Recently in Start-Ups & Financing Category

Obtaining Licenses and Permits for Your Business

November 21, 2014,

In any business venture, compliance with applicable laws and regulations is essential. These vary significantly depending on your industry and the jurisdiction in which you operate. In some cases, you may be subject to licensing and permitting requirements on the federal, state, and municipal levels. While many entrepreneurs are understandably excited to begin operations, failure to obtain the required licenses or permits can have serious consequences. In some cases, noncompliance with the applicable business regulations in your jurisdiction could even result in criminal charges or significant fines, potentially putting you out of business.

structurepermits.JPG

Regulations regarding business licenses and permits are often voluminous and difficult for even sophisticated business people to understand. Anyone considering starting or expanding a business in California should contact an experienced attorney to discuss their circumstances.

In the meantime, here is some information about some of the more commonly required business permits and licenses.

State Professional Licenses

In California, there are several professions which require a license to legally practice. For instance, lawyers, physicians, dentists, nurses, professional engineers, cosmetologists, psychologists, and real estate agents must be licensed by the State of California. More information regarding professional licenses can be found on the California Department of Consumer Affairs website here.

City and County Business Licenses

Many cities and counties require businesses operating within their jurisdiction to obtain a business license. Generally, whether you need to have a business license depends on a variety of factors, including whether you are selling retail goods or whether your business has an actual physical presence. In some cases you must also ensure that your business complies with applicable zoning or use laws. If it does not, you may be able to obtain a conditional permit or variance in order to legally operate.

Federal Licenses

While most businesses will not need to obtain any federal licenses, those operating in certain industries might. These industries include telecommunications, energy, hazardous waste management, and meat processing.

Permits Granted by the Health Department

Any business that sells food to consumers is subject to permitting and inspection by the local health department. Failure to do so can result in your operations being shut down.


About Structure Law Group
Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Business Entrepreneurship: 4 Keys to Achieving Success

November 14, 2014,

Breaking away from the rest and forming your own business is a dream for many people. Business entrepreneurship can be a risky but rewarding venture, and it's possible to achieve great success in your new company. Although running a business takes a lot of hard work and has challenges, you can reach a high level of success. Here are four keys to achieving great things as a business owner, as well as some advice from successful entrepreneurs.

iStock_000023535855Large.jpg


Business Entrepreneurship: 4 Keys to Achieving Success

1. Hire a Lawyer
"Surround yourself with great mentors."-Thalej Vasishta, CEO, Immigration Lawyer

Sound advice and a strong team to lean on are essential for entrepreneurs. One of the first things you should do when starting your company is hire a lawyer. Choosing a business entity and licensing can be intricate, so have all paperwork looked over before making big decisions. A good business lawyer will be able to guide you through the whole process and assist you in protecting your intellectual property rights along the way.

2. Keep Thinking Ahead
"You can't ask customers what they want and then try to give that to them. By the time you get it built, they'll want something new." - Steve Jobs, Co-founder of Apple Computer Inc.

As you complete each project, think, "What's next?" Always keep new opportunities on the horizon and picture yourself and your company in the future. Don't be afraid to reach out to other entrepreneurs and ask for advice; they have likely been through the same trials and can offer you valuable advice.

3. Embrace Change
"In business, change sometimes happens more quickly than you want it to-transformative technologies arrive suddenly and economies shift." -Richard Branson, Author and Founder of Virgin Group

Successful entrepreneurs know a good idea when they see one, but they also know when to pull the plug when one isn't working. Don't be afraid to walk away if your initial idea does not pan out; you can always think about what you could do differently in the future and use these lessons to improve your future business endeavors. If you have an idea you think is gold, go for it! Success in business entrepreneurship takes calculated risks, so jump when you see an opportunity within reach.

