San Jose Business Lawyers Blog

Articles Posted in Corporations

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.

When a person is considering starting a business, one of the first questions that often arises is which state to incorporate in. Many people simply choose the state in which they live and plan to do business, as it often seems to be the easiest and simply makes sense. In many cases, the decision to incorporate in your state of residence is perfectly fine and has no real long-term impact. It is important to note, however, that the choice of jurisdiction in which a business is incorporated has the potential to have a significant effect on a company’s tax liability and the way in which the business is run on a day-to-day basis. For this reason, anyone who is considering forming a business should discuss his or her options with an experienced Silicon Valley startup attorney familiar with corporate law throughout the United States.

Why does it matter?

Corporations and Limited Liability Companies, two of the most popular business formations that can shield owners from personal liability, are created by state law. As a result, there are 50 different sets of rules that apply to business formation and corporate governance. Furthermore, each state has a separate state taxation scheme that can result in significant differences in tax liability. Some of the issues that will depend on where you choose to incorporate include the following:

  • The formal requirements associated with incorporation
  • Reporting requirements
  • Tax liability
  • Record keeping
  • Corporate governance
  • Business licensing
  • Regulatory oversight

As this list above should make clear, where a company chooses to incorporate can have an impact on almost every aspect of the way a business is run. For this reason, it is important to thoroughly understand the laws of the state in which you may incorporate and to retain counsel that will advise you as to how state law will affect you. Two of the most popular states in which to incorporate are Delaware and Nevada, largely due to their favorable tax codes and the flexibility of their residency requirements for owners and shareholders.

Contact a Silicon Valley business law firm today to schedule a consultation

Individuals that are considering starting a business should carefully consider the state in which to incorporate. While the laws regarding incorporation and the tax treatment of businesses can seem very similar to the untrained eye, there are often significant differences that can have a direct impact on the success of your business venture. The lawyers of Structure Law Group, LLP are skilled and knowledge San Jose business attorneys that are dedicated to meeting the legal needs of businesses of all sizes and in a variety of industries. To schedule a consultation with one of our lawyers, call our office today at 408-441-7500. Prospective clients can also reach the firm by using our online contact form.

Articles of Incorporation are an essential requirement of forming a California startup corporation. This document is filed with the California Secretary of State’s office and establishes the corporation as a legal entity as well as certain key facts about the corporation, including the name of the corporation, its principal place of business, the name and address of its registered agent, the purpose of the corporation, and others. One of the most important decisions that founders are faced with when filing an Articles of Incorporation is how many shares of stock to authorize. There are many considerations that should be addressed when making this decision, so it is important for anyone considering forming a corporation to discuss their circumstances and goals with an experienced Silicon Valley business law attorney.

Determining how many shares to issue can be complicated

Authorizing shares allows a company to divide ownership among many different parties and also makes it possible to raise capital. As such, it is important to authorize enough shares to accommodate growth but not so many as to make individual shares nearly worthless. Importantly, not all the shares that the Articles of Incorporation authorizes have to be issued, so a company can reserve shares for issuance at a later date. Some of the reasons it may be beneficial to authorize more shares than you plan on issuing include the following:

  • Raising additional capital in the future
  • Shares may be issued upon the exercise of a stock option
  • Shares may be issued during a forward stock split
  • Reserved shares may be issued as compensation at a later date

One of the main benefits of issuing more shares is based on perception – companies with large IPOs are taken more seriously than smaller organizations. In addition, when you issue shares to employees as compensation, people simply feel better receiving 100,000 shares than they would if they received 10,000 shares, even if they represent the same ownership perception. Too many shares can result in stock dilution, however, which is generally to be avoided as well.

Contact a Silicon Valley business law firm today to schedule a consultation

Anyone who is considering forming a corporation and issuing stock should consult with an experienced Silicon Valley startup attorney prior to filing any paperwork with the state. The lawyers of Structure Law Group, LLP are seasoned San Jose business attorneys who can provide entrepreneurs and founders with valuable insight and advice regarding corporate formation and raising capital. To schedule an appointment with one of our lawyers, call our office today at 408-441-7500 or send us an email through our online contact form.

