives, and tax implications.

4. How can we obtain EIN if we don’t have SSN?

An EIN (Employer Identification Number) is a unique identifier assigned by the IRS to businesses for tax purposes. While an SSN (Social Security Number) is commonly used in the application process for individuals, it's not mandatory, especially for foreign entities. If the applicant doesn't have an SSN, they can still apply for an EIN. This can be done using Form SS-4, where the applicant would indicate their foreign status. A third-party designee can assist in preparing and submitting the application, but their role is limited to this process. After obtaining the EIN, the third-party designee does not assume any liability or ongoing responsibilities for the company. This process allows foreign entities and individuals without an SSN to obtain an EIN for their business operations in the United States.
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5. What are the annual compliance requirements for C Corp and LLCs?

Corporations and limited liability companies (LLC) must meet both internal and external obligations on a regular basis. Internal requirements must be met by the directors of the corporation or LLC and be documented in corporate or company records.
External requirements are those required by the state in which the LLC or corporation was founded; these typically include, at the very least, an annual (every year) or biennial (every two years) filing with the state, along with a fee.
INTERNAL REQUIREMENTS
Internal Requirements are vital for effective decision making and internal communication. 
Corporation:
A consolidated corporate records book is used by owners to organize and keep significant corporate papers such as articles, bylaws, meeting minutes, resolutions, stock certificates, and deeds. Bylaws establish the fundamental operational principles of the business; they should be planned for and drafted as part of the incorporation process. Although it is not necessary to file the bylaws with any government body, corporations must hold initial and annual meetings, adopt bylaws, and retain minutes of the meetings on file with the corporate records. 
Bylaws are the corporation’s written decision-making and operating procedures framed to establish formal rules on duration of meetings, voting rules, quorum, notice, and basic responsibilities of corporate officers, as well as provide essential information to shareholders periodically. However, owners must ensure that their bylaws comply with their state's Business Corporation Act or its equivalent. 
If the Articles of Incorporation do not have appoint a Board of Directors, the names and addresses of the initial board must be separately mentioned. These directors serve until a new board is elected at the first shareholders’ annual meeting.
Several key actions of the corporation should be approved at this first meeting, including the election of officers, adoption of bylaws, selection of the main office or headquarters location, selection of a bank for corporate accounts, the accounting period or fiscal year, initial tax elections, and issuance of initial shares of corporate stock. 
 The minutes of the meeting should be prepared in advance and can be amended as required, with the final version signed by the entire board. LLC:
LLCs are formed by filing Articles of Organization with the state's LLC office. These articles provide basic organizational information about the LLC, such as its name, whether it is administered by its members or by a chosen group of members known as managers, the names and addresses of its members, and the location of its office.
The operating agreement, an important internal document, outlines the operation of the LLC and is similar to a partnership agreement. It details the investment ratio of each member, distribution of earnings, voting rights, and might include meeting conditions like notice, quorum, and voting procedures. Though not always required by the state (except in New York), it usually includes any state-mandated regulations. EXTERNAL REQUIREMENTS:
External requirements typically include a periodic state report. Most states require corporations and LLCs to file an annual or biennial statement or report, along with a fee. 
Additional obligations may include payroll taxes, property taxes, sales and use taxes or seller's permits, and business license renewals.  
Other state or local filings may be necessary, such as business licensing or state or municipal tax registrations. Owners will continue to file their individual state and federal income tax returns. Some states additionally levy a franchise tax, which is essentially a charge paid by the corporation in exchange for the state's right to operate there. 
Franchise taxes, which vary by state, may also apply and are calculated based on different metrics, such as revenue or the number of authorized shares. Compliance with state and local tax registrations and filings is necessary, and the specific deadlines and requirements can differ from state to state. 

6. Can we use the Chugh office as our U.S. entity office address?

Yes, Chugh office can be used to serve as the U.S. entity office address, on a temporary basis, for limited tax and legal matters. However, it is important to note that this arrangement should comply with state-specific requirements regarding registered agents and office addresses for business entities. Some states may require the registered office to be a physical location in the state where the business is formed.7. What documents are required to open a bank account in the U.S. for non-residents? To open a bank account in the U.S. for non-residents, the following documents are generally required:

  • A valid passport or driver’s license for identity verification.
  • An Individual Taxpayer Identification Number (ITIN), especially if you do not have a Social Security Number.
  • Relevant immigration documents to establish legal status in the U.S.
  • A government-issued ID, which can be from your home country. Additionally, banks may require proof of address, and the specific requirements can vary depending on the bank and the type of account. 1.

