Georgia: Termination of LLCs

In Georgia, once an llc entity is terminated, it cannot be reinstated. Should there be a subsequent claim against the terminated entity, then there can be personal liability against the individual members to the extent the individual members received distributions from the entity.

Dissolution and Winding Up. The correct way to terminate a Georgia limited liability company is for the members to vote for dissolution (Georgia Code Section 14-11-602) and to document it by written consent of the members. A Statement of Commencement of Winding Up may be filed with the Georgia Secretary of State, which is notice to the public that the company has been dissolved and commenced its winding up activities (Georgia Code Section 14-11-606). There is no filing fee to the Georgia Secretary of State. In the winding up process, the entity may make distributions to its members (which may have already been done) and pay known claims against the company (which may be none) (Georgia Code Section 14-11-604 and 14-11-607).

Optional: To protect the members against future unknown claims, a dissolved limited liability company which has filed a Statement of Commencement of Winding Up may publish a notice in the legal newspaper in the county where the registered office is located, once a week for two consecutive weeks, and state that claims must be made against the limited liability company and brought within two years after the publication of the legal notice, except claims that are contingent at the time of filing of the Statement of Commencement of Winding Up and except for claims that arise after the filing of the Statement of Commencement of Winding Up. (Georgia Code Section 14-11-608 and 14-11-609). The cost of the publication itself to the newspaper is $40, plus typically $20 for a publisher’s affidavit.

Then, if no claims have been brought after two years of such a publication, the limited liability company may file a Certificate of Termination with the Georgia Secretary of State, ending the limited liability company. There is no filing fee to the Georgia Secretary of State.

Claims which are contingent at the time of the filing of the Statement of Commencement of Winding Up or based on an event occurring after the filing of the Statement of Commencement of Winding Up are barred against the llc and its members unless the claimant commences a proceeding to enforce the claim against the dissolved llc within two years after the date of filing of a certificate of termination or five years after the last publication of the above legal notice. (Georgia Code Section 14-11-608 (d)). The above process (dissolution, winding up, publication, and termination) is somewhat cumbersome, but can protect members, to the extent possible, from future unknown claims against the entity.

Certificate of Termination: If the optional publication described above is not followed, after the llc has been dissolved (and a Statement of Commencement of Winding Up may have been filed with the Georgia Secretary of State) the llc may file a Certificate of Termination with the Georgia Secretary of State. The Certificate of Termination shall set forth: (1) That all known debts, liabilities, and obligations of the llc have been paid, discharged, or barred or that adequate provision has been made therefor; and (2) That there are no actions pending against the llc in any court, or that adequate provision has been made for the satisfaction of any judgment, order, or decree that may be entered against it in any pending action.

There is no filing fee to the Georgia Secretary of State for a Certificate of Termination.

Administrative Dissolution: Note that if the entity fails to file an annual registration with the Georgia Secretary of State and is administratively dissolved by the Georgia Secretary of State, then the entity under current law may apply for reinstatement within 5 years after the effective date of the dissolution (Georgia Code Section 14-11-603).

© 2022 Walling Law Firm, P.C.

Greg B. Walling, Walling Law Firm, P.C., 1050 Crown Pointe Pkwy, Suite 810, Atlanta, Ga. 30338; tele. 770-349-8215; email greg@wallinglawpc.com

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Dangers of Unmarried Couples Buying or Owning Property Together

When a married couple buys or owns property or a home together, each person has certain protections under Georgia law. Either party may file for divorce, and a standing court order is automatically issued preventing either party from transferring property. Also, even if parties do not file for divorce, there are legal remedies for joint ownership of property which are not available to unmarried couples. When a married person dies without a Will, the surviving spouse is an heir at law and may inherit the property. Even if a spouse has a Will which leaves his or her interest in property to a third person, the surviving spouse can file what is called a Petition for Year’s Support to gain full title to the property. All of these and other remedies are not available to an unmarried couple.

A danger with an unmarried couple is what happens to the property if one person dies. His or her interest may pass to his or her heirs at law, which may include his or her parents, siblings, nieces and nephews. The other party may find himself or herself owning property with strangers.

