Articles Posted in Start-Ups & Financing

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.

Limited liability companies, or LLCs, are one of the various types of business entities from which you can choose when forming a company.  Generally speaking, limited liability companies combine the tax advantages and flexibility of a partnership with the liability protections of a corporation, without subjecting small business owners to the onerous reporting requirements and governance rules associated with corporations.  When forming a limited liability company there are many factors to consider and questions to ask.  The Silicon Valley business attorneys at Structure Law Group, LLP have the knowledge and experience to advise entrepreneurs to weigh all options and make the best decisions for the limited liability company now and in the future.

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How Does an LLC Limit Liability?

Like a corporation, a limited liability company is a separate legal and tax entity, meaning that the LLC is separate from the members who manage and operate the business.  And also like a corporation, the LLC, and not the LLC’s owners, will be liable for the LLC’s debts.  For example, if one sues the LLC to recover on an outstanding debt, only the LLC’s assets can be reached.  In other words, an LLC’s members are not personally liable for the LLC’s debts (just like how a corporation’s shareholders are not personally liable for the corporation’s debts).  This is significantly different than a general partnership or sole proprietorship, where the partners or the individual owner, respectively, are personally liable for the debts and obligations of the business.

Venture capital (VC) is a form of financing that is provided to early-stage companies that have been deemed to have high-growth potential by venture capital firms or funds.  Typically, venture capital financing is attractive to smaller, newer companies that do not have access to traditional forms of funding such as issuing stock or applying for a loan through a bank.

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Venture capital firms generally provide capital to companies in return for equity shares, which they then sell back to the company for a profit after a specific event, such as an initial public offering (IPO).

While obtaining venture capital financing has many benefits, it has drawbacks as well.  As a result, entrepreneurs should fully explore their options and discuss them with a Silicon Valley venture capital lawyer before entering into any binding agreements.  Some of the common pros and cons of venture capital financing are discussed below.

When forming a Limited Liability Company (LLC), one must choose who will be responsible for managing the operations of the company. LLCs are managed by either its members or by a manager(s) and are, therefore, either member-managed or manager-managed. Some entrepreneurs know which form they want for their business from the start while other don’t know which would be best and don’t know how to come to the right decision.  Consulting with a knowledgeable Silicon Valley corporate attorney will allow the entrepreneur to understand every avenue for their company and reassures them that their business is moving forward in the right direction.

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Member-managed LLCs

In forming an LLC, the “members” are the owners of the company. In a member-managed LLC, the members of the LLC are actively involved in the running of the LLC’s business. It is the members who handle the day-to-day running of the company and share in the responsibility for management decisions.

Venture capital financing can be an extremely important asset to startups that do not have access to other types of traditional business financing, such as bank loans or the public markets. There can be many benefits to venture capital financing for entrepreneurs, including the following:

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  • Venture capital involves equity capital, so it does not leave a startup with substantial debt from the start;
  • Venture capitalists often take greater risks on young and unestablished companies because they see the potential for extensive growth and, therefore, higher returns;

Many partnerships begin among friends or individuals with similar interests who have a business idea together. However, having a good business idea and being able to cooperate to actually run a successful partnership are two very different things. In many cases, you may realize that your partner is not pulling his or her own weight or is even bringing the business down through his or her actions, or lack thereof. In such situations, you may naturally wonder what you have to do to remove that partner from the partnership and continue running the company without them.

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Unfortunately, simply removing a partner and continuing with business as usual is often much harder than it seems. Your options should be closely evaluated depending on your specific circumstances.  Having the assistance from a San Jose partnership attorney will help your business establish a binding partnership agreement that will allow the business to run smoothly and efficiently even if a situation arises between partners.

Do You have a Partnership Agreement?

Entrepreneurs are faced with numerous decisions when forming a business. First, they need to contemplate the nature of the corporate entity they wish to operate (i.e., corporation, limited liability company, partnership, etc.). This decision hinges on many factors including the type of business, the desired ownership structure, tax considerations and potential financing opportunities. If the entrepreneur determines that forming a corporation is most advantageous for his or her particular situation, then he or she must next decide whether the corporation will be taxed as an S-corporation or a C-corporation.

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The “S” and “C” designations refer to different subchapters of the federal tax code. They each have their own governing requirements and qualifications, some of which are laid out below.

S-Corporations

Types of Crowdfunding for Investors

Like other types of investments, all crowdfunding campaigns are not created equal and one campaign can vary significantly from the next. There are two main types of crowdfunding investments on which we will focus here: reward-based crowdfunding and equity crowdfunding. However, it is important to realize that these are not the only types of crowdfunding available for investors in today’s market.  In addition, there are many guidelines, requirements and regulations differing for each type of crowdfunding.

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Reward-based Crowdfunding

A startup or entrepreneur looking to raise capital is willing to do almost anything to accept capital from an investor.  As a corporate and business law attorney, experience with more successful clients has led to some observations about what an entrepreneur might also want to look for or consider in an investor besides capital only.

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Consider the following observations when looking to attract investments.

Build Friends Not Just Investors

What is Crowdfunding?

Crowdfunding refers to entrepreneurs seeking relatively insignificant financial contributions from a large number of people, often via social media or other internet networks, to fund the start or growth of a business venture. According to one report, more than 600 crowdfunding sites exist and raised billions of dollars for various types of businesses in 2015 alone, worldwide.

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Types of Crowdfunding