7. Can Chugh introduce us to some banks in U.S.?

Yes, the Chugh office can facilitate introductions to U.S. banks. They can provide necessary documentation support and offer services such as compliance counselling and training. Chugh can also assist with financial modelling and analysis, as well as tax preparation in accordance with IRS regulations. This service is particularly valuable for businesses unfamiliar with the U.S. banking system and regulatory environment.9. What are the main employment law compliances in CA?

  • Compliance with local, state, and federal laws is essential, especially in California, where state laws often provide more benefits to employees than federal laws. Key areas where California state laws differ significantly from federal laws include: Higher minimum wage. California's minimum wage is typically higher than the federal minimum wage, and it varies based on the size of the employer and locality. California’s minimum wage is typically higher than the federal minimum wage, and it varies based on the size of the employer and locality.
  • Overtime laws. California has specific rules for overtime pay, including daily overtime for work over 8 hours per day and double time for work over 12 hours per day.
  • Family leave. California provides broader family leave rights than federal law, including the California Family Rights Act, which offers protections similar to the federal Family and Medical Leave Act but has a broader scope in some respects.
  • Sick leave. The state mandates paid sick leave for employees who work 30 or more days within a year.
  • Anti-discrimination protections. California's Fair Employment and Housing Act (FEHA) offers wider protections than federal law, covering more classes and applying to employers with 5 or more employees, compared to 15 under federal law.
  • Rest and meal breaks. California requires specific meal and rest breaks that are more stringent than federal requirements.

Equal opportunity in the workplace is being guaranteed by federal laws for legally protected workers. Employers are prohibited from discriminating against job seekers and employees on a variety of grounds under Title VII of the Civil Rights Act of 1964. Some titles protected under the Title VII are:

  • National Origin
  • Color
  • Race
  • Religion
  • Sex (including sexual orientation and gender identity)

Under federal law, specifically Title VII of the Civil Rights Act of 1964, employers are prohibited from discriminating against job seekers and employees based on national origin, color, race, religion, sex (including sexual orientation and gender identity). Title VII applies to private employers with 15 or more employees. Additionally, the Genetic Information Nondiscrimination Act of 2008 protects against discrimination based on genetic information. 

California has its own equal employment opportunity statutes. Employers with 5 or more employees are prohibited by law from engaging in workplace discrimination. Among the legally protected classes, some are:

  • Age
  • Color
  • Gender identity
  • Medical condition 
  • Marital status
  • Religion 
  • Sex
  • Physical or mental disability

In California, employers must be vigilant in adhering to these employee-friendly requirements to avoid legal challenges and potential damage to their reputation. It's important for businesses to regularly update their compliance checklist to reflect the latest state-specific laws and regulations.

8. Are non-compete clauses enforceable in California?

A non-compete agreement is a legal agreement is a contract that limits someone's capacity to compete with a firm after a connection with that business has ended. Non-compete clauses are common in employment agreements in the United States. The ostensible objective of a non-compete agreement is to protect a company from the expenditure of training an employee only to have that individual leave and work for a competitor. 
Non-compete agreements are generally not enforceable in California. California law (specifically Business and Professions Code Section 16600) strongly favors employee mobility and prohibits non-compete agreements for former employees, with limited exceptions. This policy is aimed at promoting open competition and innovation. While non-compete clauses may be enforceable in the context of a sale of business or dissolution of a partnership, they are largely unenforceable against former employees.

Partnerships:
In California, non-compete clauses are generally not enforceable due to the state's strong public policy favoring free competition and employee mobility, as outlined in Business and Professions Code Section 16600. However, there are specific exceptions in the context of partnerships. When a partnership is being sold, dissolved, or if a partner is leaving, non-compete agreements that restrict a former partner from operating a similar business within a certain geographic area, where the partnership was previously active, can be enforceable. These agreements must be reasonable in terms of geographic scope and duration and should be specifically tailored to protect the legitimate business interests of the partnership.