Also, one of the parties may suffer a judgment against him or her, which attaches to his or her interest in the property, preventing the ability to mortgage or sell the property. One of the parties may file for bankruptcy, resulting in claims by a bankruptcy trustee against the jointly owned property.

If there is jointly owned property and one party wants to sell and the other does not, there are legal remedies of equitable and legal partition of the property, where a court can order that property be sold and the proceeds divided among the parties. A recent case of the Georgia Supreme Court held that this equitable partition is not an available remedy to parties who hold property as joint tenants with right of survivorship except in actions for divorce. (Vargo v. Adams, 302 Ga. 637, 805 S.E.2d 817 (2017)). In that case, a boyfriend purchased the real property in his sole name and obtained the mortgage. Then, he signed a deed conveying one-half of the property to his girlfriend as joint tenants with a right of survivorship. The couple broke up. Evidence showed that the boyfriend had purchased the property and made nearly all of the mortgage payments on the loan. The boyfriend filed a lawsuit for equitable partition of the property due to the disparity of funds he paid toward the purchase of the property compared to that of his girlfriend. In that case, both the trial court and the Georgia Supreme Court denied the boyfriend’s request for relief.

When an unmarried couple buys property and they split up, there may be bad feelings and it may be impossible for a party to lease the property, mortgage the property, or sell the property and there may be little legal recourse available, all the while remaining liable for payments on the mortgage, and insurance and taxes, not to speak of the upkeep of the property.

Accordingly, unmarried couples should be advised of the dangers of owning property together.

Persons in business transactions sometimes hold property together as an investment. It can be done, for example, through a structure of a limited liability company (LLC), and which can have buy-sell provisions to address some of the above situations. This arrangement would incur added expenses of setting up the limited liability company, accounting costs of the LLC obtaining a taxpayer identification number and filing tax returns, increased loan costs of a bank loaning money to an LLC instead of individuals, lack of availability of a homestead exemption on the property, possible increased insurance costs, etc.

© 2022 Walling Law Firm, P.C.

Greg B. Walling, Walling Law Firm, P.C., 1050 Crown Pointe Pkwy, Suite 810, Atlanta, Ga. 30338; tele. 770-349-8215; email greg@wallinglawpc.com

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Some Dangers of Electronically Signing Contracts

It has become common to receive proposed contracts by email which are to be electronically or digitally signed.

I have noticed that when people receive such contracts, they really do not review the contracts as they should and quickly enter their initials or signature where indicated. They often do not know the terms and provisions in the proposed contract of which they are electronically signing.

Sometimes, it is difficult to even print the proposed contract so that it can be reviewed before it is electronically signed. Even worse, some people enter into proposed contracts on their phone, without the ability to effectively review it before electronically signing it.

When receiving such proposed contracts, be sure and print it first and review it. You will be surprised how much more information is absorbed when people read a printed document as opposed to a document on a screen.

Another issue with such contracts is that it is difficult, if not impossible, to change them in any way before signing them (which may be a reason why they are used by many parties). With a paper agreement, the parties have the ability to make handwritten changes or typed inserts in the contract before signing it, but this is difficult to do with contracts to be electronically signed.

The dangers are that electronically signed contracts may be enforceable, and a court may enforce what the parties have entered into, even if one party did not read it or comprehend it before electronically signing it.

The issue is particularly acute with respect to residential real estate transactions, where real estate agents set up all sorts of agreements to be electronically signed, including listing agreements, purchase and sale agreements, and termination agreements. For many people, these are the largest and most important contracts of their lives. I have noticed that the parties in these transactions have little idea of what they are signing. But, when there is a dispute, a court may enforce what is in such contracts.

Where possible, I would suggest that the contract be printed onto paper and read. If one is unable to obtain a printed proposed contract, then perhaps he or she should not enter into it. Prior to signing a contract, any changes or revisions to the contract should be made in handwriting and scanned and emailed back to the party who sent the contract.

Some electronic signature services will email the parties a fully signed contract in pdf, but this is a little late, since by that time the contract has already been entered into by electronic signatures.

With an electronic or digital signature, there is also an issue of proof. With a manually signed contract (including by scanned pdf signature), all one needs to prove is that the signature is the person’s signature who signed the contract. This may be easier to prove in a court than with an electronically or digitally signed contract.

