San Jose Business Lawyers Blog

Articles Posted in Corporations

Many startups in the tech sector are idea-rich and cash-poor, meaning that their most valuable (and often only) asset is their intellectual property that may have the potential to be worth a substantial amount of money. While some startups are able to move their ideas from concept to deployment with relatively little labor involved, many of these ideas require the assistance of developers, programmers, engineers, and marketers, all of whom are skilled professionals who can easily command salaries well into the hundreds of thousands of dollars per year.

For this reason, many startups are faced with the issue of how to pay their employees during the development and launch phase, before they are generating any revenue. Of course, one option is to borrow the money or to seek investors – a solution that has significant pros and cons which should be considered. Another very popular option is to offer employees equity shares in a company in lieu of cash compensation. In some cases, this may take the form of equity for a lower salary than they would normally expect, while in others an equity share may be the only compensation they receive.

There are many issues that tech entrepreneurs and founders should consider when offering equity as compensation. These include the following:

  • How to issue equity – Equity in a company can be issued in a variety of ways, including common stock, preferred stock, stock options, or even being made a limited partner. These options all have different tax and legal consequences which should fully be explored with legal counsel prior to deciding which one to use.
  • A vesting schedule – In many cases, the success of a particular employee’s contribution to a venture requires a long-term sustained effort, and people have been known to grow tired of working when they seemingly are receiving nothing in return. To solve this problem, founders can issue equity shares that only vest after a certain period of time, ensuring that employees are incentivized to see the project through.
  • Dilution of current ownership – It is important to remember that every time the owners of a company give up equity, they are diluting their ownership stake in their own company. While this may not be an issue for some time, it is an important thing to consider as more and more employees start to receive equity as a form of compensation.
  • Resale restrictions – Many startups will not want employees that receive equity as compensation to sell their shares to a third party. For this reason, it may be necessary to have employees enter into contracts that require them to sell the equity back to the company upon the occurrence of certain events.

Call Structure Law Group, LLP today to discuss your options with a San Jose startup lawyer

Entrepreneurs and business owners who are considering using equity shares as compensation should fully explore potential legal consequences of doing so. The San Jose startup attorneys of Structure Law Group, LLP are qualified to advise tech startups at any stage of their growth regarding a variety of issues, including corporate formation, governance, equity compensation, and preparing for acquisition, just to name a few. To schedule a consultation with one of our lawyers, call our office today at 408-441-7500. Prospective clients can also reach us via email through our online contact form.

According to an article published by Forbes in late 2014, 42 technology startups potentially looking at a 2015 IPO had raised venture financing of at least $1 billion. With the potential for the creation of significant wealth in a relatively short period of time, it is no wonder that many people are seeking to enter the tech marketplace with new ideas that have the potential to impact the way that millions of people conduct their daily lives.

Incorporation is one of the major steps involved in the growth of a tech startup and involves creating a distinct business entity that can own intellectual property, issue stock, raise capital, and is subject to rules of corporate governance. Incorporation can be a complicated process and involves filing paperwork with the Secretary of State’s office in the jurisdiction in which you wish to incorporate.

What are Bylaws?

Simply put, a corporation’s bylaws are the internal rules that apply to the way that a corporation will be managed on a day-to-day basis. Bylaws provide the corporation’s principles, framework and policies for the overall governance of the organization. Although bylaws are not required to be filed with the State of California, it is perfectly possible to incorporate without having bylaws. However, it is not advisable to forgo having Bylaws for your company. Some of the more common issues that are addressed in corporate bylaws include the following:

  • The organization’s name, address, and purpose
  • Shareholder ownership rights
  • The process through which officers and directors can be removed
  • The issuance of stock
  • The composition of the Board of Directors
  • Job descriptions of corporate officers
  • The frequency, location, attendance requirements, and quorum requirements for Board meetings

Bylaws are Important to Even the Smallest Tech Startups

Part of the reason that tech startups are attractive to many entrepreneurs is the potential for explosive growth. One only needs to look at examples such as Facebook, Instagram, Twitter, or Google to see how quickly significant fortunes can be made in a matter of months in the tech sector. For this reason, and also due to the fact that many tech entrepreneurs are not seasoned business professionals, it is critical to put clear organizational rules into place that address how a tech company is to be internally managed. While friendships and aligned mutual interests may be sufficient to keep a tech startup conflict-free in the development stages, significant disagreements can and do often arise when millions or even billions of dollars are at stake.