LLPs: Similar to partnerships, California's general stance against non-compete agreements applies to LLPs. However, exceptions exist in certain circumstances such as the sale of the LLP or upon the departure or disassociation of a member. In these situations, a non-compete clause may be enforceable if it reasonably protects the LLP's business interests without imposing undue restrictions on the former member's ability to engage in their profession. As with partnerships, such clauses need to be limited in geographic scope and duration to be considered enforceable under California law.

9. What are your suggestions for asset protection?

Asset protection strategies are vital for safeguarding personal and business assets from creditors. 

1.Using Corporations, LPs and LLCs:

Corporations, Limited Partnerships (LPs), and Limited Liability Companies (LLCs) are structured to provide limited liability protection to their owners. This means that in most cases, the personal assets of shareholders (in corporations), limited partners (in LPs), and members (in LLCs) are not at risk for the debts and liabilities of the business.

These entities can also engage in borrowing and other financial activities, providing a layer of protection for the personal assets of the owners from business creditors. However, this protection is not absolute; certain situations, like personal guarantees or cases of fraud, can pierce this shield.
2.Using Asset Protection Trusts (APTs):
An Asset Protection Trust (APT) is a legal structure that holds an individual's assets to shield them from creditors. APTs are designed to provide robust asset protection and are often used for significant assets.

The assets placed in an APT are generally not considered part of the legal estate of the trust's creator, thus offering protection from creditors. It's important to note that APTs must be established and operated in compliance with specific legal and tax regulations to be effective and legitimate.
APTs often include "spendthrift clauses" which prevent the trust's assets from being claimed by creditors except under certain conditions. Once established, many APTs are irrevocable, meaning they cannot be easily undone, and the trust creator may lose direct control over the assets.
3.Transferring Property Rights:
Transferring the legal rights of assets to a spouse, relative, or friend is another method of asset protection. This can potentially shield assets from being claimed by creditors.

However, such transfers must be done carefully to avoid being considered fraudulent conveyances. A transfer intended to defraud, delay, or hinder creditors can be reversed by courts, and there may be tax implications to consider.

It's advisable to consult with legal and financial professionals when considering asset transfers for asset protection purposes, to ensure compliance with laws and to understand the potential ramifications of such transfers.

10. If I settle, how can I ensure other employees will not sue?

A settlement agreement is a legally binding contract between disputing parties that resolves their disputes. It typically includes terms that both parties agree to, which may involve compensation, actions to be taken, and other relevant matters.

A critical component of many settlement agreements is a "release" clause. This clause generally states that in exchange for the settlement benefits (such as a payment), the party receiving the settlement agrees not to pursue any further legal action related to the dispute.

While a settlement agreement effectively prevents the parties involved from suing each other over the settled matter, it does not automatically prevent other employees from initiating their own lawsuits on different issues. Each employee's potential claim is independent unless they were explicitly included and addressed in the original settlement agreement.

To mitigate the risk of future lawsuits from other employees, it is important to address the underlying issues that led to the original dispute and ensure that the workplace adheres to all applicable laws and regulations. Creating a fair and compliant work environment can reduce the likelihood of similar disputes arising.

Additionally, maintaining confidentiality about the terms of the settlement can be important. Some settlements include confidentiality clauses that restrict the parties from discussing the terms of the agreement publicly.

It's important to consult with legal professionals when drafting a settlement agreement to ensure that it effectively addresses all potential concerns and is in compliance with applicable laws.

11. Which business entity should I set up for tax purposes?

When deciding on the appropriate business entity for tax purposes, it's important to understand the characteristics and implications of each type. A popular choice is the Limited Liability Company (LLC).
Nature of LLC: An LLC is not a corporation but a distinct legal entity that combines the liability protection of a corporation with the tax benefits and flexibility of a partnership. 
Limited Liability: The members of an LLC enjoy limited liability, meaning they are typically not personally responsible for the business debts and liabilities of the LLC. This protection is similar to that enjoyed by shareholders of a corporation.

Separate Legal Entity: LLCs are separate legal entities. They can own property, incur debts, and enter into contracts in their own name. This structure provides a shield for the personal assets of the members from business liabilities.