Be cautious with electronically or digitally signing contracts.

© 2022 Walling Law Firm, P.C.

Greg B. Walling, Walling Law Firm, P.C., 1050 Crown Pointe Pkwy, Suite 810, Atlanta, Ga. 30338; tele. 770-349-8215; email greg@wallinglawpc.com

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Keep Corporate Minutes Up To Date

For businesses which are structured as a corporation, whether organized in Georgia or elsewhere, it is imperative that the corporation keep and maintain its current annual corporate minutes and other required corporate documents. With a corporation, typically there is a corporate minute book which should contain the articles and certificate of organization, organizational minutes, letters of non-distributive intent, stock certificates, by-laws, and similar corporate documents and into which each year should be included signed annual corporate minutes.

Signed annual corporate minutes should include an annual meeting of the shareholders (who elect the directors of the corporation) and an annual meeting of the directors (who elect the officers of the corporation). Typically, there are not formal annual meetings of the shareholders and directors, and the signed annual minutes are legally recognized as the annual meeting. The due date of the annual corporate minutes is commonly stated in the corporation’s by-laws.

If a corporate minute book has not been maintained, it is better to go ahead and update the corporate minute book and corporate minutes as soon as possible rather than waiting until it is a crisis. It can become a crisis when there is a legal claim for some reason involving the corporation, an audit, or some other event where the corporate minute book has been requested by a third party or government entity.

The failure to maintain corporate minutes can be used by a creditor or claimant as a factor to pierce the corporate veil and impose a corporation’s liabilities on individual shareholders. When a corporation is sued, whether in contract or tort, often the first item a plaintiff requests in discovery is a copy of a corporation’s complete corporate minute book.

If for some reason the corporate minute book has not been maintained or has been lost, one can be re-created and the sooner this is done the better.

© 2022 Walling Law Firm, P.C.

Greg B. Walling, Walling Law Firm, P.C., 1050 Crown Pointe Pkwy, Suite 810, Atlanta, Ga. 30338; tele. 770-349-8215; email greg@wallinglawpc.com

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Prenuptial Agreements

A Prenuptial Agreement is a contract made in anticipation of marriage and can resolve many of the financial issues surrounding the parties (the two spouses) in the event of divorce and death. A Prenuptial Agreement cannot resolve child custody issues or the amount of child support, which would be decided by a divorce court.

Prenuptial Agreements can give one or both of the parties ease of mind in entering into a marriage. Even with a Prenuptial Agreement, the parties are free to make arrangements to the other party which are more generous than provided in the Prenuptial Agreement or can make bequests in a Will which are greater than that provided in a Prenuptial Agreement.

The Prenuptial Agreement can be of vital importance for mature couples who have previously been married with minor or adult children of a prior marriage to whom they wish to leave the bulk of their property. The existence of a Prenuptial Agreement can also allow these adult children to be much more welcoming to a new step-parent, knowing that there is a valid Prenuptial Agreement in place which provides for them notwithstanding the subsequent marriage of their parent.

In negotiating the terms of the Prenuptial Agreement, it is important for the parties to directly address together what each party is to receive in the event of divorce and death.

Prenuptial Agreements can be enforceable in Georgia. In determining whether a Prenuptial Agreement is enforceable in a particular case, the court will employ 3 criteria:

(1) Was the Prenuptial Agreement obtained through fraud, duress or mistake, or through misrepresentation or non-disclosure of material facts?

(2) Is the Prenuptial Agreement unconscionable?

(3) Have the facts or circumstances changed since the Prenuptial Agreement was signed, so as to make its enforceablilty unfair and unreasonable?

The leading case in Georgia determining that Prenuptial Agreements can be enforceable in Georgia is Scherer v. Scherer, 249 Ga. 635, 292 S.E.2d 662 (1982).

A Prenuptial Agreement should contain a full and fair disclosure of all material facts and each party’s property, assets, and income as exhibits. Each party to a Prenuptial Agreement should have his or her own attorney. It is not uncommon for the party having the greater assets to pay for the other party’s attorney.