More and more startups are issuing stock and other forms of equity as a form of compensation for work, especially in the early stages of a venture. This arrangement allows a business to recruit talent that they otherwise wouldn’t be able to afford and, if the company is successful, can result in a significant windfall for people who worked to get a company off the ground without a guarantee of compensation.toad-river-brown_3737_990x742

Generally speaking, when you are transferred equity in a company it is necessary to pay taxes on the fair market value of that equity as you would with any other type of income. In many cases, however, a grant of equity is subject to a vesting agreement, which means that the equity is not actually owned by the grantee until a certain period of time passes. As a result, at the time of the grant, nothing is actually owned, so there is no tax liability associated with the initial grant. When the stock vests, however, that income becomes realized, meaning that there may be significant tax liability, particularly if the company has done well.

83(b) elections can minimize tax liability associated with grants of equity

The Internal Revenue Service (IRS) has given taxpayers another option, however, in 26 U.S.C. § 83(b). Under this section, a person who has been granted equity that is subject to a vesting agreement can elect to be taxed on the entire amount of the stock’s present value. This election must be made within 30 days of the date that the equity was granted to you.

As a practical matter, it makes most sense for people to use this election if they have been granted stock in a new company that has little actual value. Because the stock is basically worthless at this time, your tax liability will be fairly low, and you will not need to pay taxes on the shares that vest each year as their value increases. The only time that you will have to pay taxes on the value of the stock you have been granted is when you liquidate it in some way, at which point it will be subject to the lower long-term capital gains tax, so long as the liquidation occurs more than a year after the state that the stock was initially granted.

Contact a Silicon Valley startup law firm today to schedule a consultation with an experienced attorney

Receiving stock or other securities in exchange for your work can raise significant issues related to your tax liability. For this reason, it is critical for anyone who is either considering issuing stock as a form of compensation or accepting a grant of stock to discuss their circumstances with an experienced attorney. To schedule a consultation with one of our Silicon Valley business lawyers, call the Structure Law Group today at 408-441-7500.


Many companies issue stock options as a form of compensation or as an incentive to various parties. At their most basic, stock options are the right of a party to buy company stock at a predetermined price for a period of time. Generally, the agreed-upon price is similar to the market price at the time at which the option is issued. Two of the most commonly issued types of stock options are Incentive Stock Options (ISOs) and Nonstatutory Stock Options (NSOs). The information below provides some basic information about each type and highlights some of the differences between the two. For specific information regarding these types of stock options and how they may affect your business, call the Structure Law Group today to speak with a qualified business attorney.


Incentive Stock Options

Incentive stock options can only be issued to employees, which means that members of the board of directors or independent contractors cannot be granted ISOs. These options are not subject to federal income tax when they are granted or exercised, but alternative minimum tax
may be imposed upon exercise in certain cases. Importantly, a company issuing an ISO can take a deduction for compensation paid if an employee chooses to engage in a disqualifying disposition of an ISO, such as an early sale. ISOs must be exercised within 10 years of the date that they are granted.

Nonstatutory Stock Options

NSOs can be issued to anyone, making them an attractive incentive to some companies. Unlike ISOs, however, federal income tax as ordinary income is imposed on the exercise of an NSO to the extent that the NSO is above market value of the stock at the time of exercise. Like ISOs, they are not taxable at the time of a grant, but unlike ISOs, they are subject to employment tax at the time that they are exercised. There is no annual limitation on the value of NSOs that can be issued (there is a $100,000 cap on ISOs), and unlike ISOs, the Alternative Minimum Tax is not applicable to the exercise of an NSO.

Contact a Silicon Valley business litigation law firm today to discuss your case

Any corporation considering issuing securities options to employees, directors, consultants, or other interested parties should consult with an attorney familiar with the tax consequences of both ISOs and NSOs. In many cases, issuing the appropriate form of stock option can result in favorable tax treatment for both the company as well as the parties receiving the option. The Silicon Valley business attorneys of the Structure Law Group are skilled lawyers who are dedicated to providing solution-oriented legal advice and representation to companies of all sizes. To schedule a consultation with an attorney, call our office today at 408-441-7500.