Contact one of the experienced Silicon Valley startup lawyers of Structure Law Group, LLP today

Individuals who are considering incorporating their tech startup should retain legal counsel as soon as possible. In many instances, the advice of a Silicon Valley startup lawyer can help avoid significant issues related to corporate governance before they even arise. To schedule a consultation with one of the skilled attorneys at Structure Law Group, LLP, call our office today at 408-441-7500 or send us an email through our online contact form.

A comprehensive evaluation of a target company is a critical component of any successful corporate acquisition. Often referred to as a “due diligence evaluation” or “due diligence review,” this process involves fully evaluating the company that is being acquired (the target) in terms of its assets, liabilities, litigation risks, intellectual property matters, as well as other issues that could have an impact on the feasibility and advisability of a particular acquisition.

The most effective way to ensure that a thorough due diligence investigation is conducted is to retain legal counsel that is familiar with representing buyers in mergers & acquisitions. Some of the most important issues to address in a due diligence review of a potential corporate acquisition are discussed below.

  • The target company’s financial matters – Issues such as financial statements, liabilities, margins, future projections, and potential capital expenditures should all be fully evaluated. This is often the first aspect of due diligence.
  • Issues regarding customer and sales – A due diligence review should thoroughly evaluate the target company’s customer base. Issues that a buyer should be on the lookout for include customer concentration problems, potential problems retaining customers once an acquisition has been made, whether the sales pipeline has been actively maintained, unusual levels of returns, exchanges, or refunds, seasonal sales cycles, customer satisfaction, and others.
  • The target’s contractual obligations – One of the most important issues for a buyer to fully investigate are the review of all contractual obligations the target company may have. The kinds of contracts to review include those regarding loans, credit agreements, settlements, leases for necessary equipment, joint venture agreements, employment agreements, exclusivity agreements, and real estate leases.
  • Pending or threatened litigation – A buyer should conduct a thorough analysis of any pending or threatened litigation in which the target company is involved or may become involved in. Reviewing the issue of litigation often requires the analysis of complaints that have been filed, threatened claims, the resolution of previous litigation, letters to or from attorneys, issues that are in arbitration, administrative issues that involve government agencies, and settlement agreements that have been executed.
  • General issues regarding the corporation – A potential buyer should always engage in a thorough review of corporate records and organizational documents including the articles of incorporation, bylaws, the list of corporate officers and directors, stock sale agreements, and a list of states in which the company is authorized to conduct business, as well as others. Reviewing the list of corporate officers and directors will allow you to review their reputations and any associated risks.

Contact Structure Law Group, LLP today to discuss your situation with an experienced Silicon Valley mergers & acquisitions attorney

It is critical for corporate executives or individuals who are considering acquiring another company to discuss their situation with an experienced attorney. The Silicon Valley mergers & acquisitions lawyers of Structure Law Group, LLP can conduct a thorough due diligence investigation that can ensure that you are fully apprised of the relevant characteristics of the target company. To schedule a consultation with one of our attorneys, call our office today at 408-441-7500 or send us an email through our online contact form.

A corporate merger is a transaction in which two or more companies combine to form one entity. Generally speaking, most mergers occur by the mutual assent of the parties involved, while takeovers of other corporate entities are generally referred to as “acquisitions.” While it may seem unnecessary for the CEO or other chief executive of a corporation that is engaging in an agreed-upon consolidation to retain legal counsel, there are many reasons why it is prudent to do so. There are various legal issues that can have significant financial repercussions and may even derail a corporate merger altogether. Some of the ways in which an attorney can assist in a corporate merger are detailed below.