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Caution on Employees Signing Non-Competition Agreements

I have seen many employees, especially young people, having problems or losing sleep after they sign non-competition agreements while accepting a job offer. The problem is especially acute among young adults, who are glad to receive a job offer but do not pay close enough attention to what they are signing. Many are signing their rights away. Some mention their concerns to their new employer, who replies not to be worried about it since the employer does not enforce those non-competition provisions anyway (which is not a satisfactory answer).

When presented with a non-competition agreement, keep in mind that these agreements have severe consequences to your rights in the future and can potentially cause major problems if not properly negotiated. Accordingly, when asked to sign an agreement with non-competition provisions in it, be sure and consult an attorney before signing it.

When I review such agreements for employees after they have been presented with the agreement from a new employer, I am generally successful in having the non-competition agreement stricken and instead replaced with the employee agreeing not to solicit certain customers of the new employer for a reasonable period of time (such a restriction if properly limited can be reasonable, as opposed to a non-competition agreement which in some circumstances can be unreasonable). Non-competition provisions, for example, can be reasonable if the employer agrees to pay a severance to the employee equal to the amount of time he or she is unable to work in his or her preferred line of work while he or she waits for a non-competition restriction to end.

Some employees find that they will be working in a different line of business, but most commonly it is the same or a similar business and a non-competition agreement can adversely impact their right to earn a living in the field of his or her choice.

This is an issue I have seen time and time again. Georgia law in the last few years has been changed to allow greater enforcement of non-competition agreements.

Accordingly, it is imperative when presented with such a non-competition agreement not to sign it, and consult an attorney to help negotiate it to something that is more reasonable such as a narrowly-drawn non-solicitation provision. Often, when the new employer is presented with the concerns of a new employee, the non-competition restrictions may be deleted (or replaced with a less restrictive and more reasonable non-solicitation restriction). The employer usually appreciates the concerns of the new employee.

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Caution on the Use of Images, Photos & Graphics on your Company’s Website

Be sure you have the right to use images, photos, graphics and other materials on your company’s website. Even if you hire a third party developer to design your website, you are still liable for copyright infringement if you in fact do not have the right to use images, photos, graphics and other information in your company’s website. There are a number of stock photo companies which, for a fee, grant a license for you to use the stock images, photos and graphics.

There is a company called Getty Images which buys and owns a large amount of the images, photos and graphics which are seen on the Internet. It is my understanding that Getty Images has sophisticated software which scans the Internet, and has the capability of locating websites which use images, photos and graphics that do not have licensed rights to do so. Getty Images then sends threatening demand letters, asking for a substantial sum of money for each image, photo and graphic used in order not to sue for copyright infringement. Accordingly, in reviewing your company’s website, be sure to have license or other rights (or use your own material) to use the images, photos and graphics displayed there. If you use a third-party to develop your website, be sure to stress the importance of using images, photos and graphics where you have a legal right to use them. It is possible to obtain an indemnification agreement from the third party website developer, indemnifying you or your company if images, photos and graphics are used without the right to do so (although indemnification is only as good as the third party website developer is able to reimburse you).

© Walling Law Firm, P.C. 2014

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Choosing and Protecting Your Company’s Name

When selecting a company’s name, be sure it does not infringe on someone else’s right to use a same or similar name. Just because the Secretary of State allows you to use a name, it does not necessarily mean that you have a legal right to use that name under U.S. copyright and other laws. Also, it does not give you exclusive rights to use that name.

If it is of large concern, there are companies which can perform a nationwide name search for you. An example of when this could be necessary is if you are about to spend substantial sums on advertising. For example, you don’t want to put your company’s name and logo on products if someone down the road may challenge your right to use that name or logo.

At the start-up of a company, owners often are not so much concerned about protecting the company’s name and are more concerned about day-to-day operations. After a time, as the company develops goodwill, a company’s name can become quite valuable and is, if nothing is done, largely unprotected.

It can be wise to have filed an application to register your company’s name as a trademark or servicemark with the U.S. Patent and Trademark office (a trademark is for the sale of goods and a servicemark is for the sale of services). Once a company’s name is registered with the U.S. Patent and Trademark office, generally someone else may not use that name or a confusingly similar name for the sale of the same or similar goods or services. If not done fairly early-on, by the time an application to register a trademark is filed, some companies unfortunately find that someone else has already registered their company’s name with the U.S. Patent and Trademark Office.

