California Legal Glossary

California's three-prong test for distinguishing employees from independent contractors. Codified at Cal Labor Code §2775 after the Dynamex decision and AB 5. The hiring entity must prove all three prongs (A: worker is free from control, B: work is outside the hiring entity's usual course of business, C: worker is customarily engaged in an independently established trade) to classify as a contractor. Prong B is where most California classifications fail.

Cal Labor Code §2775

Deeper dive: California Independent Contractor Agreements

A legal doctrine that allows courts to disregard the separate legal existence of an LLC or corporation and reach the owners' personal assets when the entity has been treated as the owners' alter ego. California uses a 14-factor analysis, weighing commingling of assets, undercapitalization, failure to observe formalities, and other indicators of personal-business confusion.

Deeper dive: California Alter Ego — The 14 Factors

A special motion to strike under California Code of Civil Procedure §425.16, designed to dismiss claims that arise from protected First Amendment activity (speech, petition, public-interest commentary). The motion involves a two-step test, triggers an automatic discovery stay, and carries mandatory attorney's fees for a prevailing defendant.

Cal Code Civ. Proc. §425.16

Deeper dive: California Anti-SLAPP Motions

The legal doctrine that holds an entity bound by an agent's actions when a reasonable third party would believe the agent had authority to act on the entity's behalf — even if no actual authority was conferred. For California LLCs, every member in a member-managed LLC has apparent authority under Cal Corp Code §17703.01(a).

Cal Corp Code §17703.01

The foundational document that creates a corporation when filed with the California Secretary of State. Includes the corporate name, business purpose, agent for service of process, authorized shares, and (for stock corporations) classes of stock. Form ARTS-GS for general stock corporations; ARTS-PC for professional corporations.

Cal Corp Code §200 et seq.

The formation document that creates a California LLC when filed with the Secretary of State. Includes the LLC name, business purpose, agent for service of process, and management structure (member-managed or manager-managed). Filing fee is $70.

Cal Corp Code §17702.01

Deeper dive: California LLC Formation Checklist

The default California employment relationship — either party can terminate the employment at any time, for any lawful reason or no reason at all. At-will is not a complete defense to termination claims, however, because California recognizes numerous statutory and public-policy exceptions (Tameny, FEHA retaliation, whistleblower protections, etc.).

Cal Labor Code §2922

Deeper dive: California Employment Law for Employers

The administrative hearing process used by the California Division of Labor Standards Enforcement (DLSE) to adjudicate individual wage claims. Designed to be employee-accessible — informal procedure, no Federal Rules of Evidence, hearing officers (Deputy Labor Commissioners) actively examine both sides. Decisions are enforceable as Superior Court judgments after filing.

Cal Labor Code §98

Deeper dive: Responding to a California DLSE Wage Claim

The standard governing California employer meal-and-rest-break obligations. Per the California Supreme Court's Brinker Restaurant decision (2012), employers must provide compliant breaks — they don't have to police that the employee actually takes them. Practical compliance still requires policies, training, and time-record systems documenting that breaks were available.

Brinker Restaurant Corp. v. Superior Court (2012)

A contract (often inside or alongside an operating agreement or shareholder agreement) that decides what happens to an owner's interest on triggering events — death, disability, departure, divorce, bankruptcy, deadlock. Specifies who buys, on what terms, and at what price. The agreement is the central dispute-prevention document for closely-held entities.

Deeper dive: California Buy-Sell Agreements

What a member or shareholder contributes to the LLC or corporation — typically cash, property, or services — in exchange for an ownership interest. Documented in the operating agreement (LLC) or stock-issuance records (corporation). Service-only contributions ('sweat equity') raise tax and valuation complications under Cal Corp Code §17704.02(b).

Cal Corp Code §17704.02

California's consumer privacy framework — the CCPA enacted in 2018 and the CPRA expansion effective 2023. Imposes disclosure, opt-out, and data-handling obligations on businesses meeting size thresholds. Affects asset acquisitions involving customer data and most California B2C operating businesses.

Cal Civ Code §§1798.100 et seq.

A formal demand that a recipient stop specified conduct, typically as a prelude to litigation if the conduct continues. Common in IP infringement, trade-secret misappropriation, contractual non-compete/non-solicit enforcement, and defamation contexts.

A formal pre-trial settlement offer under California Code of Civil Procedure §998. If the offer is rejected and the eventual judgment is no more favorable to the rejecting party than the offer was, the offering party can shift costs and pre-judgment interest — a significant settlement-leverage tool unique to California state-court practice.