4. Stay True to Yourself
"Remain the same person throughout all the successes and failures of your career." - Angelo Sotira, CEO and cofounder of deviantART

Although your goals may change over time as you run your business, remember your values and who you were when you started. It's important not to lose yourself or your message on your path to success. If you find that you are passionate about what you are doing, your business will be built upon your talent and strengths, and you will have a stronger chance of success. Aside from building a profitable business, you will also be happy with what you spend your time doing.

Successful entrepreneurs are always willing to learn and experiment. There is no magic formula to business success, only hard work and determination. Are you interested in starting your own company but don't know where to start? We would love to accompany you on your journey to success. Contact your team at Structure Law Group today!


About Structure Law Group
Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Choosing the Right Business Entity

October 31, 2014,

Among the most important decisions a business owner or entrepreneur can make is determining what business entity best suits their needs. This decision can affect how much you pay in taxes, the amount of paperwork that you will need to do, your own personal liability, and your ability to raise capital by issuing stock. Additionally, some business formations require certain formalities in order to be in compliance with state and federal law.

Thumbnail image for small business.JPG

Of course, every business is different, and what may be an appropriate business entity for one venture may be completely inappropriate for another. Business ventures that anticipate rapid growth or are formed with the intention of being acquired by another company may choose an entity type that may be unnecessarily onerous at startup but allow growth and compliance with federal securities laws, preempting the need for a potentially costly reorganization down the road. For these and other reasons, it is best for anyone considering forming a business entity to discuss their goals and options with an experienced Silicon Valley business lawyer before filing any paperwork with the state.

In the meantime, here is some basic information regarding the some of the most commonly used business formations:

Sole Proprietorships - A sole proprietorship is perhaps the most common type of business that exists today, and many people may own one without knowing it. Sole proprietors are simply individuals who engage in some sort of business venture for themselves. There are no filing requirements to start a sole proprietorship, and they may even do business under an assumed name if they choose to file a fictitious name with the state. One of the main drawbacks of sole proprietorships is that the owner can be held personally liable for all obligations incurred by the business.

Partnerships - A partnership involves two or more people who work together in a common enterprise and share in the profits and losses of that enterprise. Like sole proprietorships, partnerships can be formed without any state filings, and can actually be formed with a simple oral agreement. In some cases, a court may even determine the existence of a partnership even in the absence of an agreement. All partners are jointly and severally liable for the financial obligations of the partnership and profits or losses pass through to the partners for the purposes of taxation.

Corporations - A corporation is a legal entity separate from its owners created to conduct business. Because it is a separate entity, a corporation has the benefit of shielding its owners from personal liability for the debts or other obligations incurred by the corporation. One of the main disadvantages of a corporation is the legal requirements associated with formation and ongoing operations, which make them better suited to large, well-established businesses.

Limited Liability Companies - Limited Liability Companies are a relatively new business formation favored by many startups and small businesses because they combine the flexibility of partnerships with the liability protection of corporations. An LLC has the same limited personal liability as a corporation that is provided by state law and gets treated as a Partnership for Federal tax law purposes.

Choosing a business formation can be a complicated decision with far-reaching implications on the success and operation of your business. If you have any questions at all regarding business formation or any other matter related to business law, the skilled lawyers at Structure Law Group can help you. Please do not hesitate to call us today at (408) 441-7500 for assistance today.


About Structure Law Group
Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

4 Steps to Starting a Business

October 24, 2014,

Do you have a great idea but aren't sure how to start a business? Creating a startup can seem daunting at first. There are many questions to consider when defining what type of business you want to start and figuring out what it will look like once your plan comes to fruition. There are also a few legal activities you need to complete before you can open up shop. Here are 4 steps to starting a business and some tips to help you get started.
iStock_000026890322Medium.jpg
4 Steps to Starting a Business

1. Determine Your Market and Specialty

Before you create a startup, you'll need to determine what product or service you will offer your clientele. Make sure that your offering is focused enough so that your brand will become easily recognizable alongside your product or services. Once you determine what you will offer your customers, you need to think about your target market. This is known as conducting market research. Where is there a demand for your products or services in the market? Is the market already saturated with the products or services you plan to offer? Make sure you are able to utilize enough of the market share for the products or services you will be offering.