Selling a business is a major decision that often has the potential to leave entrepreneurs with significant financial freedom. In fact, in many cases, entrepreneurs start a business with the intention of selling it once they reach a certain valuation point. One only has to look at the recent sales of Instagram to Facebook ($1 billion) or Beats Audio to Apple ($3 billion) to see why selling a business can be an attractive proposition to many entrepreneurs. Of course, these billion-dollar examples represent a fraction of the kinds of mergers & acquisitions that regularly occur in the business marketplace. That being said, a deal worth a fraction of these sums could still put a hefty sum of life-changing money into an entrepreneur’s pocket.

As a result, it is important for people who are considering selling their business to do so with the guidance of legal counsel that understands the legal issues that often arise in selling an existing venture. Below are four tips for entrepreneurs who are thinking of putting their business on the market.

  • Determine your goals – Of course, everyone who puts a business on the market is ultimately looking to make money. Some people, however, have a set amount that they feel that they need to obtain in order to make a sale worth it. For others, it is extremely important to stay involved with their “baby” after a sale has been made.
  • Have a plan for growth – Most parties that are interested in buying a business are doing so as an investment and want to know that their investment will produce some sort of return. Part of your sales pitch as an entrepreneur is to show your potential buyer that your existing business has significant growth potential.
  • Demonstrate scalability – This aspect of a business is inherently intertwined with growth. Investors need to see that they can take your idea and scale it up in a way that will drive profits and also that the operation could smoothly continue without your personal leadership and effort.
  • Hire professionals familiar with selling a business – Selling an existing business is often very complicated, and it is important to present the business you are selling in the best light. Professionals that are familiar with these types of transactions will ensure that your business is correctly valued and that your best interests are protected.

Contact a Silicon Valley mergers and acquisitions attorney today to retain legal counsel

Selling or acquiring an existing business can be a legally complicated matter fraught with potential pitfalls. As a result, it is important that any party to a merger, sale, or acquisition retain an attorney familiar with effectively structuring these kinds of transactions. The attorneys of Structure Law Group, LLP are experienced business lawyers who are committed to providing their clients with professional and solution-oriented legal counsel and representation. To schedule a meeting with one of our M&A attorneys, call our office today at 408-441-7500 or send us an email through our online contact form.

With the United States having an extraordinarily robust economy and the highest level of consumer spending in the world, many non-U.S. resident foreign nationals are justifiably interested in starting a business in the United States, but are not sure whether it is possible or where to begin. Fortunately, it certainly is possible, and in some cases, may even be accomplished without setting foot within the U.S. Below are some of the steps required for a foreign national who is not a U.S. resident to start a business.

Choose the state in which you wish to start your business

One of the first things that non-U.S. residents should understand about starting a business in the U.S. is that each state has its own laws regulating the way businesses are formed, the way they operate, and their tax treatment. While these laws tend to be very similar, there are often significant and nuanced differences that may have a significant impact on your ability to conduct business from overseas as well as your ability to minimize your tax liability.

Choose your business entity

Another aspect of starting a business in the United States of which non-resident aliens should be aware are the multitude of business entities under which one could potentially operate. These options often include the following:

  • Partnerships
  • S-Corporations
  • C-Corporations
  • Limited Liability Companies

These options have significant differences as well as certain advantages and disadvantages of which entrepreneurs should be aware. As a result, it is highly advisable to speak with a lawyer who is familiar with business entity formation in the United States prior to filing any paperwork.

Designate a person or entity as a registered agent

Most jurisdictions require that a business entity have a registered agent in the state. The registered agent acts as the person or party that can accept any official communication directed at the company.

Obtain a Federal Employer Identification Number (EIN)

In order to conduct business in the United States, your company will need to obtain an Employer Identification Number, or EIN, from the Internal Revenue Service. This number will allow your business to open bank accounts and file tax returns within the United States.  In many cases, obtaining an EIN can be complicated for foreign nationals, but there are often several ways in which an attorney can help expedite and streamline the process.

