Articles Posted in Start-Ups & Financing

Fotolia_206780729_Subscription_Monthly_M-300x129Hiring a new employee is an important business decision that can impact your business’s success. You must take the necessary steps to protect both your business and keep your employee happy, especially today when the unemployment rate is at a historic low . If your San Jose business is considering hiring a new employee, there are some things you might consider.

Confidentiality Agreement

Your business likely has certain information it must keep confidential. This might be company trade secrets, business methods, and sensitive employee or customer data and information. Liability concerns and legal compliance with laws (e.g., HIPPA) require a business to have safeguards in place. One of these safeguards might include a confidentiality agreement.  A confidentiality agreement is a specially crafted legal agreement that an employee signs upon acceptance of his or her employment, or inherently agrees to through the employee handbook. The agreement should include remedies if an employee breaches the confidentiality agreement. A skilled San Jose business attorney can assist your business in drafting the necessary agreement tailored to your business’s needs.

Fotolia_180008799_Subscription_Monthly_M-300x200Startup companies often use stock options to attract new quality talent. If you have decided to do so, there are some special considerations when deciding the best approach to compensate your employees. Two common approaches include restricted stock and stock options.

What is Restricted Stock?

Restricted stock is a stock plan that gives particular employees a right to purchase stock shares. These restricted shares may be at a discounted value, fair market value, or even at no cost. Despite the right to buy the restricted stock, the shares are not actually owned by the employee until a particular triggering event occurs. For example, a company may restrict the transfer of the stock until a particular amount of time has elapsed (e.g., three years from the date of hire). Another example would be a condition regarding company performance (e.g., $1m in gross revenue). The employee then takes possession after the triggering event occurs, thereby lifting the “restriction” on the stock.

Budget-Planning-300x200Starting a new business can be an overwhelming proposition for any Silicon Valley startup business. An experienced business startup attorney can help you build a profitable business from the ground up by finding appropriate financing, effectively forecasting your business expenses and helping you budget effectively.

Finding the Right Financing

The first step to an effective financial plan is putting in place the right startup capital for your particular business. Venture capital is among the most popular financing options for Silicon Valley startups, but it is not right for every business. VC deals often contain onerous terms for profitability, repayment, or reinvestment. Not every business can meet these demands. Accessing venture capital also brings in more stakeholders who have a greater say in the operation of your business. This is the very situation that many startup business owners are looking to avoid.

Fotolia_87806470_Subscription_Monthly_M-300x200
Hedge funds are defined as a limited partnership of investors that use high risk methods to realize large capital gains. Without an applicable exemption, the hedge fund must register with the Securities and Exchange Commission and meet complex, ongoing filing and disclosure requirements. However, depending on investor qualifications, the hedge fund can avoid being defined as an investment company if its participants are either accredited investors or qualified purchasers. Thus. hedge fund managers should consult with an experienced California corporate attorney in order to ensure that their hedge fund practices are in compliance with existing law and regulatory mandates.

The Difference Between an Accredited Investor and a Qualified Purchaser

An accredited investor is an individual who satisfies SEC requirements for income, net worth, asset size, government status, and/or professional experience. In other words, an accredited investor is financially savvy, and because of this , he or she has less need for the protections offered by mandatory regulatory disclosures. Thus, an investment advisor or group working with an accredited investor can be exempt from certain mandatory disclosures. A qualified purchaser is similar to an accredited investor, but requires a higher net worth requirement as defined by the United States Code.

Financial-300x225
There are many ways for San Jose technology companies to obtain startup financing and fundraising. One way in which private financing and fundraising can be accomplished is through convertible notes, and may or may not require the involvement of traditional venture capital firms. Convertible notes can allow startup companies to determine the amount of control that their investors will have over the management of their company during the initial startup phase. The experienced San Jose corporate attorneys at Structure Law Group can help your startup explore all financing options to advise on which are best for your business.

A convertible note is a form of short-term debt that converts to equity at a specified point in the future. For startup companies, this is most often accomplished by converting an investor’s initial investment into a given number of shares in the company, at a specified round of financing. The equity does not need to be expressed in shares of common stock, nor does it even have to occur during the first round of financing. The note’s terms and conditions can be negotiated to meet the needs of both the startup company and its investor(s).