2. Select Your Business Type

There are many different types of business entities, such as sole proprietorships, limited liability corporations, partnerships or corporations. Each of these has its own advantages and disadvantages when starting a business. Hiring a business lawyer is a good way to determine which business type will best suit your startup's needs and protect both you and your company's interests. The team at Structure Law Group offers expert advice and council to make sure that when you start a business it's done the right way.

3. Register Your Business

When you're starting a business, you need to pick a company name that will be relevant for years to come. Pick something catchy enough to remember that also aligns with the brand you are trying to portray. Once you've picked a name for your startup, contact a lawyer to help you get your business registered, licensed and trademarked.

4. Write a Business Plan

A well-written business plan will help you chart measurable goals for the future. Your business plan will change over time as you amend or add ideas. In general, try to project your plans about 3-5 years in the future. Be sure to include financial information, like potential funding opportunities, a detailed marketing plan, and information about your company's mission and values. A solid business plan will also assist you in securing future funding for your startup.

If you follow these four steps, your startup will be set up for success. Remember, when starting a business, it is always important to consult a business lawyer like those at Structure Law Group to help you with any paperwork or legal decisions.

About Structure Law Group
Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

How an Attorney Can Help With Your Small Business

October 17, 2014,

Deciding to start a small business can be both exciting and stressful, and seeing your business succeed can be highly rewarding.

The reality of starting a small business is, however, that forming and running a business is generally far from a simple task. Business owners must have a viable idea, the necessary supplies to bring that idea to fruition, and a client base to keep the business afloat. Furthermore, small business owners in California must always ensure that they are in full compliance with numerous federal and state laws and regulations. This can be particularly daunting as many entrepreneurs may be largely unacquainted with all of the applicable laws, and may not have the time or expertise to familiarize themselves with such regulations.
small business.JPG
If you are a small business owner, a California business attorney can advise you on all the essential steps you must take in order to comply with all necessary laws.

A business attorney can make sure you remain in compliance throughout all of the stages of your business, whether you are forming your business, or ready to dissolve your business and move onto a new venture. A lawyer can answer your questions and assist you in the following matters and more:

• Choosing the best business entity for you
• Legal formation of your business
• Drafting articles of incorporation
• Drafting operating agreements and bylaws
• Drafting buy-sell agreements
• Securing all necessary licenses
• Applying for and receiving all necessary permits for your business
• California Secretary of State filings
• Lease agreements
• Protecting your intellectual property
• Drafting employee contracts
• Complying with all employment laws
• Business transactions and contract review
• Contract dispute resolution
• Collection efforts
• Restructuring after bankruptcy
• Resolving partnership disputes
• Dissolution requirements

As a small business owner, you will face many legal decisions and issues on an ongoing basis.

If you make the wrong decision or fail to comply with a federal, state, or local law, you may find yourself facing expensive penalties, sanctions, or even watching your business get shut down. A quality small business attorney will be able to assist you with legal matters from the start to finish of your business tenure. A lawyer will also stay familiar with any changes in relevant business laws and can advise you on any necessary actions in response to these changes.

Contact Structure Law Group for help with your small business.
Staying up to date on all laws relevant to small businesses can be time-consuming and leaving such matters to a business attorney allows you to focus on what is most important--day-to-day operations, growing your business, and achieving your goals. Whether you have a sole proprietorship, partnership, limited liability company (LLC), corporation, or other type of small business, the dedicated lawyers at the Structure Law Group in San Jose, California can help you. Please do not hesitate to call us today at (408) 441-7500 for assistance today.

About Structure Law Group
Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.


