Dear Mary, I am in the process of developing and marketing a very exciting product, which will become a common household item. Should I put a written warranty on the product? Are there different kinds of warranties?

There are three types of warranties: express, implied and statutory. All warranties relate to the character, quality, identity, condition or title of merchandise.

An express warranty is a promise, assurance or guaranty that is created by a seller’s words or conduct. An example would be if you bought a television and it came with a written guarantee that it would continue working for one year.

An implied warranty is when the guarantee is so essential to the sale that the parties would have included it in their agreement had they thought to write it down. An example of an implied warranty is the warranty of merchantability, which means that when you buy something, it has to meet a reasonable buyer’s expectations.

For example, if you bought an apple that looked good but was full of worms, you would want your money back, since the apple is inedible. It didn’t live up to your expectations and if you had known it was full of worms, you wouldn’t have bought it.

If you’re going to include a written warranty on your product, it should clearly identify to whom the warranty is extended. It should also clearly identify the products, parts, characteristics, components or properties covered by and/or excluded from the warranty.

If there is a defect, malfunction or failure of the product to conform to your written warranty, you should state what you will do about it, including the items or services that you are willing to pay for or provide (and those that you will not).

Be very clear about when the warranty term begins and ends.

Explain what a consumer must do if their product has an issue during the warranty period. Include information on how to solve informal disputes between the purchaser and the seller.

State any exclusions or limitations on the warranty. You may also want to state that the warranty provides certain legal rights, and that the consumer may also have other rights that vary from state to state.

There are two kinds of written warranties that you can have: “full” and “limited.” A full warranty must state its duration and meet certain federal standards for warranty. Otherwise, you must use the term “limited” to describe the warranty.

A full warranty requires the person making the warranty to remedy a problem within a reasonable time and without charge, not imposing any limitation on the duration of any implied warranty, and not limiting or excluding certain legal damages.

With a full warranty, if you can’t fix a defect after a reasonable number of attempts, you have to give the consumer a refund or replacement without charge. The consumer should only have to notify you of a problem.

Some of the statutory warranties you will encounter in California include warranties of title and of quality (the Lemon Law). A “title” warranty provides that you can convey clear title to the goods. California’s Lemon Law provides consumers with a statutory recourse and procedure when goods don’t live up to consumers’ reasonable expectations.

As you can see, the subject of warranties can be complex. It’s good policy to always treat consumers how you would want to be treated, be specific about your products’ capabilities and limitations, and remedy problems early.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I have been asked to join the board of directors of a company. I have no idea what that entails. What questions should I ask before becoming a director? Should I be worried about personal liability?

The most important thing to consider when thinking about becoming a director is the company itself. Is the company public, private or nonprofit? What does the company do? There may be special risks if the company is a financial institution, or if the company has overseas operations.

Is the company well managed? Look for conflicts of interest between management and the company, disputes with shareholders, and disputes with major creditors.

You also should look at the integrity and quality of your fellow directors, particularly the board chair. The last thing you want is to be stuck in long, unproductive meetings with people who are unfocused or unprofessional.

Look at the company’s financial statements. If you don’t know how to read financial reports, get professional advice. You need to know whether the company is financially sound and whether it has enough money to carry out its purpose.

Speaking of purposes, what is the company’s plan? The future of the business is just as important as the present, especially if the directors are at least partly responsible for making it successful. Find out about upcoming transitions and transactions, including merger plans, acquisitions or securities offerings.

Does the company have a history of litigation, either as a plaintiff or defendant? Lawsuits may indicate a larger management problem, and will make the board’s job more difficult. Some businesses are prone to lawsuits, however, so investigate each case and determine whether it’s a deal-breaker for you. Consult with an expert on this issue.

Once you have a good idea of what the company is about, look at yourself. Do you have the time and dedication to invest in your duties? You will need to attend board and committee meetings, review information before meetings, and carry out your director responsibilities. If there’s a crisis, you will need to spend even more time on the company.

Do you have sufficient training and experience to manage the corporation’s business? If applicable, you should know what your responsibilities and liabilities are under securities laws. Although somewhat unlikely, directors should be prepared to step in and take control if there are management issues.

You will also need to determine whether you have any potential conflicts of interest that might prohibit you from being an objective and independent director. A board needs to be truly independent in order to carry out its job. Otherwise, company management will expect the board to rubber-stamp their decisions, which may hinder the board’s ability to function.

Although management should provide you with adequate information about the company, directors have a legal duty to investigate suspicious circumstances.

