Dear Mary, I heard that there are some new kinds of “low-profit” business entities that are kind of like nonprofits and kind of like for-profit corporations. What are they? What’s the benefit of using them?

As of Jan. 1, there are two new forms of business entities in California: the Flexible Purpose Corporation and the Benefit Corporation. They are “hybrids” of traditional nonprofits and traditional for-profit corporations. Some are calling them “socially conscious” stock corporations because they allow for the organization of stock corporations that can pursue both economic and social objectives.

Although they are new in California, benefit corporations have been around in other states for some time. Before they came along, many people tried to create their own hybrids, which created risk and potential liability with shareholders (with for-profits) or with the IRS (with nonprofits).

Corporate directors typically have a fiduciary duty to focus on maximizing shareholder returns and profit, but with benefit corporations they may also consider social welfare goals.

The key to these new corporate forms is that the company’s Articles of Incorporation must specify a “special purpose,” in addition to the general authorization to engage in any lawful business under California corporation law. This allows directors and officers to promote the special purpose as expressly specified by the articles, even if it’s not economically valuable, provided that there is sufficient accountability and transparency.

The “special purpose” may be one or more charitable or public purpose activities that could be carried out by a nonprofit public benefit corporation. The point of requiring a special purpose in the articles is to put shareholders on notice that the corporation will be pursuing an interest that may or may not affect the profit of the company.

The special purpose also gives directors some flexibility in their decisions and actions. Directors’ conclusions must still be reasonable, but now they can favor a special purpose over the shareholders’ economic interests, without worrying about claims of breaching their fiduciary duties.

These entities are also subject to all of the provisions of California’s general corporation law, except as provided in the new law.

You might ask whether the Flexible Purpose Corporation entity is any better than a limited liability company. Actually, LLCs are extremely flexible and may include all of the requirements I’ve already discussed in the LLC operating agreement. Some people will argue that institutional investors typically prefer corporations over LLCs because corporations are all subject to the same statutory requirements and case law and are “cookie cutter,” whereas LLCs, because they are so flexible, vary considerably and it costs an investor time and money to do due diligence on a company-by-company basis. And then of course, there are tax implications for investors to consider.

I believe that the new hybrid corporation options are an improvement in California corporation law for those businesses that want to be philanthropic or socially conscious, as well as make money.

If you’re thinking about alternatives to traditional corporations and LLCs, consider the interests of the company and its shareholders, the employees, suppliers, customers and creditors, as well as community and societal considerations and the environment. Speak with your attorney and your CPA before making a decision.

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 had an IT guy working on my business computers for years, and now I have discovered that there are porn sites, gambling sites, illicit emails and other suspicious things that I did not place on my computers. Can I be liable for this stuff?

A good place to start is to review your policies. Do you have a company policy that company computers and systems are to be used only for business purposes? Does your policy make clear to employees that they have no right of privacy in their company computer?

If you have clear policies, then log on to the computers, clean them up, and deal with it as a routine HR issue: Either discipline or fire the wayward employee.

Whether or not you can be held liable for your employee is a little more complicated. Under traditional rules of agency law, an employer is liable for the employees that it directs and for actions that the employer authorizes or ratifies.

The best example of this kind of liability is when an injury flows directly from an employee carrying out the employer’s decision or policy. An absurd example of this would be if an employer requires all employees to juggle knives while on the phone, and an employee gets hurt while juggling. The key is that the employee was just doing what the employer directed them to do.

Liability here doesn’t require explicit direction to juggle knives; merely ratifying or condoning the act is sufficient. For example, the employer could be found liable if the employer saw the juggling knives at work and didn’t intervene, or if the employer was somehow making increased profits from the practice.

Here, if you knew your IT guy was playing online poker instead of maintaining systems, one might say you failed to fully investigate the circumstances and repudiate his misconduct. The key is whether you knew or should have known about the misconduct. Ratification really depends on the unique circumstances of the particular case.

Another legal doctrine, “respondeat superior,” says that an employer may be held vicariously liable for an employee’s wrongful acts within the course and scope of employment. The idea behind this theory is that it wouldn’t be fair for an employer to avoid responsibility for injuries occurring in the ordinary course of its business activities.

For respondeat superior to apply, your IT guy’s conduct would have to have occurred within the scope of his employment. There are two questions we can use to determine this: 1) Was the act required or incident to the employee’s duties?; or

2) Was it reasonably foreseeable to the employer that the employee would do this?

In our discussion of agency law, we were looking at whether or not the employer authorized or benefited from the employee’s action. Here, we’re looking at whether or not this kind of action is typical or incidental to the employee’s job.

In your case, looking at adult websites or gambling online is not required or even incidental to performing IT functions. There is no good argument that such activities would be reasonably foreseeable with this kind of employment, and this employee substantially deviated from his duties for his own personal purposes.

Moving forward, if you don’t have a company technology policy, now is the time to create one. Make sure your employees understand that they do not have any right of computer/

information privacy, including work email or when they use a company network with personal devices.

In your company policy, explain that all computer systems are company property and you retain the right to inspect them at any time. Company computers are not to be used in any way that may be disruptive, offensive to others, or harmful to morale. For example, employees may not display or transmit sexually explicit images, ethnic slurs, racial epithets, or anything else that may be construed as harassment or disparagement of others.

You may also want to state that company management will monitor email and Internet usage periodically to be sure that company equipment is being used for business purposes. The point here is to eliminate any expectation your employees may have that communications are confidential.

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 read your article a month ago about being on a board, and after careful consideration, I have agreed to be on a company’s board of directors. What do I need to do now?

Corporate directors’ fiduciary responsibilities include due care, diligence and prudence. Fulfilling your obligations as a director begins with getting a clear understanding of company policies and the board’s rights and obligations.

Directors must function as a team, not as individuals. But having said that, it’s also very important to bring your individual views to the table. Directors’ disagreements can be healthy for the company, so long as the directors’ conflict is well founded. As my husband always says, there are three sides to every argument — your side, their side, and the truth.

If you read my column last month, you have probably already investigated the nature of the business. If you haven’t had a chance yet, now is the time to study the character of the business, the industry in which the company functions, and the company’s operations and business strategies.

It is well within your right to ask the management of the company to provide you with a monthly update on new business standards and trends within the industry. For example, you may ask for copies of the industry or trade publications that explain new legal and business developments, especially if those updates involve director and officer liability.

And as long as you’re asking for documents, ask the management to provide you with a “board packet,” which should include a copy of the articles of incorporation, bylaws, financial statements, and reports to shareholders. It’s also beneficial to have any documents that involve board procedures, organization and schedules.

Ask for and review copies of employment contracts, as well as the employee benefit plan, if one exists. Take a look at product brochures, and/or documents that describe the company’s business, facilities, markets and technologies.

Many companies have policies concerning such things as ethical conduct, conflicts of interest, and legal compliance. Read through these policies, as well as the company’s business plan and any strategic summaries that have been drafted.

Depending on the size of your board, you may want to meet individually with the other directors and with the management of the company. The point of meeting with directors is to find out what their views are on the company and management. This is also a good time to find out how much time it will really take to serve as a director.

Meeting with management personnel will help you learn about the challenges facing the company and its future. Ask about how the company performs in comparison with competitors, and ask for an honest self-assessment of the team, which you should compare against performance reviews.

If you can, try to meet with the company’s legal counsel to find out if there are any major legal problems facing the company. Inquire about your rights, obligations and limitations as a director of 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 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.