Sole Proprietorships: Advantages and Disadvantages

September 26, 2014,

Sole Proprietorships: Advantages and Disadvantages

Many small businesses in the United States operate as sole proprietorships. In fact, this is the most common type of business and is business in its simplest form. In this article we will discuss some advantages and disadvantages of sole proprietorships and more specifically, owning and operating a sole proprietorship in California.
iStock_000026890322Medium.jpg

Advantages of Sole Proprietorships

· Low start-up cost. Since there is no legal distinction between the person and the business entity, the sole proprietor is not required to register as a legal corporation. This saves on filing costs. Here in California, there is also a high minimum tax which sole proprietors avoid.

· No business taxes. Income generated through the business is reported and paid on the sole proprietors' personal income taxes.

· No annual compliance. Unlike corporations, sole proprietors are not required to pay annual fees to retain their legal status.

· Simplicity and speed of setting up your business. While starting a sole proprietorship, LLC or corporation requires compliance with licensing, local laws and regulations, individual owners of sole proprietorships have lower overhead costs and speed though the process.


Disadvantages of Sole Proprietorships

· Personal liability. Since the business is not legally separate from the owner, the owner is personally responsible for all debts and transactions.

· Fewer investment opportunities. Once an investor or partner has joined the business, it is no longer a sole proprietorship. The transformation of the company will require compliance with licensing requirements and filing fees. As a result, it may be hard to find an investor to back your company.

· Debt. Many sole proprietors have dipped into personal assets or acquired loans to start their company. Since a sole proprietorship is not a formal business entity, personal loans may impact the owner's credit score.

Is a sole proprietorship the right decision for you and your business? Your team here at Structure Law Group would be happy to help you start your sole proprietorship or answer any questions you may have. You can find more about the services we offer here.


About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Pros and Cons of a C Corporation vs. an S Corporation

September 19, 2014,

Pros and Cons of a C Corporation vs. an S Corporation

Selecting a business entity is one of the most important decisions an entrepreneur faces. There are numerous options including sole proprietorships, partnerships, limited liability companies and corporations. To make things even more complicated, there are two primary types of corporations, each with its own benefits. In order to ensure you choose the best business entity for your purposes, you should always conduct careful research and consult with an experienced California business attorney to discuss your options.

Once you have decided you want to incorporate, your options are to form a regular C Corporation or an S Corporation. Though these two types of corporations are quite similar, there are a few key differences that can determine which one is right for your business.
iStock_000034372018Medium.jpg

3 Similarities between S & C Corporations
The following are a few ways that an S Corporation and C Corporation are alike:

1. Both types of corporations are owned by the shareholders, who have protections from liability for business debts and most business-related legal matters.
2. Both are structured the same way: the shareholder/owners elect a board of directors that oversees major issues. The board of directors then elects officers, who handle the day-to-day operations of the business.
3. Both must comply with state law regarding document filings, fees, bylaw and more.

Differences Between S Corporations and C Corporations

The most important difference between an S Corporation and C Corporation is the way that they are taxed. In both cases, shareholders pay taxes on dividends of any distributions of profits. A C Corporation, however, may also be taxed on the corporate level, which means it may be subject to double taxation. On the other hand, the taxes for an S Corporation all pass-through to the shareholders, so there is only single taxation. This pass-through taxation is authorized by IRS Code, Subchapter S of Chapter 1.

Though the single taxation of an S Corporation likely sounds preferable, the S Corporation entity is not an option for every business. Another difference between the two is that, while a C Corporation can be quite large and have numerous shareholders, an S Corporation may only have a maximum of 100 shareholders. In fact, the IRS created Subchapter S in part to encourage small businesses and entrepreneurship. Therefore, the size of your business may play a significant role in the type of corporate entity you choose.

If you have any questions about C Corporations, S Corporations, or other business entities, do not hesitate to contact an experienced attorney at the Structure Law Group for assistance today.