Being a director may expose you to liability, but there are ways to limit your exposure. Make sure the company provides as much protection as possible, which may include indemnification and director liability insurance.

Look at the company’s articles of incorporation to see if there are provisions eliminating or limiting monetary liability for directors. Ideally, this provision will provide limited liability and/or indemnity to the fullest extent permissible under California law. You may also want to request an indemnity agreement from the company.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I’m starting a new business and need to rent retail space. What do I need to know?

Renting a commercial space is much different than renting a residential space.

The most important part of renting a commercial space is, of course, the lease. The lease is a contract between the landlord and the tenant, governing the rights and obligations of the parties during the term of the lease.

It is crucial for tenants to negotiate favorable leases. Burdensome provisions that you think you can “live with” may result in the end of your business.

Landlords typically produce the initial draft of the lease, although either party may do so. In this kind of economy, tenants have a bit of a negotiating advantage because most landlords are willing to be flexible to get someone in their space.

The lease should be very clear about rent. What is the minimum rent and when will it commence? Will it be adjusted during the term of the lease? Will you have to pay “percentage” rent, and if so, will it be based on gross sales?

How will the lease define gross sales and the allowable deductions from gross sales? Is there a security deposit, and if so, how much will it be? Will you have to pay any property taxes and if so, how will they be computed? You should learn and understand the differences between (single) net, double net, triple net, and all the possible variations.

Different commercial space options, such as freestanding buildings, multi-tenant buildings, and retail spaces in shopping centers each present their own challenges. These issues may include co-tenancy provisions, parking rights, signage rights, allocating property taxes, and common area maintenance.

You should require that the indemnity clause exclude liability resulting from the negligence or willful misconduct of the landlord and its agents, and also provides indemnity for bodily injury and property damage caused by the landlord.

You should also require that the landlord be financially responsible for the maintenance of the structural elements of the premises. Try to avoid being financially responsible for equipment or improvements that will primarily benefit the next tenant.

If the space has common areas, make sure that your share of the costs is proportionate. A good method is to base the cost on the ratio of the floor area of your premises to the floor area of all of the constructed premises.

If things go sideways, make sure that the landlord is required to give you written notice of an aggrieved breach of the lease, as well as a sufficient opportunity to cure the breach before it’s considered a default.

Make sure that the provision concerning the use of the premises is flexible, so that you can adapt your business to the market. If you’re planning a taquería but run into problems, can you change to a diner?

If your business fails, how can you limit your liability under the lease? Provide yourself with a smart exit strategy now by negotiating the term of the lease and assignment/subletting provisions.

Other pertinent provisions of the lease may address the right of the landlord to relocate the premises, expansion options, renewal options, maintenance, alterations, utilities, insurance requirements, appurtenant rights, and termination rights.

If a lender is involved, make sure you draft the lease to also satisfy the lender.

If you will need to improve the premises, have a contractor and/or architect review the lease. Provisions that involve construction, plans, and installation of fixtures may create deadlines that a contractor or architect might find unreasonable.

I also recommend consulting with a qualified, experienced real estate broker. They may be able to offer information or services that can help. And of course, always have your attorney review any lease before you sign.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I have a small business, and a year or so ago I loaned a friend some money. Things are tight and I really need to get paid back. We’re no longer friends and I’ve sent him letters demanding the money back, which have been ignored. Is my next step hiring an attorney?

There are two main kinds of collection claims—consumer claims and commercial claims. A consumer claim is your everyday use of credit for home or personal use. Pretty much everything else is a commercial claim. Claims may be secured or unsecured.

Before an attorney will take your case as a creditor in a debt collection action, the attorney is going to want to know if it’s a reasonable claim, if it makes financial sense and if it’s ethical for the attorney to proceed. To make this decision, the attorney will consider the following three issues:

1) The nature of the debt. What kind of transaction occurred? How much was borrowed and how much remains outstanding? What was the security, if any? What is the interest rate and what are the finance charges?

An attorney should take the case only if it’s within the statute of limitations and if the action would result in an enforceable judgment in the foreseeable future. Does the defendant have a legitimate defense? You may believe that someone owes you money, but this area of law can be complicated.

2) Collection efforts. What requests for payment have been made? Have you already tried to negotiate partial or full payment? If they agreed to a payment plan, was it in writing? Have any partial payments been made? Be careful not to harass a debtor. The penalties for breaching debt collection law can exceed the debt.

