San Jose Business Lawyers Blog

Reputation can help make or break a startup. Startups rely upon a positive reputation to grow, develop, and maintain a strong customer base. Glowing reviews help startups strengthen their brand equity; at the same time, they help support and influence a customer’s decision to use the startup’s product or service.


A startup that develops a negative reputation will not have the same luck. Customers that leave negative reviews weaken the perceived value of the startup’s product or service. Potential future customers may find themselves less inclined to use the product or service as a result of negative reviews. Too many potential reviews could spell a startup’s demise.

Startups want to succeed. Whether the ultimate goal is to grow and expand or to be bought out, startups want to ensure that their success is not derailed through customer disparagement. In order to combat potential negative reputation, some startups began including non-disparagement clauses in their purchase or licensing agreements.

Many business owners do not hire an experienced attorney for several reasons. Some believe they cannot afford it and others may believe there is no need for a lawyer unless a legal conflict arises. However, it is much more resource-effective (time, energy, and money) to have the guidance of a skilled business lawyer from the very start. Doing so can avoid costly litigation in the first place and will allow you to focus on your business operations and not on a legal case. The following are only some examples of how hiring a business attorney can help to avoid litigation.


Business contracts – Businesses involve many different kinds of contracts, whether they are with fellow owners, suppliers, clients, or any other party. You may not recognize that a particular contract has unfair or adverse provisions that may leave your business vulnerable to losses or liability. Every single contract you consider signing should be carefully drafted, reviewed, and negotiated by a knowledgeable lawyer to protect your interests and avoid legal liability.

Compliance with business laws – California has a great number of laws that are relevant to businesses, and compliance is essential to avoid costly fines or legal conflicts. Such laws can regulate business formation, licenses, permits, zoning, taxes, employees, and many other issues. As a business owner, it may be challenging for you to identify all relevant laws and to ensure that you comply with them. An experienced attorney will know what steps you need to take to comply with necessary laws.

Hiring employees can be exciting for a business owner though it comes with many legal responsibilities and requirements. You must report your new hires to the state, set up a payroll system, comply with tax and immigration laws, and more. With so many requirements, the last thing you may want to do is anything that is not expressly required by law.


One optional step that can be extremely important, however, is developing and regularly updating an employee handbook. Following are some reasons that a carefully drafted employee handbook can help you to avoid legal conflicts with employees.

Avoid employee miscommunication

Startups centered around a technological development or product are highly popular in this day and age—and for good reason. Companies such as Apple or Facebook originated in garages or dorm rooms and are now each valued at hundreds of billions of dollars. Even if you are not a technical person and know nothing about programming or coding, you can still start a successful tech startup, as evidenced by companies such as Pandora. It is not surprising that individuals are continually trying to bring the next big idea to life and start their own tech company.


However, like any other type of business, there are many legal concerns for tech startups. One highly important concern is how to properly protect your intellectual property (IP). A novel and viable idea is generally the heart of a tech startup and you do not want to risk your success by failing to adequately protect your idea. The following are only some IP concerns that may be relevant to your tech startup.

Choosing the right type of IP protection

Too many startups fail to successfully get off the ground because of decisions that result in inadequate financing. As a founder of a startup, you can have a completely viable idea and still fail due to financing mistakes. For this reason, it is important to understand the different types of financing appropriate at different stages of your business. Financing can be complicated and it is always helpful to consult with a skilled business attorney who can evaluate your financing needs and provide valuable advice.


One type of financing used by startups is called “mezzanine financing.” The name is appropriate because this type of financing is in the middle between equity and traditional bank debt. Your business is less leveraged because there is no hard collateral to mezzanine investors, though many charge more interest than a bank loan. On the other hand, you will give up less control of your company than you will if you pursue additional equity funding.

When is mezzanine financing appropriate?

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:

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?

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.

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.

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.