About Structure Law Group
Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Funding a Startup: Regulation D

August 29, 2014,

There are a number of ways to fund a startup. We've all heard about loans, grants and crowdfunding but new rules from the SEC will make it easier for entrepreneurs to raise capital. In this post we're going to look at changes to "Regulation D" and what that means for startups.

grown.jpg

Understanding Regulation D

Regulation D is part of the Securities Act of 1933. Section 506 specifically deals with the solicitation of private offerings. In the past, the SEC essentially banned all forms of advertisement for private investment. The revised Regulation D does away with most of the restrictions. It's now possible for a company to publicly solicit funds for a private venture.

The New Regulation D

The game has changed but that doesn't mean there aren't rules. Only accredited investors can utilize the changes to Regulation D. These are people with $1 million in net worth or who make $200 thousand dollars a year in individual income. There is also a strict process for weeding out "bad actors." Generally, these are people who have committed some kind of financial crime or who have been disciplined by the SEC.

What it Means

The change to Regulation D is great news for startups. Increased access means greater opportunity to spread the word about a business and its product. A startup can now use every tool at its disposal to try and raise money. Another interesting aspect of Regulation D offerings is that there isn't a limit to the amount of capital that can be raised. Crowdfunding is a popular way to support startups. The key difference is that the total dollar amount in this model is capped at $1 million.

There is plenty more to learn about Regulation D and its cousin Regulation A. To find out more, contact the professionals at Structure Law Group.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Steps to Creating Bylaws

July 18, 2014,

rules.jpgOne of the first things any newly formed corporation should do is draft bylaws. Bylaws are a corporation's operational blueprint. They identify what the business does, how it is run and who is in charge. Here then are five steps to drafting a set of bylaws.

5 Steps to Creating Corporate Bylaws

1. Detail relevant information concerning shareholders. This includes who holds stake in your corporation, what rights they hold and when and where meetings are to be held.

2. Identify the Board of Directors. Include information on meetings, procedures for resignation and removal or addition of directors.

3. Outline the procedure by which officers are elected. Officers are people like the CEO or CFO. Detail their roles and responsibilities as well as how they will be compensated.

4. Indemnification of Officers, Directors, and Agents. In order to protect those who labor on behalf of the corporation, the bylaws should spell out who is indemnified for acts taken on behalf of the corporation, as well as the procedure for handling claims.

5. Finally, bylaws are made to be amended. What's the process look like? Deciding on this issue now will prevent headaches down the road. You'll want to figure out who has the authority to add, alter or completely remove a bylaw.

These five steps are really just a working model. There are fine points that should really only be handled by a professional. An attorney can help you craft a set of bylaws that are clear, sensible and legal. In reality, this process consists of at least six steps with the first being contacting a local lawyer to help get you started.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

3 Steps to Creating a Strategic Alliance

July 11, 2014,

hands.jpgA strategic alliance is a fairly simple concept. Two companies with similar interests join forces to produce favorable outcomes for all involved. An everyday example is the Starbucks inside of Barnes and Noble bookstores. This move helped Starbucks expand, but it also kept people in the bookstore, perhaps reading the first few pages of a book they were thinking of buying. A strategic alliance is good for business, but you'll need to take the proper steps to make it work.

1,2,3 - The Steps to Creating a Strategic Alliance for Your Company

Step 1: Choosing a Partner

Companies create a strategic alliance to help increase their profits. A solid partnership is one that generates revenue that couldn't be achieved by going it alone. Therefore, it's important to pick a partner you trust and that has a solid reputation. Also, a strategic alliance is a long-term commitment. Results are monitored over years, not months, so be sure the company you pick is one you can work with for the foreseeable future.

Step 2: Crafting a Deal

Perhaps the most important part of this step is determining a strategy. How will you go about achieving your goals over the next 3-5 years? This is also the time to set boundaries and determine roles. It's critical that you and your potential partner agree on such things like operation details and rules for intellectual property.

Step 3: Making it Work

Remember, these are two companies with two different ways of doing things. To make your alliance work you'll need to cultivate relationships. You'll need to know who's in charge and what happens when something unexpected happens. The way you handle a particular situation may be different than your strategic alliance partner.