Cal Code Civ. Proc. §998

Deeper dive: California Demand Letters

The court order that allows a lawsuit to proceed on behalf of a defined class of similarly situated plaintiffs. In California state court, governed by Cal Code Civ. Proc. §382; in federal court, by Federal Rule 23. The standard requires showing an ascertainable class, common questions predominating, typicality, and adequacy of representation.

Cal Code Civ. Proc. §382

Deeper dive: California Wage & Hour Class Action Defense

The legal requirement that each party to a contract must give something of value in exchange. Without consideration on both sides, the contract is generally unenforceable as a 'gratuitous promise.' Modifications to existing contracts also typically require new consideration (the 'pre-existing duty rule') with some California-specific exceptions.

The legal separation between a corporation or LLC and its owners — the doctrine that protects owners' personal assets from entity liabilities. The veil can be 'pierced' under alter-ego doctrine when the entity has been misused as the owners' personal instrumentality. See Alter Ego.

California's trade-secret protection statute. Defines a trade secret as information that derives independent economic value from not being generally known and is subject to reasonable efforts to maintain secrecy. Provides injunctive relief, damages, and (for willful misappropriation) exemplary damages and attorney's fees.

Cal Civ Code §§3426–3426.11

Deeper dive: California Non-Disclosure Agreements (NDAs)

A governance impasse where the entity's decision-makers cannot reach agreement on matters requiring their consent. Common in 50/50 LLCs and corporations with split boards. Deadlock is a statutory ground for judicial dissolution under Cal Corp Code §17707.03 (LLCs) and §1800 (corporations).

Deeper dive: California Business Owner Disputes

California's pleading-stage motion to dismiss a complaint or cross-complaint for failing to state a cognizable cause of action or otherwise being legally insufficient. The federal-court equivalent is a Rule 12(b)(6) motion to dismiss. Granted demurrers are typically with leave to amend at the early pleading stages.

Cal Code Civ. Proc. §430.10

An exception to the statute of limitations that delays accrual of the claim until the plaintiff discovers (or reasonably should have discovered) the facts giving rise to the claim. Applies categorically to fraud claims under Cal Civ Code §338(d) and discretionarily to other claims when the underlying facts were hidden.

Cal Civ Code §338(d)

Deeper dive: California Statutes of Limitations

A federal tax classification for single-member LLCs (and certain other entities) treating the entity as nonexistent for tax purposes — income and deductions flow directly to the owner's tax return. Doesn't affect liability protection; it's purely a tax-treatment label.

California's wage-and-hour enforcement agency, part of the Department of Industrial Relations. Adjudicates individual wage claims through the Berman hearing process and investigates employer practices. Not a court; rules are looser, and the agency takes an active inquisitorial role.

Deeper dive: Responding to a California DLSE Wage Claim

A buy-sell or shareholder-agreement provision allowing majority owners to force minority owners to participate in a sale to a third party on the same terms. Protects majority interests by ensuring clean exits; minority owners typically negotiate corresponding tag-along rights.

Deeper dive: California Buy-Sell Agreements

Deferred consideration in a business acquisition, payable to the seller based on post-closing performance of the acquired business. Bridges valuation disagreements between buyer and seller but is the single largest source of post-closing M&A litigation when disputes arise over calculation, buyer operational decisions, or acceleration triggers.

Deeper dive: Buying a Business in California

The nine-digit federal tax ID issued by the IRS to businesses for tax-reporting and banking purposes. Required for hiring employees, opening business bank accounts, filing federal employment-tax returns, and most other business operations. Free to obtain from the IRS via Form SS-4.

A portion of the purchase price in a business acquisition held by a neutral third party (escrow agent) for a defined post-closing period — typically 12-24 months. Provides a funded source for buyer indemnification claims if the seller's representations prove inaccurate. Typically 5-10% of purchase price.

California's broad anti-discrimination statute, covering protected classes including race, religion, sex, gender identity, age (40+), disability, sexual orientation, marital status, military status, and others. Coverage threshold is five employees for most provisions, one employee for harassment. Broader than federal Title VII.

Cal Gov. Code §12900 et seq.

Deeper dive: California Employment Law for Employers

The highest legal duty owed by one party to another, encompassing duties of loyalty, care, and good faith. In California LLCs and corporations, members/managers/directors owe fiduciary duties to the entity and to each other. Codified for California LLCs at Cal Corp Code §17704.09.

