San Jose Business Lawyers Blog

Articles Posted in Employment

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.

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.

Too often, a contractor, subcontractor, laborer, or material supplier on a construction job does not receive the compensation they deserve for the work they have performed or supplies they provided for the project. Fortunately, California law provides a method by which contractors and others can pursue adequate payment. If the job is a private construction project, a primary tool for receiving payment is the mechanics lien. The following are some brief explanations for frequently asked questions amount mechanics liens in California.

What exactly is a mechanics lien?

A mechanics lien is a tool that creates a security interest in the property on which you worked. After a certain amount of time and if payment is not received from the property owner, you can then sue to foreclose on the lien to satisfy the lien amount.

How do you record a mechanics lien?

A mechanics lien is filed with the office of the county recorder for the county in which the construction project took place. The filing must include specific information including the named of the property owner, the nature of the work performed, the name of the person for whom you performed the work (if you were not the direct contractor), and how much money you are seeking. In order to ensure you do not make an error and render the lien invalid, you should seek assistance from an attorney in filing your lien correctly and completely.

How long do you have to record a mechanics lien?

The time frame for filing a mechanics lien depends on your particular contribution to the project. For example, if you are a contractor, you must wait until your contract is complete to file the lien. After that date, you have either 90 days or 60 days after a notice of completion is filed by the owner, whichever is earlier. If you are a supplier or subcontractor, you have from the time you stop work until 90 days after the end of the project or 30 days from a notice of completion, whichever is earlier. A lawyer can closely evaluate your situation to ensure you file your lien in a timely manner.

 What can an owner do to release a lien?

Recording a mechanics lien does not absolutely mean that the property will be foreclosed. If a certain amount of time passes and no foreclosure action has been filed, an owner can file to have the stale lien expunged. You can also obtain a release bond, which requires the lien filer to make a claim against the bond instead of foreclosing on the property. Finally, it may be possible to negotiate with the contractor, subcontractor, or other party and agreement to a settlement in exchange for releasing the lien.

Find out how an experienced California business attorney can assist you

Mechanics liens can be powerful tools for contractors, subcontractors, and others to receive payment for their work. However, in order to successfully obtain compensation, all requirements for a valid lien must be met. In addition, property owners have rights to defend against and release their property from a mechanics lien. The process can be complex, so you should always seek qualified assistance from a skilled business lawyer who thoroughly understands construction law. Call the office of Structure Law Group to discuss your situation today at 408-441-7500.

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.

 

Any company with employees is aware of the fact that conflicts between people are inevitable. Conflicts can arise due to disagreements about work-related matters or because of issues that are purely personal. Fortunately, these kinds of conflicts are often resolved informally and without the intervention of an employment attorney or even the human resources department. In some cases, however, an employee may file a lawsuit against his or her employer in an attempt to hold it liable for discriminatory policies, discriminatory acts committed by management, or even the failure to address inappropriate conduct between one employee towards another.

There are several steps that California employers can take to minimize their legal liability as a result of discrimination lawsuits, some of which are detailed below.

Have an employee handbook

A well-drafted and comprehensive employee handbook can go a long way in informing both management and employees about a company’s policies and encourage people to resolve disputes through official channels. In addition, it can also put employees on notice regarding expectations, reduce the incidence of disparate treatment, and reserve certain of the employer’s rights that it would otherwise not have.

Regularly train managers and supervisors

An employer can often be held liable for the discriminatory actions of its supervisors and managers. By regularly conducting anti-discrimination training, employers can ensure that their managers and supervisors are aware of their policies and recognize workplace discrimination when it occurs. In some cases, recognizing discrimination early on can prevent it from becoming a serious issue resulting in a lawsuit.

Keep impeccable records

Issues between people are bound to arise, so it is important to be prepared to document the dispute and your response when they do. Many workplace discrimination lawsuits turn on an employer’s perceived response to an accusation of discrimination, so documenting that a complaint took place and the steps that the employer took to respond to the situation are often very important in minimizing legal liability.

Regularly audit you policies and procedures

Federal and state laws related to employment regularly change.  It is important for employers to keep their policies and procedures up to date and in compliance with all relevant rules and regulations. An attorney’s assistance can be extremely helpful in ensuring that your employment practices are in compliance with current law.

Contact a Silicon Valley business litigation law firm today to retain legal counsel

Lawsuits initiated by employees have the potential to put even an established business at significant risk. A well-publicized lawsuit can affect employee morale, productivity, and may influence your potential customers’ or clients’ perceptions of your company and its values. In addition, litigation can be incredibly expensive, especially in the event of an adverse outcome. Fortunately, sound legal advice and representation can often avoid these kinds of issues before they even start. To schedule an appointment with one of our experienced Silicon Valley business litigation attorneys, call Structure Law Group, LLP today at 408-411-7500. Prospective clients can also send us an email through 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.