3) Status of the creditor. Your potential attorney will want to know if you are authorized to do business in California and whether you’re the original creditor or whether you were assigned the debt. If the defendant just filed for bankruptcy or skipped town, an attorney might pass on representing you. A “paper” judgment might not be worth the paper on which it’s printed.

Once an attorney has decided your claim’s viability, they’ll have to determine whether it makes financial sense to take your case. An attorney may charge you an hourly fee, a flat fee, a contingency fee, or some combination of those fees. At best, an attorney might estimate the time a case requires, but it is impossible to know for certain.

The attorney will consider the size of the claim, the age of the claim, whether the claim is disputed, and whether the debtor has any assets. The size of the claim is really the main factor in deciding the fee arrangement. The larger the claim, the more likely you will want a lower contingency fee. A larger claim may be less collectable though, because it’s more likely that the debtor will defend a large claim. Consider that your debtor might also owe large sums to other creditors.

There’s a big difference between a debtor who has no money and a debtor who simply refuses to pay. Investigate whether the debtor has assets or any ability to pay the debt over time. Payment plans can be the perfect answer to many debt issues.

I tell my clients all of the time—litigation is extremely expensive. Consider the real cost of bringing a case when deciding whether to litigate. Writing off the loss may be the best answer – Sometimes it’s not worth throwing good money after bad.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary,

My youngest daughter wants an after-school job. I have a small business and I’d love to have her come work for me a few hours a week. What do I need to know about hiring a minor?

It all depends on your daughter’s age and what kind of business you have. There are federal and state regulations for youth employment, and when in doubt, the stricter of the two usually applies.

Federal law, including the Fair Labor Standards Act, restricts the age, job duties, and the hours that a minor employee may work. California law incorporates some of the federal regulations, including regulations against oppressive and hazardous jobs.

California’s child labor laws apply to any person under 18 who is required to attend school, any nonresident who would be subject to education laws, and any person under age 6.

Minors may work for their parents in agricultural, horticultural, viticultural or domestic labor occupations. They must work during nonschool hours or when public schools are not in session, and they must work at or connected to the premises owned or controlled by the parent.

Minors may work in certain limited entertainment events. These include singing or playing musical instruments in a church or school, participating in a horseback riding event, and showing livestock at fairs and exhibitions. When in doubt about entertainment employment, minors should get written consent from the Labor Commissioner’s office.

Minors may be employed under the same standards as adults after receiving a high school diploma or equivalent education.

Minors under age 12 may babysit or do “odd jobs” in private households. Minors 12 and older may obtain a work permit from school authorities. Minors 14 and older may perform office work, cashiering, modeling, or work in advertising departments, including trimming windows. They can also price, bag or carry merchandise for customers, run errands, and do cleanup work. Some kitchen work is allowed, including preparing and serving meals.

Minors are generally prohibited from dangerous, injurious, obscene, indecent, or immoral work and any mendicant or wandering business.

Minors under 16 are prohibited from most manufacturing work, operating, maintaining or working in proximity to machinery, working on a railroad, vessel, or boat, any work involving poisonous chemicals, any work on scaffolding, anything involving tobacco, or operating vehicles.

After sufficient vocational training, approved apprenticeships or work experience programs, and with parental approval, some otherwise prohibited activities may be allowable.

There are specific standards regarding minimum hours for children in the entertainment industry, beginning with infants. Contact the Labor Commissioner’s office for written consent and more information about these rules.

There are also specific limitations on how many and between what hours minors may work, dependant upon the minor’s age and whether or not it’s a school day.

Contact the California Department of Industrial Relations website for useful resources, including a comprehensive child labor law booklet: www.dir.ca.gov/dlse.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I am thinking about forming a nonprofit business, but I have no idea how to structure my business. What are my options?

There are three primary structures for nonprofits in California (although many other forms exist): unincorporated associations, trusts, and corporations. Some nonprofits also use the limited liability company structure.

When you are selecting your legal entity, keep in mind the ease and cost of formation, the flexibility you will have operating your organization, the ability to make contracts and own property, and the limitations on the directors’ and members’ personal liability.

Most nonprofit organizations in California are corporations, so let’s start there. The majority of nonprofit corporations fall into one of these areas: public benefit, mutual benefit, or religious. Each of these three areas has its own separate, self-contained law that governs that kind of corporation. Which category your nonprofit fits into will be based on your purpose, the way your assets are distributed, and the extent to which you are subject to regulation.

