As a younger lawyer I was regularly working on securities offerings. For the bulk of the offerings they were private placements to accredited investors under SEC Rule 506(b), which involved filing a Form D and state notice filings. In most states it was pretty straightforward. New York, however, was not straightforward then, and still remains a mystery to many people. Over the years I searched for a book that covered the basics of New York’s Martin Act (the law covering securities offerings in the State), but never found exactly what I was looking for. I kept working on deals and writing posts for this blog (in addition to memos and white papers, etc.), and over time I compiled a decent amount of information and knowledge of the subject and decided to put it all into one place. Next thing you know I had the beginnings of a book. Link to see it on Amazon here.
Now I don’t profess to being a specialist in the field of securities, as there are many complexities and rabbit holes to go down if you get outside the more “vanilla” type offerings. Startups, emerging companies and even investment funds, however, generally are raising money through private placements under SEC Rule 506(b). This book gives the basics and is, like its titled, a primer. I tried to walk a fine line to allow it to be read by non-lawyers, with enough citations to assist legal practitioners.
Admittedly, this book is a niche product. The prospective audience is those whose companies are looking to raise money, or individuals otherwise involved in some aspect of companies raising money. I hope it can be helpful to such individuals, including younger attorneys just getting started in the field.
In any event, the book is for sale in paperback and e-book on Amazon. I personally feel the paperback is easier to read and to flip back and forth to things, and to view the exhibits and addenda, which should be consulted. I have a number of copies of the book, and if any readers of this blog or friends and colleagues of mine would like a free copy, feel free to reach out. Thanks for the support.
The JOBS Act from way back in 2012, set forth the Crowdfunding exemption to the securities laws, and required that any Funding Portal that engaged in Crowdfunding registered with the SEC and became a member of FINRA. In late 2015, the SEC came out with the Regulation Crowdfunding Final Rules and forms to permit companies to offer and sell securities through Crowdfunding and to regulate the intermediaries which can sell the crowdfunded securities. The latest Funding Portal rules have been finalized by the SEC and FINRA. Read more
Treiber & Straub, Inc. v. UPS, 474 F.3d 379 (7th Cir. 2007).
In this case, a user shipped a ring worth $100,000 via UPS’s online shipping website. He submitted the ring in a package for shipping with the shipping label. UPS then lost or misplaced the package.
The Court held that using a clickwrap agreement for online transactions was “common in Internet commerce” where “one signifies agreement by clicking on a box on the screen.” The court reasoned that merely because the user chose not to read the terms, that does not let him avoid any of the provisions he does not like.
In Davidson & Associates v. Jung, 422 F.3d 630 (8th Cir. 2005), the Court of Appeals for the Eighth Circuit upheld a clickwrap agreement that prohibited reverse engineering. In that case, the clickwrap agreement that had to be accepted prior to playing the online game prohibited reverse engineering.
The clickwrap agreement was included in the End User License Agreement that each user had to affirmatively agree to (by clicking on “I Agree” button) when installing the game, and you could not play the game without agreeing. Users also had to enter a CD Key which was included on the copy of the CD the game came on. The CD Key was connected to the CPU’s IP address to prohibit pirating and copying of the CDs.
Certain users, unhappy with the games’ performance and the system used to play the online game, reverse engineered the game and created their own site to play it against others on the game maker’s site. Blizzard, the game maker sued.
The Court of Appeals for the Eighth Circuit upheld the clickwrap agreement provision that prohibited reverse engineering, stating that the users had expressly relinquished their right to reverse engineer by agreeing to the terms of the license agreement.
There were various other copyright claims, and the court also held that the users violated the Digital Millennium Copyright Act, which seemingly made ruling against the users easier.
I volunteer at a couple of small business incubators and programs. I was sitting in on a mock pitch last week and giving some pointers on how the entrepreneur could polish their pitchdeck and overall presentation. I figured I’d put these up so people can take a look. The below are offered to any startup looking to raise money: Read more
Starting at the beginning of 2014, New York’s STARTUP-NY Program went live. Here is the official website for the initiative. Its goals are laudable but its only available to a small niche of companies. If your company qualifies, however, the benefits are rather nice.
In summary, the Program provides eligible companies with free office space (at certain locations) for a period of time and the employees of the company pay no state income tax on their income (at least for the first five years, with a small amount possibly paid in years 5 through ten). The Program is attempting to lure out-of-state companies into New York, while encouraging sprouting of new startups that otherwise may not have started without these benefits. Overall New York is looking to add more jobs in the state, and the more jobs now (even with tax breaks) the more taxes the state can collect in teh future. Read more
Both drag along rights and tag along rights can be very beneficial in an LLC Operating Agreement or a corporation’s Shareholder Agreement. They both relate generally to when an owner (or a group of owners) holding a certain percentage of the equity of a company (usually a majority) wish to sell their interests in the company to a third party. Tag along rights are beneficial to minority owners, while drag along rights are beneficial to majority owners.
In a startup company, its common for certain employees to be compensated with some form of equity. When you incorporate, you would adopt a stock option plan and then issue options to the corporation’s employees to compensate them for their past services and to incentivize them to stay and keep up the hard work – make sure you vest!
With LLCs becoming ever more common, the owners of a startup organized as an LLC want to be able to compensate and motivate their employees and contractors in the same manner. They can do so by granting employees LLC profits interests.