Cal Corp Code §17704.09

California's strict final-paycheck timing rules. Involuntary termination: full final pay (including accrued unused vacation/PTO) due immediately, at the time of termination. Voluntary resignation: due within 72 hours unless 72+ hours' notice was given, in which case due on the last day. Late payment triggers waiting-time penalties of one day's wages per day late, up to 30 days.

Cal Labor Code §§201–203

Deeper dive: California Employment Law for Employers

A contract provision excusing performance when defined events outside the parties' control occur (typically: natural disasters, war, government action, pandemic). Enforceability and scope are highly drafting-dependent; vague force majeure clauses often produce disputes when invoked.

An LLC formed to hold investment assets (real estate, securities, intellectual property, equity in other businesses) rather than to operate a business. Holding LLCs have different operating-agreement needs than operating LLCs — particularly around tax allocations, capital calls, and the relationship between the holding entity and its investments.

A contractual obligation by one party to compensate the other for specified losses, often defined as breaches of representations or specified categories of claims. In M&A, indemnification has a defined structure: survival period, baskets, caps, and (often) escrow. In contracts generally, indemnification scope is heavily negotiated.

A worker hired to provide services without being an employee. In California, classification is governed by the ABC test under Cal Labor Code §2775 (with exemptions under §§2776-§2784). Misclassification triggers back wages, premiums, penalties, and PAGA exposure.

Deeper dive: California Independent Contractor Agreements

A court order requiring a party to do or stop doing something. In civil litigation, injunctions can be preliminary (issued while the case proceeds, requiring a showing of likelihood of success on the merits and irreparable harm) or permanent (after trial). Preliminary injunctions are common in trade-secret, non-compete, and IP cases.

A contract provision stating that the written agreement is the complete and final expression of the parties' agreement, superseding prior negotiations and understandings. Strengthens the parol evidence rule's protection against introducing oral side agreements that contradict the writing.

Court-ordered termination of an LLC or corporation, available on statutory grounds including deadlock, fraud, mismanagement, and abandonment. For California LLCs, governed by Cal Corp Code §17707.03 — and the statutory buyout election under §17707.03(c) often resolves dissolution petitions short of actual dissolution.

Cal Corp Code §17707.03

Deeper dive: California LLC Member Buyouts (§17707.03)

A document executed early in an M&A or similar transaction outlining the major proposed terms. Typically a mixed binding/non-binding document — provisions like exclusivity, confidentiality, and expense allocation are binding; the price, structure, and timeline are non-binding pending due diligence and definitive agreement.

Deeper dive: Buying a Business in California

A formal directive issued by counsel (or by a party with knowledge of impending litigation) requiring preservation of documents, emails, and other potentially relevant evidence. Failure to implement a litigation hold can result in spoliation sanctions, including adverse inferences and monetary penalties.

A common entertainment-industry structure where an individual performer or creator forms a personal corporation, then 'loans out' services to studios or productions through the corporation. The structure has tax, liability, and union-relationship implications — particularly common in Los Angeles entertainment work.

An LLC structure where day-to-day operations are conducted by one or more managers (who may or may not be members), and members exercise authority only over major decisions. Compared to member-managed, this structure separates ownership from control and is the default choice for LLCs with passive investors.

Deeper dive: California LLC Operating Agreements

A defined event between contract signing and closing significant enough to allow the buyer (typically) to refuse to close a transaction. MAC clauses are heavily negotiated — broad definitions favor the buyer; carve-outs for industry-wide trends, economic conditions, and pandemics favor the seller.

An owner of an LLC, holding a membership interest representing economic rights (share of profits and distributions) and typically management rights. Equivalent to a 'shareholder' in a corporation. Members can be individuals, other entities, or trusts.

The default California LLC structure where every member has authority to act on behalf of the LLC. Member-managed LLCs require unanimous or majority consent for most decisions and can become unwieldy as membership grows. Most multi-member LLCs ultimately want to elect manager-managed structure.

Deeper dive: California LLC Operating Agreements

A doctrine that prevents courts from deciding cases where no live controversy remains — typically because the underlying dispute has been resolved or rendered moot by intervening events. In class actions, mootness of the named plaintiff's claim (via 'pick-off' tactics) generally does not moot the class allegations.

A contract obligating one or both parties to maintain confidentiality of specified information. Can be mutual (both parties bound) or unilateral (only one party bound). Enforceability requires proper drafting around scope, term, purpose limitation, and (in California) avoiding the §16600 non-compete prohibition.