The best way to avoid confrontation is by creating a clear contract. A good contract will outline roles and responsibilities as well as provide an "out" should the alliance fall apart. The team at Structure Law Group can craft an agreement that satisfies such objectives. By putting everything in writing you protect your company legally from any problems that may arise.

Have questions about creating a strategic alliance for your company? Contact Structure Law Group today!

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Business 101: Litigation

June 20, 2014,

scale.jpgWith any luck, you or your business will never end up the subject of a lawsuit. Since this isn't a perfect world, it's best to start thinking about what to do if the unforeseen happens. Like most things, business litigation is an involved issue. We can't go through the entire process in one post, so we'll start with three basic steps to take if you find yourself in legal trouble.

Step 1: Purchase Liability Insurance

This step should happen long before trouble starts. In reality, this is one of the first things you should do as a business owner. Liability insurance protects the purchaser from the risks of liabilities imposed by lawsuits and similar claims. Say a customer slips on a wet spot in your store; your insurance would step in and handle the costs. You may want to add extra protection such as errors and omissions coverage. For businesses that have a Board of Directors it's a good idea to have directors and officers coverage. This type of coverage protects the corporation as well as the personal liabilities for the directors and officers of the corporation.

Step 2: Separate Yourself from Your Business

Sole proprietorships are a popular business structure. Unfortunately, these entities can leave you personally exposed. In this arrangement your personal property, including your home or car, are fair game in a lawsuit. To avoid this you want to create separation by forming a trust, or consider an alternative business structure. A trust is a legal entity that pays its own taxes and can own assets. Making the trust the legal owner of the business safeguards your money and property. Also, consider forming a corporation. Trusts and corporations are miles apart in terms of regulation but offer protection to the individual.

Step 3: Hire a Good Attorney

Of course it is always advisable to have an attorney on your side before any litigation to avoid potential lawsuits. If all else fails and you are served with the lawsuit, you should immediately consult your attorney. Time is of the essence. A quality attorney can help you through the initial steps.

Finally, it's a good idea to hire lawyers who specialize in specific fields. If you're served with a lawsuit or anticipating one then it's smart to hire an attorney familiar with litigation like the professionals at Structure Law Group.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

LLC: Choosing a Management Structure

June 6, 2014,

llc.jpgLimited liability companies combine parts of both corporations and partnerships. Because they're a hybrid, LLC's can be more difficult to setup. One part of this process involves choosing a management structure to fit your specific LLC.

Single Member or Multiple Member LLC

The difference here is implied in the name. Single member LLC's have only one owner, while multiple member LLC's have at least two. Choosing one over the other typically comes down to financing. Starting a single member LLC comes with a higher level of risk as the profits and losses are reported on the individual's tax return. However, as the sole owner, you don't have the stress of running a company with another person.

Member Managed LLC or Manager Managed LLC

This type of structure only applies to Multiple Member LLC's. If both owners (members) plan to be actively involved in the business, then a member managed LLC is the best choice. In this scenario each owner can act on behalf of the company. A manager managed LLC is a good option if you have investors who don't plan on being involved. These silent partners typically elect the owners to run the day-to-day operations of the company.

Operating Agreement

Whatever you do, make sure to put it in writing. An operating agreement outlines the particulars of your business and helps to ensure your status as a limited liability company. A good operating agreement should include: powers and duties of members, distribution of profits and losses, buyout and buy-sell rules, ownership percentages and voting rights.

It should be noted that California recently revised the Uniform Limited Liability Company Act or RULLCA. The revised act specifically addressed operating agreements. New details were added concerning which RULLCA sections can be, and which cannot be, overridden by the operating agreement. Also, more detail was added regarding withdrawal and the consequences of withdrawal of a member from an LLC

Determining which type of company organization to choose can be difficult. Consider hiring an attorney, like the ones at Structure Law Group, to guide you through the process. If you've done most of the leg work but need help crafting an operating agreement, the professionals at Structure can help with that too.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Business Plan 101: The Legal Steps to Starting A Company

May 8, 2014,

Starting a business can feel overwhelming. Whether you're opening a brick and mortar store or an online business, there are a lot of steps involved in turning your idea into reality. Creating a business plan and securing funding are a solid beginning; at this point you'll also need to do a few things to make sure your business is legal.