An attorney will structure the way that a transaction occurs

Mergers can occur in a variety of ways. For example, one company could merge with another company through stock transactions, by becoming a subsidiary that eventually merges with the acquiring company, or through a cash transaction, just to name a few. Each of these merger structures have various legal and tax implications that are often significant. For this reason, the advice of a skilled attorney is critical to structuring a merger transaction in the most beneficial way possible.

A lawyer will conduct a thorough due diligence review

An essential part of any corporate merger is conducting a thorough due diligence review. All parties to a merger should conduct an in-depth investigation of the other parties involved, including reviewing corporate documents such as the articles of incorporation, bylaws, as well as tax returns and financial reports. Due diligence review allows all parties to have a comprehensive and informed understanding of the transaction into which they are considering entering and can also limit corporate officer’s liability in the event that a transaction proves unprofitable.

An experienced mergers and acquisitions attorney will ensure that the relevant regulations are observed

Corporate mergers are often subject to significant regulations under both state and federal law. For example, corporate mergers of a certain size will be reviewed for compliance with anti-trust regulations, and companies that are subject to Securities and Exchange Commission disclosure rules will need to report the proposed merger to that agency. An attorney can be an invaluable asset in identifying the relevant rules and regulations that must be observed and ensuring compliance with them.

Call a San Jose M&A law firm today to schedule a consultation with an experienced attorney

Business owners or executives considering entering into a corporate merger should always consult with legal counsel well before making any decisions or entering into any type of contractual obligation. The attorneys of Structure Law Group, LLP are committed to representing both buyer and sellers in mergers and acquisition transactions of all sizes. To schedule a consultation with one of our lawyers, call our office today at 408-441-7500 or send us an email through our online contact form.

Very generally stated, the Board of Directors of a California corporation is responsible for the way in which the corporation is run. California law requires every corporation in the state to have a board of directors and, according to the text of the law, “all of the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board.” While this may make is seem as if a company’s board of directors participates in the everyday management of the business, this is usually not the case, and corporate boards regularly delegate management of a business to individuals who may or may not be a member of the board.

How is a Board of Directors Formed?

When a company incorporates, it is required to file a document called “articles of incorporation” with the Secretary of State’s Office. This document establishes much of the basic identity about a corporation, including its name, how much stock it will issue, and the way in which the board of directors will be chosen.  California law requires that every board of directors has a chairperson or a president (or both), a secretary, and a treasurer or chief financial officer (or both), as well as any other named officers that may be required by a corporation’s bylaws.

Boards of Directors Generally Appoint a Chief Executive

While California law provides that the board is responsible for the management and operations of the company, in practice it would be difficult and onerous for a multi-member board of directors to make the decisions required for day-to-day operations. As a result, a board usually appoints a chief executive to run the company and whose performance is evaluated on a regular basis by the directors.

Boards of Directors and Fiduciary Duty

In publicly traded companies, boards of directors have a fiduciary duty to the shareholders of the company. A fiduciary duty is the highest that can be imposed by law and requires the party who owes the duty to act solely in the interest of the party to whom the duty is owed. For this reason, members of a corporate board of directors must always be careful to not engage in conduct that may place their own interests above those of a corporation’s shareholders.

Call a Silicon Valley business law firm today to schedule a consultation with an experienced attorney

Issues related to corporate law and governance can be extremely complicated and have a significant impact on the success of a business. For this reason, it is important for anyone that is considering incorporating to meet with an attorney to discuss his or her situation and ensure compliance with California’s Corporations Code. The lawyers of Structure Law Group, LLP are committed to providing startups and existing business with solution-oriented legal counsel and representation. Call our office today at 408-441-7500 to schedule a consultation with one of our San Jose corporate law attorneys. You may also reach the firm by email by submitting our online contact form.