Other Negotiable Terms of a Convertible Note

Private-Equity-300x200
The Securities and Exchange Commission has, in recent months, been closely monitoring private equity and venture capital fund managers in order to identify conflicts of interest. The more investments a particular manager oversees, the more potential there is that he or she will encounter a conflict for two (or more) investments. An experienced San Jose corporate attorney can help your business enact practices which will help your fund managers identify and resolve conflicts of interest as early as possible. This will save your business the time and expense of administrative sanctions, SEC hearings, and civil liability – all of which are potential ramifications for any violation of the fiduciary duty of loyalty to act in the best interest of each fund a manager manages.

The Problem Area of Related Transactions

When a venture capital or private equity funds manager engages in transactions closely related to the fund’s investors or portfolio companies, a potential conflict of interest is created. Common examples include co-investment, or when an investor, fund manager, or another one of the manager’s funds has the opportunity to invest in one of the fund’s portfolio companies under terms and conditions which are different from those of the initial investment. Co-investment can also present a problem when a fund manager has an investment opportunity which should be presented to two or more different funds and must determine which fund gets priority at a given time. Fund managers can also face conflicts of interest when divesting a fund of its assets. In such a case, many managers oversee other funds which would benefit from the purchase of the divested assets, but this would create a conflict between the interests of the selling fund (which must maximize the sales price) and the purchasing fund (which must minimize the sales price). When an affiliated transaction arises between a fund manager, its affiliates, the fund, or an individual investment, there is a potential that the fund manager will face a conflict between the interests of the initial fund investment and the affiliated transaction. The affiliated transaction must be carefully assessed for all potential sources of conflict.

There are a variety of ways for a corporation to sell its assets without compromising its structural integrity or otherwise damaging the business.  One common method by which California corporations can sell assets is a stock purchase agreement.  For example, if an investor (which can even be a company) wants to buy stock in a company,

Fotolia_77570998_Subscription_Monthly_M-300x293
the executing instrument is typically a stock purchase agreement.  The stock purchase agreement allows a business to sell its assets – and sometimes, certain voting and management rights – without actually selling the business itself.  In order to protect the assets at issue and protect the legal interests of the companies involved, a California corporate transactional attorney can help businesses effectively negotiate and execute stock purchase agreements.

What is a Stock Purchase Agreement?

Silicon Valley companies have human resource (HR) departments to manage employment issues. HR departments both limit the company’s exposure to legal liability for employment-related claims and

facilitate the timely resolution of workplace disputes. For small companies, however, it can be difficult to train, staff, and maintain HR employees. A Silicon Valley employment law attorney can help you determine whether an HR department is right for your business.

HR-1-300x126
The Cost-Benefit Analysis of Human Resources 

For California business owners, knowing what expenses are deductible from tax liability is not just a sound financial strategy. It can also prevent criminal liability for tax fraud and other white collar crimes. Ensure that all your financial and legal interests are protected by consulting with an experienced California tax law attorney.

expense-e1508532021260-300x198
Common Deductions

Tax liability is a function of a company’s profit less its operating and business expenses. These expenses are known as the taxpayer’s deductions. Thus, the greater a company’s deductions, the less overall tax liability it will have. This causes many companies and business owners to push the boundaries of allowable business deductions. While this can reduce the company’s initial tax liability, it can also result in a time-consuming audit and heavy fines. In serious cases, it can even result in criminal liability. It is, therefore, very important for business owners to ensure that they are making appropriate, lawful deductions.

Of the many challenges faced when starting a business, creation of a company’s bylaws can be one of the more complex, technical, and overwhelming challenges of them all. While daunting, such agreements can protect startup companies from liability in business transactions. A Silicon Valley corporate lawyer can help your business create the bylaws which will best meet your legal needs.

  • Identify the needs of your businessFotolia_104278045_Subscription_Monthly_M-300x169

Before crafting any corporate policy, it is important to determine your goals. Does the policy need to protect the company from legal liability? Reduce operating expenses? Provide clarity for executing important business discussions? Identifying clear goals will allow for bylaws to effectively address such needs. Owners should also be sure to consider both the short and long-term needs of the business. Business, financial, and legal concerns can change over time. Effective bylaws will allow the business to adapt to the dynamic reality of the marketplace.