Q: I own an apparel store and would like to place some video footage I have shot in my store on You Tube in an effort to advertise my products. The footage contains clips of various customers wearing and purchasing my clothing. Can I do this or do I need permission? A: California privacy laws prohibit the use of an individual’s name, image, or likeness for purposes of advertising or selling products or services without such individual’s consent. Before you post any footage on You Tube, or on any other website or marketing materials, you must first have those individuals appearing in the clips sign a release giving your company permission to use their name, image, and likeness in connection with the advertisement and sale of your company’s products. It is a good idea to have the consent and release form address all forms of media so that you can utilize the footage in various forms and mediums. This area of the law is complex and fraught with exceptions and limitations, therefore prior to finalizing and distributing any marketing materials, be sure to retain the services of a qualified expert in this field. Q: I recently signed a Letter of Intent to purchase a graphic art company. I’m in the early stages of due diligence and will not be through for another 45 days or so. Thereafter, assuming I choose to go forward, we will not be in a position to close escrow for approximately another 90 days due to various issues tied to our finance source. In today’s volatile economy, how can I protect myself to ensure that the business I elect to buy this month is the same business I receive when we close escrow four to five months from now? A: These are unique times. And while no one can guaranty with absolute certainty what their top-line or bottom-line will be in 4-5 months from now, buyers can take steps to allocate the interim risk between the time when parties sign documents and the time when a deal actually closes. All purchase and sale agreements (“PSA”) will include representations and warranties from both buyer and seller. The PSA should also expressly state that as a condition of closing, all representations and warranties shall be true both at the time the PSA is executed and at close of escrow. To manage the risk your question speaks to, be sure to secure, among the various other representations and warranties, that seller will continue to dedicate the resources and efforts necessary to preserve the value of the business until close of escrow. This protects a buyer from a seller starving the business of capital or attention during the escrow period. Additionally, and more specific to allocating general market risks, buyer should secure a separate representation and warranty from seller commonly known as a “material adverse change” clause (or “MAC” sometimes also referred to as “material adverse effect” or “MAE” technical differences between MAC’s and MAE’s exist but are beyond the limited scope of this article). An example of a simple MAC clause may read as follows: “Seller represents and warrants that there has not been any event, occurrence, or development which, individually or in the aggregate, constitutes or reasonably would be expected to constitute a material adverse change, as that term is defined herein”. Depending on their use and express terms, the above contractual terms may give a buyer the right to terminate a PSA (e.g., the right to back out and walk away without exposure) or the right to close escrow but file suit for monetary damages. In either case, each are tools designed to allocate risk during the time between when documents are signed and the time when the deal is actually scheduled to close. As with many contractual terms, the devil is in the details, and I always encourage people to ensure they have competent business counsel involved in any purchase and sale transaction. Q: A friend and I started a new business a number of years ago and we got the limited liability company agreement from one of those do-it-yourself legal sites. We are the only two members and each own 50 percent of the company. Lately we have been unable to agree on how to run the business and I would like to force him to either sell his 50 percent to me or to buy my half. What are my options? A. Without carefully reviewing your limited liability company operating agreement, I cannot say whether or not you can force your colleague to either sell to you or to buy your half of the company. However, there is no provision in the California Corporations Code that creates a “buy-sell” right and, unless your operating agreement expressly contains a “buy-sell” provision or some other provision to address a deadlock, e.g., a provision to appoint a neutral third party solely for purposes of breaking a deadlock, the only solution for such a deadlock is a judicial dissolution of the company pursuant to Section 17351 of the California Corporations Code. This situation highlights the need for careful planning with counsel when forming a company, including anticipating that deadlocks may occur and providing a mechanism in the operating agreement to address them. Your counsel can advise you when forming the company on several different approaches to solving the deadlock, as well as anticipating and proposing solutions to a number of other common problems, including what happens to a member’s interest and the business upon the death of a member and addressing transfers of membership interests for estate planning purposes. This column contains general information and under no circumstances constitutes legal advice. This information is not provided in the context of an attorney-client relationship and nothing herein creates an attorney-client relationship. Readers should not act upon this general information without first seeking professional advice. Ira Rosenblatt is a business and corporate lawyer and a co-founder and Director of Stone, Rosenblatt & Cha, a business law firm in Warner Center. Rosenblatt has earned Martindale-Hubbell’s highest rating (“AV”) for legal ability and ethics and is listed in Martindale-Hubbell’s National Bar Register of Pre-eminent Lawyers. He can be reached at [email protected] .