Open a business bank account

In some ways, this can be the most onerous steps of starting a business in the United States from overseas. In many instances, banks require a person wishing to open a bank account to be physically present at the time the bank account is opened, which can be difficult or even impossible for certain people who wish to start a business in the United States. Fortunately, there are often several options that may allow a business owner to operate without a U.S. bank account or open one without the cost and time associated with coming to the United States. An attorney familiar with business formation will be able to advise you as to your options based on your specific situation.

Starting a business in the United States or expanding an existing venture into the U.S. market can be a lucrative endeavor. While certainly possible, there are often many hurdles to overcome, and it can be extremely helpful for foreign nationals to navigate the process of starting a United States business with the help of an attorney. As experienced business formation lawyers, we have the skill and knowledge required to get your business up and running as soon as possible. To discuss your legal matter with one of our lawyers, call Structure Law Group, LLP today at 408-441-7500 or send us an email through our online contact form.

Every new business venture starts as an idea – where many entrepreneurs go off-course is in the implementation and execution of that idea. One of the most important aspects of starting a new business is establishing the business in a way that is compliance with the relevant rules and regulations in your state.

There are many different steps you may need to take to legally form your business to ensure that you comply with relevant laws in California, though the exact steps applicable to you will depend on the nature of your business goals. Consulting with an experienced business attorney can help you make all necessary decisions and ensure that you follow through with every required legal step to start operations on the right foot. Some of the steps that are essential to starting every new business are discussed below.

Choose a business entity

Deciding on a business entity is one of the most important choices an entrepreneur can make. There are many different choices, each with its own implications for taxes, owner liability, and more. Examples of business entities include:

  • Corporation
  • Limited liability company
  • Partnership
  • Sole proprietorship 

There are many considerations in order to choose the type of entity that will allow your particular type of business to thrive the most. Such considerations include the formalities and expenses involved in formation, legal requirements to maintain the business entity, how you will be taxed, levels of personal liability, as well as others. 

Choose a business name

Another highly important decision is what to name your business. The right business name can help or impede your business’s success, as the name affects your branding, customer recognition, and online presence. You must first ensure that the name you choose is available and, if so, an attorney can help you reserve the name and finally officially register the name to you. 

File the required documents

Each type of business entity will require the filing of different types of documents with the state to complete registration. Such documents may include Articles of Organization, Articles of Incorporation, Fictitious Name registration, tax applications, among others. In addition to the documents you must file with the state, you also need to draft operating agreements, bylaws, and other contracts that are needed to help your business run smoothly. 

Obtain any necessary licenses or permits

Depending on the type of business you are starting, you may require a variety of licenses or permits to begin operations. For example, you cannot provide certain professional services without first obtaining licenses to do so and you cannot produce and sell food or similar products without the proper health permits. You never want to risk sanctions for operating without the necessary licenses and permits and an attorney can help make sure you have all of your bases covered and are in compliance with all laws.

Contact Structure Law Group today to discuss your legal needs today

Overall, there are many steps you need to take to legally form your own business. However, after your business is formed, you can begin reaping the benefits of running your own company. At the Structure Law Group, our experienced business attorneys are committed to helping business owners succeed. If you are considering forming a company, call for a consultation at 408-441-7500 today.

According to IT research and advisory firm Gartner, worldwide software revenue totaled $407.3 billion in 2013. More and more players are trying to break into the software market, and the ease of delivery through the Internet has significantly lowered the barrier for entry for many smaller companies. Two of the main ways of delivering software to consumers are (1) licensing the software to the consumer for download on a device and (2) providing it as a subscription service through the cloud. Below is some basic information regarding these two models and the ways in which they differ.

For more information, contact the Structure Law Group to discuss your situation with one of our San Jose business law attorneys.