Transferability of Membership Interest: Unlike corporations, where shares can be freely transferred, the transfer of a member's interest in an LLC may require the consent of other members, depending on the LLC’s operating agreement and state law.

Perpetual Existence: Traditionally, LLCs did not have perpetual existence and were subject to dissolution upon certain events, such as the death or withdrawal of a member. However, many states have updated their laws to allow LLCs perpetual existence. The specifics can vary by state, and the operating agreement can further define this aspect.

Tax Considerations: For tax purposes, LLCs are typically treated as pass-through entities, meaning the profits and losses of the business pass through to the members, who report them on their personal tax returns. However, an LLC can also choose to be taxed as a corporation if that is more beneficial.

In determining the best entity for tax purposes, it is crucial to consider factors like the nature of the business, the number of owners, the desired level of liability protection, and specific tax implications. Consulting with a tax advisor or an attorney is advisable to make an informed decision based on your particular circumstances.

12. What are the key things I should do when running a business to avoid litigation?

For any business, avoiding liability should be just as crucial as making a profit. Failure to take the necessary precautions to protect your organization can result in major legal issues. There are some basic steps a business should take to protect the business against litigation and earn more profit.
 
i)Legal Contracts: Develop comprehensive and clear legal contracts for all business dealings, including with employees, suppliers, and customers. These contracts should clearly outline the rights, responsibilities, and expectations of all parties involved.
ii)Business Incorporation: Properly structuring your business is essential. Incorporation or forming an LLC can help separate personal assets from business liabilities, providing an essential layer of protection against personal liability in many legal disputes.
iii)Insurance of business: Obtain appropriate insurance coverage for your business. While insurance does not prevent liability, it can provide financial protection against claims and cover legal fees and settlements.
iv)Appointing an Experienced Attorney: Regular consultation with an experienced business attorney is invaluable. An attorney can provide legal advice on various matters, guide business decisions to minimize legal risks, and keep you updated on relevant laws and regulations.
v)Establishing Company Policies and Procedures: Establish and maintain clear, comprehensive company policies and procedures. This includes employment policies, operational guidelines, and compliance protocols. Effective policies not only protect the company’s assets and intellectual property but also provide clear guidance to employees, reducing the likelihood of disputes arising from misunderstandings or misconduct.
vi)Documentation of records: Maintain meticulous records of all business activities. This includes keeping accurate time records, documenting the signing dates of agreements, recording meeting minutes, and keeping detailed transaction records. Proper documentation can be crucial in defending against lawsuits or legal claims.
Taking these steps will not only help in minimizing the risk of litigation but also contribute to the overall health and sustainability of the business. Legal challenges can arise despite best efforts, so being prepared and proactive is key.

vii)Regular Compliance Audits: Conduct regular audits to ensure that your business is in compliance with all relevant laws, regulations, and industry standards. Staying compliant reduces the risk of legal issues related to regulatory violations.

viii)Employee Training and Engagement: Ensure that employees are well-trained and informed about the company’s policies, legal obligations, and ethical standards. Engaged and well-informed employees are less likely to inadvertently create legal issues.

13. Are court filings public records, will settlement be searchable?

Generally, court filings are public records. This means that documents filed in legal proceedings are typically accessible to the public, subject to certain exceptions. However, the level of accessibility can vary depending on the jurisdiction and the nature of the case.

Settlements may or may not be part of the public court record, depending on how the case is resolved. If a settlement is reached before a lawsuit is filed or if the settlement terms are confidential, the details of the settlement may not be publicly available. If the settlement is filed with the court as part of the legal proceedings, it becomes part of the public record, unless the court orders it sealed.

14. Can you handle estate planning in US and India?

We specialize in estate planning for both the United States and India, providing personalized solutions that align with the legal and regulatory frameworks of both countries. Our expertise encompasses the diverse and complex nature of cross-border estate planning.

Recognizing that each family has unique needs and circumstances, our approach at Chugh is tailored and client-focused. We take into account the specific goals, family dynamics, and assets of each client to create a comprehensive estate plan. Our strategies are designed to protect your assets, minimize the impact of estate taxes, and ensure that your intentions for your estate are clearly defined and legally enforceable in both jurisdictions. 