Deeper dive: California Non-Disclosure Agreements (NDAs)

A contract provision restricting the signer from competing with the counterparty after the relationship ends. Generally unenforceable in California under Cal Bus & Prof Code §16600, with narrow exceptions for sale-of-business non-competes (§16601) and partnership dissolution (§16602). AB 1076 (effective 2024) added employer notification requirements for unenforceable non-competes.

Cal Bus & Prof Code §§16600–16602.5

A contract provision restricting the signer from soliciting the counterparty's customers, employees, or other relationships after the relationship ends. Narrower than non-competes; enforceable in California under specific circumstances when tied to legitimate business interests like confidential information.

The contract among the members of an LLC governing how the LLC operates — management structure, capital, distributions, voting, transfers, dissolution. California requires every LLC to have one (Cal Corp Code §17701.10). Quality varies enormously; template operating agreements consistently fail in disputes.

Cal Corp Code §17701.10

Deeper dive: California LLC Operating Agreements

An LLC formed to operate an active business (services, products, etc.), as distinguished from a holding LLC that owns investment assets. Operating LLCs typically have different operating agreement structures and tax considerations than holding LLCs.

California's statute allowing aggrieved employees to sue employers on behalf of the state for Labor Code violations. Penalties typically $100 per employee per pay period (initial) and $200 (subsequent), with 65% to the state and 35% to the aggrieved employees and counsel. Reformed in 2024 to tighten standing and expand cure provisions.

Cal Labor Code §§2698–2699.8

Deeper dive: California PAGA Defense Playbook

A federal tax treatment where the entity itself pays no income tax; instead, profits and losses pass through to the owners' personal tax returns. Default treatment for partnerships, multi-member LLCs (taxed as partnerships), S-corps, and disregarded-entity single-member LLCs.

California's nine specific itemization requirements for every wage statement — gross wages, total hours, deductions, net wages, dates of period, employee name and last four of SSN, employer name and address, hourly rates with hours at each rate, and piece-rate or salary detail. Each missing or inaccurate item generates statutory damages of $50 (first) / $100 (subsequent) per employee per pay period.

Cal Labor Code §226

See Alter Ego.

A corporate form available to specified licensed professions (lawyers, doctors, accountants, etc.) under California law. Allows the professional services to be provided through a corporate entity with limited liability for general business obligations, while preserving the professional's individual liability for malpractice. Articles of Incorporation use Form ARTS-PC.

Cal Corp Code §13400 et seq.

A written promise to pay a specified amount of money, often at specified intervals over a specified term. Common in M&A as seller financing (the buyer pays a portion of the purchase price via installment note) and as evidence of debt in lending transactions.

A federal tax provision allowing exclusion of up to $10 million or 10x basis (whichever is greater) in capital gain on sale of Qualified Small Business Stock. Requires the stock to be issued by a C-corporation meeting size and trade-or-business requirements, and held for at least five years. Significant planning consideration for tech and venture-backed sellers.

IRC §1202

Deeper dive: Selling a Business in California

The minimum number of members, directors, or shareholders required to conduct business at a meeting. Defined by the entity's governing documents (bylaws, operating agreement) or by default rules in California's Corporations Code. Without a quorum, decisions made at the meeting are typically void.

An individual or company designated to receive legal documents (lawsuits, subpoenas, official correspondence) on behalf of an entity. Required for every California LLC and corporation; must be a California resident or a registered agent service. Listed on the Articles of Organization or Articles of Incorporation.

Statements made by a party to a contract (typically the seller in M&A) about facts relating to the business or transaction — title, financials, litigation, employees, contracts, IP, taxes, etc. Breach of a representation triggers contractual indemnification claims. The defining content of any acquisition agreement.

Deeper dive: Buying a Business in California

A contractual right allowing the holder to match a third-party offer before the seller can accept it. Common in LLC operating agreements and shareholder agreements to keep ownership within the existing group. Distinguished from a right of first offer (ROFO), which requires the seller to offer first at the seller's price.

Deeper dive: California Buy-Sell Agreements

A federal tax election (IRS Form 2553) allowing an eligible entity (LLC or C-corp) to be taxed under Subchapter S — pass-through taxation while preserving payroll-tax savings on distributions above reasonable salary. Requires strict pro-rata distributions; conflicts with flexible LLC distribution structures.

IRC §1361 et seq.

California's general-release statute requires explicit waiver of unknown claims when a release purports to extinguish them. A standard waiver references §1542 by name and acknowledges that the releasing party understands the release covers unknown claims. Common in settlement agreements, severance releases, and M&A closing documents.