Starting a business entity is a complicated issue that can be compounded by things such as founder’s stock and each founder’s respective contribution. Equity considerations can be extremely important in starting a business, especially when one founder contributes intellectual property (IP) rather than cash or labor.

What is Founder’s Stock?

Awarding a company founder stock is a relatively common practice in business formation, particularly in situations in which a startup is new and not yet generating income.  Doing so gives the contributing founder a measurable property interest in the newly formed entity. Typically, these stocks have a very low face value so that the founder receives a large amount of stock respective to his or her contribution.

Stock Can Be Paid For In Either Cash or Intellectual Property

At the time of issuing founder’s stock, each founder may be capable of contributing different assets to the newly formed entity. The assets contributed can be either cash or intellectual property. In fact, it is possible for a founder to contribute both cash and intellectual property.

The term “intellectual property” is very broad and includes a non-exhaustive list of assets such as business plans, novel technology, patents, trademarks, and copyrights. Because of the potential importance intellectual property may be to the entity, contributing intellectual property may be necessary. In 2012 alone, companies in intellectual property-intensive industries added five trillion dollars to, or 34.8 percent of, U.S. gross domestic product (GDP).

Potential Issues When Contributing Intellectual Property

Contributing Intellectual Property to a newly formed entity can be problematic. The majority of issues caused by contributing intellectual property deal with valuation and assignment.

Founders contributing intellectual property will want to confirm that the intellectual property is properly assigned to the newly formed entity. This means that the founder will want to ensure that he or she has completely transferred the title pertaining to the intellectual property to the company. Failure to do so can cause future legal complications due to reasons such as uncertain ownership of the intellectual property. Moreover, licensing the intellectual property as opposed to assignment, results in the contributor retaining ownership. This, in turn, can affect the overall valuation of the entity.

Perhaps most important to founders are the complications that can arise from the difficulty in attempting to determine the valuation of intellectual property. Since intellectual property is often a non-tangible process, technology, or idea, assigning a valuation can be difficult. Auditors may determine the value of the assigned intellectual property to differ from the original valuation. This could ultimately affect future stock pricing.

Potential tax ramifications are also of concern to founders contributing intellectual property. In order to be considered tax free, contributions to the entity must comply with Section 351 of the United States Tax Code. To comply, transfers made to the entity meet the following two conditions:

  • The intellectual property may be transferred only for stock (the transferor may not receive cash); and
  • After the intellectual property is transferred, all founders must collectively own the stock that comprises at least 80% of the voting power, and 80% of the total number of shares of each class of stock.

Failure to adhere to these requirements will not allow the contribution of intellectual property to be considered tax free. Instead, the contribution of intellectual property will be taxed as if this transaction was a sale to the entity.

Contact a Silicon Valley business attorney today for a consultation

If you are considering contributing intellectual property to a newly formed entity in exchange for stock, you should consult an attorney to ensure that your contribution is done correctly so as to best benefit you and the entity to which you are contributing. The lawyers of Structure Law Group are experienced Silicon Valley lawyers who advise entrepreneurs and business owners on a variety of topics. Call our office today to schedule a consultation, or send us an email through our online contact form.

Contractors, subcontractors, and suppliers have many tools at their disposal to protect their rights under construction contracts. While the mechanic’s lien is one of the most common ways a contractor or supplier can ensure full payment for their services, this type of legal tool can only be used for private construction projects against the private property owners. For this reason, many people who enter into government contracts may wonder what their options may be under the law to make sure they are properly compensated for their work. One of the most important tools under such circumstances is the payment bond.

What is a payment bond?