You can avoid these problems, including possible usurpation of your company’s name by others, by at any early date filing with the U.S. Patent and Trademark Office an application to register your company’s name (but not before the name is actually used in interstate commerce). Having a company’s name registered with the U.S. Patent and Trademark Office can add substantial value to the company if the company or its assets are sold. Although the filing of an application to register a trademark furnishes some immediate protection, the process takes close to a year before the trademark registration is issued. Usually, there are no objections to an application to register a trademark. It is not typical, but occasionally there can be an objection by another entity claiming it is using the same or similar name for the sale of similar goods or services, which can result in trademark litigation.

© Walling Law Firm, P.C. 2014

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Importance of Buy-Sell Agreements

Whenever a company, corporation, or a limited liability has more than one owner (unless the owners are married), a buy-sell agreement can be of critical importance.

When a person goes into business with another person, typically they do not want the risk of being in business in the future with some unknown person. Without a buy-sell agreement, things can occur which cause a business owner’s interest in a company to go to another person. This can happen by a voluntary sale or gift, death, divorce, or an involuntary transfer to creditors or a bankruptcy trustee.

For example, without a buy-sell agreement: (1) If a co-owner dies, the deceased co-owner’s estate or family members will then own the deceased co-owner’s interest in the business (unless the deceased co-owner’s valid Will states otherwise); (2) If a co-owner becomes involved in a divorce, then his or her spouse can potentially make a claim to his or her interest in the business; (3) If a co-owner has creditors (whether by contract or in tort, such as a bad car accident), and a creditor obtains a judgment against the co-owner or his or her estate, then the judgment attaches to the co-owner’s interest in the business, and the creditor can levy on it and become a co-owner of the business (and hold it hostage); (4) If a co-owner files bankruptcy, then without a buy-sell agreement a bankruptcy trustee may make a claim to the bankrupt co-owner’s interest in the business and sell it to a third person (or hold it hostage). In all of these situations, without the presence of a buy-sell agreement, then a co-owner may find himself or herself in business with a total stranger.

In the event of death by a co-owner, without a buy-sell agreement the other co-owners do not know what to do as to the deceased co-owner’s estate or family, and the deceased co-owner’s estate or family does not know what to do as to the business. Depending on the deceased co-owner’s percentage interest in the business, this can adversely (and disastrously) affect the continued operation of the business, and, regardless of the percentage interest of the deceased co-owner, can result in time-consuming and costly litigation among the surviving co-owners and the deceased co-owner’s estate or family. A buy-sell agreement can avoid these situations and provide a road map for the surviving co-owner to have an option to buy out a deceased co-owner’s interest in the business from the deceased owner’s estate or family.

Typical provisions in a buy-sell agreement provide that a co-owner may not sell his or her interest in the company, without first giving a right of first refusal to the company and the other co-owners. This prevents a co-owner from selling or giving his or her interest in the business to a third person. A typical buy-sell agreement also provides what happens in the event of death of a co-owner. A buy-sell agreement can provide that the other co-owners or the company may have a discretionary option (or it can be a requirement) to purchase the deceased co-owner’s interest in the business from the deceased co-owner’s estate. A buy-sell agreement can provide that the purchase price of the deceased co-owner’s interest in the company is to be at “fair value,” leaving the determination of “fair value” for a later date should it become necessary. Alternatively, a buy-sell agreement can provide a mechanism, such as an appraisal process or formula, for determination of fair value, arbitration, or provide a set dollar amount (an issue with a set dollar amount is that the fair value of the business will undoubtedly change over time).