Steps to Legally Starting a Business: It Takes More Than a Business Plan! 

Picking a name is a fun element of starting a business. A name not only tells potential customers what you sell but it also reveals something of your personality. Before you jump into the next activity on your business plan and start advertising your store front or online business, make sure someone else isn't already using the name. Fortunately, most states offer a searchable database through the Secretary of State's Office. Also, be sure to do a national trademark search to find out if another company owns the rights to the name.

It's also extremely important to choose an appropriate structure when starting a business. Will you be operating as a sole proprietorship, a Limited Liability Company or something else? The form your brick and mortar or online business takes will determine which regulations you are governed by as well as the taxes you'll need to pay. A second part of this process is obtaining a federal tax ID number. The IRS uses this number to locate your company and assess the appropriate tax level. You'll also need an employee identification number, better known as a tax ID, before you can start hiring.  

Whether you're a brick and mortar store or an online business, you'll need to secure the proper licenses and permits. Some companies, like ones that sell alcohol, need federal approval. Different states have different rules. The Small Business Administration has a helpful tool to get you started. It's quick and easy; all you need to do is enter your zip code and business type.

Once you’ve completed the above steps, you're just about ready to open to the public. One of the last things to do is familiarize yourself with the laws concerning employees. There's quite a bit to learn. Some of the finer points center around verification and insurance. Even if you're an online business, the federal government requires companies to verify all employees are eligible to work in the United States by filling out an I-9 form. Finally, if you plan on having employees then workers' compensation insurance is a must.

Of course there's plenty more to know when it comes to starting a business, but these few important steps should help get you started on the right path to creating a successful company. Does your business plan allow for these vital start-up activities?

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and taxation.

Photo Credit: Jake and Lindsay Sherbert via Flickr

Founders' Equity: Repurchase of Unvested Stock by a Company

February 10, 2014,

I spend a lot of time talking to founders of Silicon Valley start-ups about the stock they will receive in exchange for their contributions to their new company, and then preparing restricted stock purchase agreements for the founders. In the last couple of blogs, I have discussed the issues surrounding how founders' stock could vest.

The concept of vesting is usually intertwined with the concept of repurchase rights. Simply put, for founders' stock, vesting is where the repurchase rights held by the company disappear or change. In a typical scenario, when a triggering event occurs, a company can repurchase unvested stock for its original purchase price. A company may not, however, repurchase any vested stock or may only repurchase vested stock at the stock's then fair market value.

What kind of triggering events might allow a company to purchase unvested stock? One common trigger is anything that results in the shareholder not working for the company. Most often, this means a termination of employment.

Termination occurs for a number of reasons. As a result, the number of shares the company can repurchase often changes depending on the reason for the termination. Put another way, vesting can accelerate as a result of certain events occurring. There is no law that dictates how vesting can change, if at all, on the occurrence of a particular triggering event. Founding groups design a variety of triggering events and repurchase rights to meet their goals.

Sometimes it is the company's decision, rather than the shareholder's decision, to end employment. Termination can occur for no particular reason, i.e., at-will, or where the company changes the employment relationship to such an extent that the shareholder terminates its employment, i.e., a termination for good reason. Where a termination occurs other than as a result of the shareholder's decision, it is not unusual for some of the vesting to accelerate. In these cases, the shareholder may receive an extra year of vesting. In cases where a shareholder decides to leave on his or her own, or the shareholder is fired for cause, no vesting acceleration will occur.

Stock purchase agreements will often describe what it means for an employee to be fired for cause, or for an employee to be allowed to leave for good reason. The more objective the description of cause or good reason, the less opportunity there will be for a dispute if a triggering event does occur.