Public benefit corporations may be formed for public or charitable purposes. They may not distribute corporate assets to members at any time and they are subject to governmental regulation and supervision. Examples of public benefit corporations include incorporated charitable organizations such as hospitals and schools.

Mutual benefit corporations may be formed for any lawful purpose. They may distribute assets to members if the organization is dissolved, and they have less regulation and supervision. They cannot become tax-exempt as a 501(c)(3). Examples include homeowners associations and social clubs.

Religious corporations may be formed for primarily religious purposes. They may not distribute assets to members at any time, are subject to less regulation and supervision, and can become tax-exempt as a 501(c)(3). Examples include churches and seminaries.

There are other types of nonprofit corporations besides the main three. In California, you can have a cooperative corporation, which may be formed for any lawful purpose, but must be organized and must conduct its business primarily for the mutual benefit of its members as patrons of the organization. Typical examples are organizations formed for recycling or treating hazardous waste.

California also allows for a corporation sole, which can be formed by the presiding officer of a religious denomination, society, or church to manage its affairs. Examples include some dioceses of the Catholic Church and the Episcopal Church. If you have a religious group where the ruling authority is in one person, the corporation sole may be preferable to the religious corporation because it has fewer governmental controls.

There are several special purpose corporations under California law that have special regulations. These include SPCA animal organizations, medical, hospital, or legal services corporations, chambers of commerce, small business development corporations, agricultural nonprofit cooperative associations, and many more.

If you decide the corporation route is not for you, you could also form an unincorporated association, which is a group of two or more persons joined by mutual consent for a common lawful purpose, whether for profit or not.

A nonprofit association is an unincorporated association with a nonprofit purpose. It is a separate legal entity, meaning it can sue or be sued, enter into contracts, and hold intellectual property. The advantage of having an unincorporated association is that it can be organized fairly easily and it’s somewhat informal. Unincorporated associations may register as tax-exempt at the federal and state level.

As you can see, there are many considerations to forming a nonprofit, and no “one size fits all” solution. You may need to speak with a lawyer, CPA, or nonprofit professional to determine what is right for your purposes.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I have a client who owes me $3,000. I’ve sent a letter demanding the money, which they’ve ignored. I’ve done everything I can think of to get the money back, but I can’t afford to hire an attorney for such a “small” amount of money. What can I do?

Have you thought about filing a claim against them in small claims court? Small claims is a special system where disputes can be resolved promptly and for very little cost.

There are limitations to what you can accomplish in small claims. Businesses can only seek $5,000. You can file only two claims per calendar year for more than $2,500.

If your business is owed more than $5,000, you can hire an attorney and sue in Superior Court, or you could reduce your claim to fit the limit. For example, if you are owed $6,000, you may consider asking for $5,000 in small claims instead of bringing a more expensive and time-consuming action in superior court.

When you file your claim, the court clerk generally will set a hearing date within 40 days. In Napa, the small claims filing fee is $30 for claims under $1,500, or $50 for claims between $1,500 and $5,000.

The next step is to notify the other side. You can have the court send notice by certified mail for $10; you can have the Napa County Sheriff attempt service for $30; you can hire a private process server; or you can have a neutral party who is over 18 and not a party to the action serve the defendant (“party to the action” usually includes witnesses).

If you win your small claims case, you may be entitled to receive costs on top of a judgment. “Costs” reimburse you for filing fees and the cost of serving the other side.

Keep in mind that there are other costs involved in going to small claims. You have to prepare for your court hearing and will probably have to take time off of work for the hearing.

You may not hire an attorney to represent your business at the hearing. However, you may consult with an attorney beforehand to prepare, afterward to collect a judgment, and an attorney can represent a party in small claims appeals.

If your business is a partnership, only one of the partners must appear. If you have a corporation, an officer, director or employee authorized by the board of directors must appear at the hearing, as long as that person is not also an attorney.

If you’re expecting the hearing to be like your favorite legal television show, you may be disappointed. There’s no jury, you don’t get to make objections, and you won’t have to use legal “mumbo jumbo.” Bring an original and two photocopies of every piece of evidence that will help you — especially a copy of the contract in question.

Napa small claims cases are usually heard on Fridays at 8:30 a.m.

Your case will be heard quickly. As the plaintiff, you will be allowed to state your side, and then the defendant will be able to state their side. The judge, commissioner, or attorney on the bench will ask both sides questions.

You can save yourself some time and money if you can agree to settle the dispute without going to court. Consider offering a payment plan to the other side, or settling for less than you are owed. If the other side agrees, make sure you get a signed, written agreement with them.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.