A buy-sell agreement can provide that if the surviving co-owner exercises his or her discretionary option to buy out the deceased co-owner’s interest from the deceased co-owner’s estate, then the purchase price of the deceased co-owner’s interest in the company is paid by, for example, 20% cash down, and the balance financed, for example, at the Wall Street Journal’s prime rate plus 2%, amortized over a period of 3 years and payable in equal, successive monthly or quarterly installments (the terms can be adjusted in the buy-sell agreement to whatever terms work for the co-owners). This payment obligation is documented by a Promissory Note and secured against the deceased co-owner’s interest in the company, so that if the business fails to make the required payments, the deceased co-owner’s estate can get back the deceased co-owner’s interest in the business back. This same arrangement in a buy-sell agreement can be made applicable in the event of divorce, involuntary transfer (creditors), or bankruptcy of a co-owner.

Even with a buy-sell agreement, often a surviving co-owner and a deceased co-owner’s family will mutually agree to some other arrangement for the surviving co-owner to buy out the deceased co-owner’s interest in the company, with the buy-sell agreement serving as a general road map for the parties to follow and expressing the intention of the co-owners of a company of what is to happen if one of the co-owners dies.

Ideally, a buy-sell agreement will be backed up by life insurance so that the surviving co-owner or the company has the funds to pay to a deceased co-owner’s estate or family in order for the surviving co-owner or the company to buy out the deceased co-owner’s interest in the company (negating the necessity of a promissory note and security). However, many business owners, especially at start-up, find that life insurance is prohibitively expensive.

With or without life insurance, a buy-sell agreement is critical in situations where there is more than one owner of a company.

Other provisions which can be included in a buy-sell agreement are tag along rights (allowing a minority owner to tag along with the majority owners if the majority owners decide to sell their interest in the company to a third party buyer), come along rights (allowing the majority owners to require minority owners to also sell their interest in the company to a bona fide third-party buyer, if the majority owners are also selling their interest to the third-party buyer), put and call provisions, a company option to buy-out a co-owner’s interest in the company if the co-owner is terminated from employment by the company or becomes disabled, voting agreements, and the like. The terms of a buy-sell agreement can be tailored to whatever terms fit the needs and situation of the co-owners.

In setting up a company, many multiple owners do not know whether the company will survive and make it past the first year, and are often cashed-strapped and therefore avoid the expense of a buy-sell agreement. Buy-Sell provisions can usually fairly easily be incorporated into a limited liability company’s operating agreement. If a corporation, buy-sell provisions are included in a separate shareholders’ agreement. Once a company gets off the ground, a buy-sell agreement is of vital importance.

© 2014 Walling Law Firm, P.C.

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Why Have An Employee Handbook?

An issue that I see time and time again is businesses which do not have an Employee Handbook.  An Employee Handbook covers a range of rules and policies of the business, which are impossible to cover in a written Employment Agreement.  If a business has an Employee Handbook, and if an employee violates a rule or policy in the Employee Handbook, then the business can take disciplinary action and reduce the risk that the business may be liable for charges of unlawful employment discrimination. Without an Employee Handbook in place, a disciplined employee can more forcefully argue that he or she has been discriminated on the basis of race, sex, religion, national origin, physical disability, or age, since the business does not have a written policy in place. Without an Employee Handbook, a disciplined employee is more likely to feel that he or she has been treated unfairly.

Matters covered by an Employee Handbook are often conduct-related, such as off-duty conduct which damages the business’ reputation, workplace violence (banning the bringing of knives and weapons to the workplace), outside employment such as moonlighting, moonlighting for a competitor, using company email for political or non-business purposes, on-line conduct at the workplace, acceptance of gifts or money from customers, use of company property for personal business or personal reasons, attendance, use of inappropriate or profane language, alcohol, drugs, bad hygiene, sleeping on the job, and the many other issues which arise from time to time whenever there is a gathering of two or more people.

Having policies in an Employee Handbook allows the business to take disciplinary action when there has been a violation of those policies. A business will often learn of an issue with an employee by way of complaints from other employees, and a business needs to have the tools necessary to discipline an offending employee. Of course, policies in an Employee Handbook should be enforced by the business in a non-discriminatory manner.

A business will want to be certain that the Employee Handbook itself is not an employment agreement, and should specify that employment is at will unless otherwise agreed to in writing. An Employee Handbook has many legal implications, and it should first be reviewed by an attorney. Attorneys who practice in this area have templates which provide the bulk of the provisions for an Employee Handbook. An Employee Handbook is recommended for businesses of all sizes.

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