Copyright protection was first introduced in way back in 1790, and it has changed a lot over the years. Despite substantial revisions today’s copyright laws still protect owners of original works, however, it is now applied to many different types of works (i.e. websites, source code, etc) than existed hundreds of years ago. Luckily the creators of the copyright protection drafted it so that an original espression in any “fixed medium” is protected. This allows the law to evolve as does technology. Read more
Tag: startup lawyer
Series A Participating Preferred Stock and Term Sheet Terms
If your startup just got a term sheet from an investor saying that they want to invest in your company and want to receive participating preferred stock with all of these other rights, you may be a bit overwhelmed. First off, congratulations on the proposed investment. Next, I’ll explain what all of those terms on the term sheet mean in this post starting with the participation component of participating preferred shares. Read more
Series LLCs
If you are one of those people who is tired of having to form seperate entities (LLCs or corporations) for each type of business you operate, or for each piece of real estate that you own, a Series LLC may be useful to you. Nearly a decade ago, the state of Delaware introduced a legal entity that would become known as the Series LLC. Despite its origins in Delaware, several other states have now started to permit the usage of Series LLCs. Read more
Benefit Corporations (B-Corps) & Other “Good Vibe” Corporate Structures
It used to be that if you wanted to start a corporation and the end goal was not to maximize shareholder value (or other typical corporate goals), you’d start a not-for-profit corporation. That’s no longer the case. Now in New York (and at least six other states) you can form a Benefit Corporation (a “B-corp”) which has other purposes besides making money. There are also other strategies you can use in a for-profit company to give it more of an egalitarian feel. We’ll discuss below. Read more
JOBS Act Broker-Dealer Registration Exemption
The JOBS Act contained many provisions which were aimed at making the capital raising process easier, simpler and quicker from a host of angles. Many things promised in the JOBS Act will not come to fruition until the SEC promulgates the regulations on the specific topic. Some of these are equity crowdfunding, and the ability for issuers to use general solicitation in Rule 506 offerings.
One of the things contained in the JOBS Act which went into effect immediately, was an exemption for broker-dealer registration for persons or entities acting as brokers in certain 506 offerings. The SEC just confirmed this in a recent FAQ available here. I’ll give a quick overview below. Read more
Hack-a-thon Agreements
I hit on the Hack-a-thon craze in an earlier post. The IP that is created by the hackers in these programs has to be owned by someone, although there are still times where everyone walks away not knowing what everyone’s rights are. If nothing is ever signed by all participants and the hackathon sponsor, its unclear who owns what.
There are a couple different options. The sponsor may want to own everything, or may want to at least have a perpetual paid up license to use the IP created. The hackers should get some rights as well, but its been hard to delineate what and how it should be handled.
A friend of mine and a fellow startup lawyer, Dave Capuccilli of The Capucilli Firm has been working on a solution to this dilemma. Check out his latest iteration to a Hack-a-thon Collaboration Agreement, courtesy of Docracy. Its a great way to ensure all hackers and the sponsor get a fair shot at using the IP created.
I currently represent a few companies that were born at Hack-a-thons and Startup Labs (a similar idea but slightly different format/program), and if they had an agreement like this signed before they came to me it would have made things much smoother.
Digital Millennium Copyright Act and its Safe Harbor
If you’ve ever scrolled through a website’s Terms of Use before clicking “I Agree” (its ok if you don’t, I don’t even think many lawyers do it) you may have seen something called the Digital Millennium Copyright Act or DMCA. In the Terms of Use there is usually an address to contact the site’s DMCA Agent.
Way back in 1996, the US entered into two treaties: the World International Property Organization (“WIPO”) Copyright Treaty and the WIPO Performances and Phonograms Treaty. The provisions of these treaties were implemented by DMCA when President Clinton signed it into law in 1998. (Long time ago I know, I’ve had a lot of questions regarding it lately and wanted to get an explanation out there). Read more
IRS’s “Check the Box” Regulations for LLCs
There are many reasons why LLCs can be great for business owners. For those types of businesses that have revenue and don’t need outside investors or to issue stock options (although LLC profits interests can work), LLCs are a good choice.
For a lot of startup companies, a corporation may be the right choice, especially if it will be seeking investors, plans to be acquired by a larger player in the industry at some point, or would like to have an IPO or other offering. The choice for a lot of companies especially in the high tech sector is the corporation. But if those aren’t your goals, if you have a business plan, target market, product and are ready to sell and make revenue then an LLC may be the right choice for you. Whatever industry you are in, an LLC can be a beneficial entity to use. LLCs can do complex and sophisticated things with respect to splitting profits, can have interesting classes and structures, require less paperwork than would a corporation, and are by far more flexible. (I’ve kind of beat the LLC v. Corp. horse to death earlier so will get to the point now). One of the other great advantages of the LLC form is that it can elect (i.e. choose) to be taxed as either disregarded entity (if one member then a sole proprietorship, and if multiple members than a partnership), an S-corporation or a C-corporation.
Stock Appreciation Rights
Another way to compensate employees of a corporation is to issue them Stock Appreciation Rights (“SARs” – not “sars – severe acute respiratory syndrome”, that’s something else). SARs grant employees, usually higher level executives, the right to receive stock and/or cash at a future date in an amount pegged to the increase in value of the corporation’s shares of stock over a certain time period. If the company’s share value increases, so to does the value of the SARs. SARs often are offered along with traditional stock options, although they are granted seperately (if done with stock options, sometimes you will see them called “Tandem SARs”). Read more
Corporate Dual Class Share Structures
A dual class share structure is used in certain corporations where one or more classes are given all or a bulk of the voting rights and another class or class has the same economic interest in the company, but none of the voting rights. There can also be other rights that are given to one class instead of the other. This type of structure is used so that the existing Board of Directors and management of the corporation maintain their control of the company. It bcaeme common in news organizations (think the Economist Group, or the News Corporation a la Rupert Murdoch) so that the company could ostensibly keep its journalistic integrity and credibility or to stay true to its goals, without pesky shareholders muddying the waters.
A dual class share structure can serve desirable goals, such as shielding management and the board from short term views of dissident shareholders/analysts and hostile takeovers. This can be helpful, as the constant quarterly pressure to meet revenue expectations is a burden on many companies at the expense of long term sustainable growth. Management at companies with dual class structures argue that if shareholders aren’t happy with the structure, they are free to sell their shares and walk away. Not surprisingly, only companies that are rather a hot commodity in the market can really get away with using this structure.