Cal Civ Code §1542

See Civil Procedure §998 Offer.

An LLC structure that allows segregation of assets and liabilities among internal 'series.' Recognized for tax purposes in California but California's veil-piercing analysis hasn't been definitively tested at the series-level in California courts. Used cautiously for asset-protection planning; not a substitute for separate LLCs in many California contexts.

The formal delivery of legal documents (typically a summons and complaint) to a defendant, triggering the defendant's response deadlines. California has specific service requirements; defective service can be grounds for dismissal or motion to quash.

Cal Code Civ. Proc. §415.10 et seq.

The simplest business structure — an individual operating a business without forming a separate legal entity. The business and the individual are legally inseparable; the owner has unlimited personal liability for business obligations. No separate filing required; no separate taxation.

California's required periodic filing disclosing the entity's current address, officers/managers, and agent for service of process. For LLCs: Form LLC-12, filed within 90 days of formation and biennially thereafter. For corporations: Form SI-200, filed annually. Failure to file produces suspension of corporate/LLC powers.

The maximum time after a cause of action accrues during which a lawsuit can be filed. California SOLs vary by claim type: contract claims (4 years written / 2 years oral), tort claims (2-3 years), fraud (3 years with discovery rule), FEHA discrimination (3 years filing with CRD), defamation (1 year). Missed SOLs bar the underlying claim.

Deeper dive: California Statutes of Limitations

A formal court order requiring a person to produce documents or appear to testify in a legal proceeding. Subpoenas to non-parties (typically Subpoena Duces Tecum for documents) are common in discovery. Failure to comply can result in contempt sanctions.

A pre-trial motion requesting the court to decide a case (or specific issues) without trial because there's no genuine dispute of material fact. Granted summary judgment ends the case (or the relevant issues); denied motions proceed to trial. California's framework is in Cal Code Civ. Proc. §437c.

Cal Code Civ. Proc. §437c

A buy-sell or shareholder-agreement provision allowing minority owners to join in a sale by majority owners on the same terms. The counterpart to drag-along rights; minority protection against being left behind when controlling owners exit.

Deeper dive: California Buy-Sell Agreements

The California doctrine recognizing wrongful termination in violation of public policy as a tort claim, even when employment is at-will. From Tameny v. Atlantic Richfield Co. (1980). Common applications: termination for refusing to engage in unlawful conduct, for reporting safety violations, or for exercising statutory rights.

Tameny v. Atlantic Richfield Co. (1980)

A written agreement between parties to pause the running of a statute of limitations during negotiation or other defined circumstances. Distinguished from the discovery rule (which delays accrual) — tolling assumes accrual has occurred but pauses the clock. Common in pre-litigation settlement discussions.

California's statute allowing creditors to unwind transfers made by debtors to defeat collection of claims. Two theories: actual fraud (intent to hinder, delay, or defraud creditors) and constructive fraud (transfer for less than equivalent value when debtor was insolvent). Four-year SOL or one-year-from-discovery, whichever later.

Cal Civ Code §§3439–3439.14

Deeper dive: California UVTA — Fraudulent Transfers

The schedule by which an owner earns full rights to an equity interest. Common in employment, partnership, and LLC formation contexts — equity is granted upfront but subject to forfeiture if defined conditions (typically continued service) aren't met. Standard vesting schedules: 4 years with 1-year cliff.

Industry-specific California wage and hour regulations issued by the Industrial Welfare Commission (IWC). Cover meal and rest periods, overtime, alternative workweek schedules, and other Labor Code requirements as applied to specific industries. There are 17 active Wage Orders covering different industry sectors.

Penalties under Cal Labor Code §203 for late payment of final wages — one day's wages per day late, up to a maximum of 30 days' wages. Applies to violations of §201 (involuntary termination) and §202 (resignation) timing requirements. A common PAGA-action trigger.

Cal Labor Code §203

Cal Labor Code §1102.5 prohibits employer retaliation against employees who report (or threaten to report) violations of state or federal law to government agencies, supervisors, or law enforcement. Provides a private right of action with broad remedies including civil penalties and attorney's fees.

Cal Labor Code §1102.5

A court order directing a sheriff or marshal to enforce a money judgment by seizing the judgment debtor's property. The primary judgment-enforcement tool in California state court. Specific procedures govern levy on different asset types (bank accounts, real property, business assets).

Cal Code Civ. Proc. §699.510 et seq.

Deeper dive: California Judgment Enforcement