15. What is the filing compliance for acquiring funds?

There are a few things to be kept in mind when filing compliance for acquiring funds, which are as follows:

  • Up-to-Date Paperwork: Ensuring that all business paperwork is current and in order is crucial. This includes having up-to-date company licenses, registrations, and tax filing permits. These documents demonstrate the legal and operational status of your business, which is essential for potential funders.
  • Financial Documentation: Providing detailed financial information is a key component of the funding process. This typically includes:
  • Balance Sheet: Showcasing the company's assets, liabilities, and shareholders' equity.
  • Cash Flow Statement: Illustrating how changes in the balance sheet and income affect cash and cash equivalents, and breaks down the analysis to operating, investing, and financing activities.
  • Income Statement: Offering a clear view of the company's revenues, expenses, profits, and losses over a specific period.
  • Compliance with Securities Laws: If acquiring funds through equity financing (like selling shares), compliance with securities laws is crucial. This may involve filing certain forms with the Securities and Exchange Commission (SEC) and adhering to state securities regulations, depending on the size of the offering and the jurisdiction.
  • Investor Due Diligence: Be prepared for due diligence by investors or lenders. This process can include scrutiny of your business's legal standing, financial health, market potential, management team, and operational practices.
  • Disclosure Requirements: Full and accurate disclosure of material information about the business is required to avoid potential legal issues. This includes any risks associated with the investment or loan.
  • Specific Requirements for Different Types of Funding: The requirements can vary significantly depending on the type of funding being pursued (e.g., bank loan, venture capital, angel investment, crowdfunding). Each funding source may have its own set of compliance requirements.

16. What is the filing compliance for employment issue?

Compliance in employment matters is a critical part of any business. By understanding and following the proper procedures, businesses can ensure that they are protecting their employees and themselves from potential legal problems. There are a number of different compliance issues must be considered, including, (i) discrimination, based on gender, race or religion, (ii) harassment in the form of unwanted advances or comments that are offensive or unwelcome, and (iii) retaliation, when an employee is punished for reporting any harassment or discrimination.

  • Non-Discrimination Policies: Compliance requires adherence to laws prohibiting discrimination in the workplace. This includes discrimination based on gender, race, religion, age, disability, sexual orientation, gender identity, and other protected characteristics under federal and state laws, such as Title VII of the Civil Rights Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act.
  • Harassment Prevention: Businesses must establish and enforce policies to prevent harassment in the workplace. This includes training employees on recognizing and avoiding harassment, providing clear procedures for reporting harassment, and taking appropriate action against offenders.
  • Anti-Retaliation Measures: Employers must have policies and procedures in place to prevent retaliation against employees who report harassment, discrimination, or participate in investigations or proceedings related to such complaints. This is a key aspect of compliance with employment laws.

Adhering to these compliance aspects is essential for minimizing the risk of legal issues and creating a safe, fair, and productive work environment. It's advisable for businesses to seek legal counsel to ensure they are in full compliance with all relevant employment laws.

ASHIMA CHOCK

Partner

Email: ashima.chock@chugh.com

Address: 1800 St. James Place, Suite 150, Houston, TX 77056

Phone: 832.275.0333

CLAIRE ARIETE

Legal Consultant

Email: claire.ariete@chugh.com

Address: 1600 Duane Ave., Santa Clara, CA 95054

Phone: 408.970.0100

ETHAN CHEN

Associate Attorney

Email: ethan.chen@chugh.com

Address: 15925 Carmenita Road, Cerritos, CA 90703

Phone: 562.483.7761

HOOMAN YAVI

Attorney

Email: hooman.yavi@chugh.com

Address: 1600 Duane Ave., Santa Clara, CA 95054

Phone: 408.343.7633

KAVERI VIJAY

Senior Legal Consultant

Email: kaveri.vijay@chugh.com

Address: 330 7th Avenue, Suite 1000A (10th Floor), New York, NY 10001

Phone:

LUCIENE GUZZI

Legal Consultant

Email: luciene.silva@chugh.com

Address: 295 Pierson Avenue, Edison, NJ 08837

Phone: 732.662.7745

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