Payment bonds are common in many large-scale private construction projects and are further required in by California law for the following:

  • State Public Works contracts over $5,000
  • Any other type of public works contracts over $25,000

Payment bonds specifically serve to provide a guarantee that all contractors, subcontractors, and suppliers of materials will be adequately paid for their work. A contractor purchases a bond from a third party surety, which assumes responsibility for payment if the government fails to pay. This forms a three-way agreement between the contractor, the government, and the surety. Once a payment bond exists, the subcontractors and suppliers are certain to receive compensation either from the California Public Works Department or the surety.

The majority of payment bonds go hand-in-hand with performance bonds. This type of bond conversely provides a guarantee to the government that a contractor will perform all of the work promised in the construction contract. For this reason, there can be legal consequences against contractors if they fail to complete work on a government contract. It is important to have the assistance of an attorney with experience handling payment and performance bonds to protect your best interests when entering into a government contract.

Call an experienced Silicon Valley business attorney to discuss your situation today

If you are a contractor working on a government contract, you want to make certain that your rights to payment are fully protected for all of the work and supplies you provide. At the Structure Law Group, our attorneys have a thorough knowledge of the relevant laws and legal tools involving government contracts and how these differ from private construction projects. We work with all types of businesses, so please call our office today at 408-441-7500 to find out how we can assist your business.

Enforceable contracts that accurately describe an agreement between the parties are essential to any business, regardless of industry. Contracts arise in many relationships, including with partners, businesses, suppliers, employees, and client or customers, and a company of even moderate size could easily have thousands of contracts with various parties. For this reason, implementing a system to manage contracts and ensure compliance can significantly improve efficiency, improve compliance, and reduce the risk of incurring legal liability that can arise from contract disputes. In addition, an effective contract management system can help automate certain tasks, significantly reducing the risk of human error resulting in a costly dispute. Below are 4 ways in which implementing a contract management system can help businesses in every aspect of the contract lifecycle management process.

  • Keep all contracts in a central repository – This benefit may seem simple, but consider the inefficiency involved in an employee searching through files upon files for a contract that may have been executed years ago. An effective contract management system can keep a copy of the contract itself while also summarizing key facts regarding the agreement in a way in which they are easily accessible to those searching.
  • Create a database of standard agreement and pre-approved substitutions – There is no need to reinvent the wheel every time your company enters into a new agreement. Creating a standardized contract for use in recurring situations as well as standard substitutions that are pre-approved for use can significantly improve efficiency in contract drafting and execution.
  • Send out alerts to appropriate parties when certain triggering events occur – Many contracts have provisions that trigger significant obligations or forfeitures on a certain date or in the event of a particular occurrence. A sophisticated contract management system can alert the appropriate party to the existence of a deadline, renewal, payment error, or terminating event.
  • Provide insight into corporate obligations – An effective contract management system will be able to provide clear data as to a company’s obligations, whether they are being met, their performance in meeting obligations, and a more comprehensive view of the company’s performance as a while. In addition, it can provide legal counsel with insight as to areas in contract management that may benefit from changes.

Contact a San Jose business law firm today to schedule a consultation with an experienced lawyer

A comprehensive and well-maintained contract management system can increase efficiency and reduce costs for businesses of all sizes. In addition, automating certain tasks associated with the life-cycle of a contract has the potential to reduce contract disputes and legal liability. For this reason, it is advisable for business owners to discuss their contract management options with an attorney familiar with contract management systems and their implementation. To schedule an appointment with one of our experienced San Jose business attorneys, call the Structure Law Group today at 408-441-7500.

Many individuals who are citizens of foreign countries want to take advantage of the economic market in the United States. More specifically, California is a particularly popular state in which to start a business as a foreign national due to the close connections with the tech industry and the large and diverse population, among other reasons. If you are a foreigner considering conducting business in California, there is good news for you—neither residency nor citizenship is required to do so. Instead, you need only go through very similar steps as a U.S. citizen starting their own business with the state.

hand opens empty room door

The following are some important steps that you must take to start your California business:

  • Choose your business entity – This is an important decision with many implications and your options, including corporation, limited liability company, limited liability partnership, or limited partnership, should be carefully weighed. An experienced business attorney can assist you in choosing the correct entity for your type of business and your goals.
  • Choose a registered agent – You can serve as the registered agent yourself or select another person if needed, however, whoever serves as the agent must have a physical address in the state of California where they can accept legal papers.
  • File the necessary paperwork to qualify/register with the Secretary of State – The paperwork required to qualify/register with the SOS depends on the type of business entity you chose and a qualified business lawyer can help ensure you meet all filing requirements to avoid delays in the formation process.