Last year, California legislators passed the Healthy Workplace Healthy Family Act of 2014, which provided the opportunity to accrue paid time off for sick leave to almost every California employee. The law allows qualifying employees who have worked at least 30 days to begin accrual and to use that sick time after 90 days of employment. The law covers temporary, part-time, and full-time employees with very few exceptions. Such exceptions only apply to certain employees with collective bargaining agreements, some air carrier employees, and in-home providers of supportive services.

Because the new law so widely affects California employers, all business owners should thoroughly familiarize themselves with it to avoid legal disputes or sanctions for noncompliance.

Basic requirements for employer compliance

The following are only some of the steps employers should take to comply with the new law that went into effect on July 1, 2015:

  • Provide adequate notice to employees upon hire of their right to paid sick leave, along with having easy to read posters on the subject in the workplace.
  • Allow employees to accrue at least one hour for every 30 hours worked up to an annual minimum of 24 hours or three full days of work, whichever is more based on an employee’s typical work day. Notify employees of any qualified caps on sick time accrual.
  • Approve reasonable requests to use paid sick time.
  • Regularly issue pay stubs or other documents that clearly state how much paid time off the employee has left.
  • Keep careful records regarding accrual and use for three years.
  • Never discriminate or retaliate against an employee for use of sick time. 

The above is a simplified explanation of employer responsibilities under the new law and every business owner should discuss all of the requirements with an experienced employment law attorney as soon as possible. 

New amendments to the law already passed

On July 13th, Governor Brown signed Assembly Bill 304, which amended certain provisions of the new sick leave law. These changes were effective immediately after signing, so every business owner with employees should be aware of the changes. Here is some brief information regarding some of these amendments:

  • Companies that already had a paid sick leave or PTO policy can be grandfathered in without changing their policies provided the policy meets certain requirements.
  • In order to be eligible for sick time accrual, an employee must work with the same employer for at least 30 days in the past year, while the original version of the law did not specify where the employee had to work.
  • Employers can use different accrual methods as long as the accrual happens at regular intervals and an employee can accrue at least 24 hours of PTO within 120 days.
  • Sick day use can be limited to either one calendar year, year of employment, or 12-month period.
  • Pay rate for sick time will be based on the pay period in which the PTO was used.

Though many employers recently made substantial changes to their sick time policies in preparation for the new law to take effect on July 1st, it is now a good idea to re-examine your policies to ensure compliance with all of the applicable amendments. 

Contact an experienced business and employment attorney for assistance today

When a new law goes into effect that widely affects employers and business owners across the state of California, it is only understandable that you may have questions and need some guidance to ensure that your business complies with the new law and any subsequent amendments. Because employment laws and regulations are constantly changing, it is always a good idea to have the assistance of a skilled business lawyer who can provide valuable advice and help prevent any future legal disputes with employees. If you have questions regarding the new paid sick leave law or any other legal matter, call the San Jose office of the Structure Law Group at 408-441-7500 for help today.

In 1967, President Lyndon B. Johnson signed an historic law into effect prohibiting employment bias on the grounds of age: The Age Discrimination in Employment Act (ADEA). This act gives certain labor protections to workers over age 40. But do you know how this law affects employment at your company? Here is an overview of the ADEA and some key information to know.

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What is the Age Discrimination in Employment Act?

The ADEA specifies that any time an employer makes a decision about personnel, whether hiring, determining pay, firing, or considering position changes, it cannot factor age into the final decision.  Decision makers are not allowed to establish preferred ages in any step of the hiring process.  It’s important to note asking for a candidate’s birth date on an application however, is not illegal.

ADEA Protects Disadvantaged Demographics

Congress found older citizens are at a disadvantage in the job market after losing a long-time job. The Act is meant to give workers a boost after age 40, allowing them more work opportunities.  The ADEA additionally prevents terminations or layoffs based on age as the displacement of older workers.

ADEA Limits

The ADEA applies to employment agencies, every business with more than 20 workers, federal positions, and many labor organizations. It doesn’t protect elected officials, those in the military, and workers who are self- employed, such as independent contractors.

The Age Discrimination Act helps prevent unfair labor treatment of workers over age 40. If you have any questions on how the ADEA impacts the employment initiatives at your company, Structure Law Group’s experienced attorneys would be happy 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, commercial leasing and purchases, commercial contracts and related litigation.