Software Licensing

When a consumer “purchases” a piece of software, he or she is actually purchasing a license to use the software, as the copyright holder retains ownership and the exclusive right to distribute the software. The software licensing model involves providing a consumer with a copy of the software for use. The software can be delivered via physical media, such as a CD-ROM disk or a USB drive, or for download over the Internet. Typically, the software is installed on a computer’s hard drive and run and operated locally. The software license can allow the consumer to install the software on one or more machines and the software purchase may also include access to services such as hosting or technical support.

The primary concerns involved in a software license, include: licensing rights, typically defined as the right to use a certain number of copies of the software at one or more locations; warranties; indemnification; and, upgrades and maintenance. Typically, these terms are provided by the owner or distributor of the software product. Typically, there is only one, up-front payment for the software program and a periodic maintenance fee for software maintenance (i.e., updates and upgrades).

Software as a Service (SaaS)

The software as a service (“SaaS”) model is different than traditional licensing in many important respects.  Fundamentally, software as a service operates by providing consumers access to software that is hosted “on the cloud,” meaning that it is accessible through an internet connection. The software program is contained on and used from a remote server, not on the subscriber’s hard drive. Generally, SaaS involves an ongoing subscription fee, but does not require consumers to purchase maintenance. These fees vary depending on the software program and the organization subscribing to use it. The provider maintains the software program so that, ideally, each time a user logs on to use a program the user is using the most recent version of the program containing all necessary updates and upgrades. Prominent providers of SaaS include Dropbox (storage), Workday (HR management) and SalesForce (CRM).

With respect to SaaS, the primary concern is access to the software program and maintenance, which terms are typically spelled out in the provider’s Service Level Agreement (“SLA”). In the SLA, the provider agrees to make the software program available to the subscriber without interruption during the subscription period, allowing for a minimal rate of error, and to provide all necessary updates and upgrades. If the subscriber is unable to gain access to the software program because the provider’s system is down for a period longer than that allowed in the SLA, then the provider is responsible for refunding a certain portion of the subscription fee.

Contact a Silicon Valley business attorney today to discuss your legal needs

Whether you are a seasoned software company or an entrepreneur considering bringing a new piece of software to market, sound legal advice is an integral part of your success. The lawyers of the Structure Law Group are skilled and experienced business lawyers who understand the unique needs of businesses that operate in the tech sector. To schedule a consultation with one of our attorneys, please call our office today at 408-441-7500. Prospective clients can also contact our office via email by submitting our online contact form.

When drafted properly, employee handbooks encourage open communication in the workplace, set employee expectations, and shield businesses from the financial burden of legal liability. Here are 3 reasons why your business should have an employee handbook.

3 Reasons Why Your Company Should Have an Employee Handbook

  1. Establish Your Company’s Character

An employee handbook allows you to set the tone of your company. Include language in line with your vision and values and take the opportunity to provide important historical information about your business. Include a code of conduct for your employees so they know what rules to follow and what behavior is unacceptable.

  1. Make Your Policies and Procedures Known

Employee handbooks are the perfect place to house workplace policies and procedures. Workers can reference a specific document for the duration of their employment and avoid miscommunication about expectations.  This will also provide you with protection from liability. Common items to include are safety procedures, attendance requirements, dress code, a social media policy and rules for internet usage on the job.  Be sure to review your employee handbook periodically so that you can add or amend policies and procedures as your business grows.

  1. Disclaimers

Distributing employee handbooks doesn’t just formally welcome employees to the company. When properly drafted, disclaimers contained within the employee handbook can nip potential litigation in the bud.  For instance, if your employees are at-will employees, clearly state that the handbook is not an employment contract.  If a terminated employee later threatens a “wrongful termination” suit, you’ll be in a better position to protect your business as long as the reason for the employee’s termination was legal.  An experienced Silicon Valley employment law attorney can help you draft the best disclaimers for your particular business.

If you have questions about items to include or the importance of employee handbooks, Structure Law Group’s experienced attorneys are on hand to help. Contact us today at 408-441-7500.


About Structure Law Group, LLP

Structure Law Group is a San Jose based law firm that serves its clients’ business, employment and real estate needs, including but not limited to business formations, debt and equity investments, employment agreements and handbooks, commercial leasing and purchases, commercial contracts and related litigation.