Another common triggering event is an acquisition of the company. In this case, vesting may accelerate to such an extent that all of the shareholder's shares will be vested. Having shares of a founder, who may be critical to the success of a company, completely vest may scare off potential buyers who may want the founder to remain after the acquisition closes. For this reason, a double trigger is often used. In a double trigger, a shareholder's shares will vest if the company is acquired AND the acquirer later terminates the shareholder's employment for no reason. Before a newly formed company issues stock to its founders, it may wish to consult with a corporate or business attorney to be sure to take all of these considerations into account and make sure the founders discuss whether their shares should be issued subject to restrictions and, if so, how those restrictions should be structured.

Before I leave our discussion of vesting, there is one last critical point to mention. Purchasing stock that is subject to vesting can raise important tax consequences. If you receive any stock that must vest, it is critical that you consult your tax advisor BEFORE you sign any agreement purchasing unvested stock.

The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to the author.

Founders' Equity - Stock Vesting Schedules

January 9, 2014,

Working with start-ups in San Jose, I have often had to counsel founders on the intricacies of business law as it relates to issuing stock. A large part of initial discussions with the founding group involves the funding needs of the new corporation, how shares will be divided, and the best way to provide equity incentives to founders, advisors, and new employees.

As I discussed in my last blog, one of the key issues involved in issuing stock to founders is how to incentivize them to stay with the new corporation. One mechanism discussed is reverse vesting, where the corporation can repurchase a founder's shares of company stock at their original purchase price when certain events specified in a contract occur.

A typical reverse vesting structure is to allow the corporation to purchase a declining number of a founder's shares at their original purchase price as time goes on. Typically the number of shares the corporation can repurchase will reduce on a straight-line basis over the course of three or four years.

Time may not be the only factor, however, to contribute to the growth of a company. The success of a new venture may be measured by its ability to develop something new and different, or to access markets others have failed to access. Accomplishing this often requires a number of milestones to be met, with many intermediate steps along the way. Because of this, some companies have adopted vesting schedules that allow shares to vest only when the corporation satisfies a particular goal.

As with anything, there are advantages and disadvantages to this approach. One disadvantage is that the milestones that the corporation believes are important at the outset become less critical, especially if the corporation has had to pivot its product or service offerings. Amending stock purchase agreements may not be easy down the line due to founder resistance, among other things. Recognizing this, valuable talent may not be disposed toward accepting stock with this kind of structure and may seek greener pastures. Another disadvantage is that the growth path for the venture may be so uncertain that it is very difficult to define the critical tasks that allow the stock to vest. This is especially true here in Silicon Valley where technology advances and competition often require shifts in start-up strategies. This may result in stock becoming vested on an event that does nothing for the corporation.

There are some important advantages to vesting by milestone. The first is that it could prevent a founder, who contributed little to the corporation's growth, from having a large interest just because he or she stuck around. In those cases where a founder has since left the corporation but still maintains a sizeable interest, management may not have the flexibility to increase the corporation's stock option pool because investors may believe that they have already suffered too much dilution. The solution may be for the remaining founders to reduce their interest, at least on a relative scale, to be able to have a meaningful stock option plan. A well thought out milestone vesting structure can help prevent this from happening.

A second advantage to vesting by milestone is that it forces the founders to really think through their business plan, and to set up a milestone schedule that is objective and attainable. Investors can be comforted by this approach because it shows that the founders have a plan over which success can be measured. This may prevent investors from increasing the time for shares to vest as a condition of their investment.

A third advantage to using milestones rather than time for stock to vest is that it assists in keeping founders focused on the particular goal because of the strong reward provided in reaching that goal.

So what is the bottom line here? Basically, if you have a start-up where technology and market development can be objectively defined, and there is a little risk of a pivot, then milestone-based vesting may be the way to go. Otherwise, you are probably best to use a time-based vesting and staying on top of each founder's efforts to make sure an adequate contribution is made to the venture.

The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to the author.