 Generally speaking, there is not much additional red tape for foreign nationals than for U.S. citizens when starting a business. There may be certain additional requirements when opening business banking accounts or similar tasks, however, the formation of the business itself can be relatively simple with the assistance of an experienced business lawyer in California.

Contact an experienced San Jose business attorney today

There is a dearth of reliable resources on which foreigners can rely to ensure they start their business is in full compliance with California laws and that they have the best chance of success. An experienced business lawyer in Silicon Valley can evaluate your needs and goals in order to best guide you through the process of starting a successful business in our state. If you are considering starting a company or investing in an existing California company, your first call should be to the Structure Law Group at 408-441-7500. Our skilled business attorneys can assist your whether you want to start your business in California, Delaware, or another state, so please contact us for a consultation today.

Start-ups are popping up all around the country. As our society continues its shift towards a strong, tech-driven economy, more and more individuals are looking to find the “next big thing,” especially in the tech industry. Entrepreneurs are more and more motivated by success stories such as those of Uber, Facebook, and Airbnb.

But tech start-ups, while popular, are just one of the types of businesses that are appearing in the commercial landscape. 514,000 people became new business owners in 2012. As the US economy continues to improve, that number continues increasing.  Venture financing is a driving force behind the dynamic growth of small businesses such as start-ups. The National Venture Capital Association estimates that venture capital firms manage nearly $193 billion in total capital.

Vesting Schedules

Individuals starting new business entities, especially those looking towards future venture financing, must be aware of financial and legal considerations. Founders invest in their business entity by contributing either cash and/or intellectual property. In exchange, founders receive what is known as “founder’s stock,” a form of stock in the entity which comes with voting rights.

Start-ups with more than one founder and with plans to either be acquired or receive venture financing will typically have vesting schedules respective to the founders stock issued. Vesting is a process in which an equity interest (here, founder’s stock) becomes no longer subject to forfeiture or to repurchase from the business entity. If vesting has not yet occurred, an individual may forfeit his or her founder’s stock upon departure or for some other cause delineated in the company’s governing documents.

With a vesting schedule in place, the founders will not receive all of their founder’s stock on Day 1. Instead, the vesting schedule will determine at what time(s) the founder’s stock will vest. It is very common that there is a predetermined “cliff” – a length time before the stock vests. Prior to reaching the end of the cliff, there is typically 0% vesting. (This is dependent on the vesting schedule and any conditions set forth in the governing documents.) Once the length of the cliff passes, the stock will partially vest; the stock will continue to vest in accordance with the vesting schedule.

Why is the Vesting Schedule a Useful Tool?

By implementing a vesting schedule, the various founders are not only incentivized to remain with the business entity through such a critical period but also to strive towards maximizing its value for potential venture financing. Moreover, the terms in the vesting schedule provide a clear understanding as to those procedures should a founder leave the entity or stop working towards its growth and development.

It is not uncommon that founding teams fail to stay together. Complications may arise if the founder’s stock vests on Day one and the founding team separated prior to being acquired or receiving venture financing. Were one from the founding team to leave early, he or she would leave fully vested stock with voting rights, and this scenario could very easily complicate the approval process for an entity to receiving venture financing or to become acquired.

Call a Silicon Valley business law attorney to discuss your circumstances

The legal issues related to vesting are often very complex, and it is highly recommended that entity founders obtain legal counsel in order to better protect founders’ interests relative to vesting. Call Structure Law Group today to schedule a consultation.