Articles Posted in Start-Ups & Financing

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At first glance, starting a business might seem straightforward– simply completing an application and remitting a fee to the California Secretary of State to incorporate. However, the reality is that starting a business entails a lot more complexity, particularly when it comes to legal matters. The process extends well beyond basic registration, encompassing a detailed understanding of regulations, compliance requirements, and a multitude of legal intricacies that must be meticulously managed. Providing guidance through the process of business formation is a service that is legally reserved for corporate attorneys. Additionally, a multitude of questions typically arise during the establishment of a business in California, each requiring careful consideration and legal expertise to navigate effectively. This is where the San Jose start-ups and financing lawyers at SLG have proven invaluable in assisting numerous clients to launch their new business ventures successfully.

Starting a new business in California’s dynamic and innovative economy is an exciting endeavor. However, this process involves navigating a complex set of legal rules that can be quite challenging. Here are key reasons why it’s crucial to consider hiring a lawyer when you’re setting up a new business in California:

Selecting the Right Business Structure for your San Jose Startup and protect your personal assets

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AdobeStock_1394708708-300x200Numerous entrepreneurs in Texas believe they have ideas capable of evolving into billion-dollar startups. However, transforming these ideas into viable businesses involves careful planning. Several key steps must be taken before these startups can officially launch or become attractive to potential venture capital investors. This process ensures that the foundational aspects of the business are well-established and ready for growth and investment.

If you are looking to start your own business, we recommend contacting an experienced Texas startup and financing attorney. At Structure Law Group, our legal team can guide you through every stage of getting your new business off the ground. We can help you translate your long-term vision into a series of practical steps that will hopefully lead you to profitability and success.

What You Need to Do Before Opening for Business

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AdobeStock_1242035808-300x200It is common for startup founders to forgo cash-based compensation and accept only equity in exchange for their services to their startups. Most startup founders assume wage and hour laws are inapplicable to them because they are the owners of their business. However, founders, much like non-owner employees, cannot, under most circumstances, work for free for their startups.

Under the Federal Fair Labor Standards Act, (“FSLA”), founders who qualify as employees, must be compensated with minimum wages and overtime pay unless an exemption applies. The most common FSLA exemption is the so-called “business owners’ exemption”. This exemption is available for founders who own at least 20% of their business and are actively engaged in managing it. However, even if a founder is exempt from the wage and hour requirements under FSLA, there is still the applicable state law to consider. For instance, California has no exemption identical to the FSLA’s business owners’ exemption for employee founders. Businesses subject to California laws must either comply with California’s minimum wage and overtime requirements or fall within an exemption to be exempt from such requirements—none of which, however, allows an employee founder to work for free for his or her startup.

So, then what should startups do? From a compliance perspective, if a founder qualifies as an employee, the startup should comply with FSLA and applicable state wage and hour laws. In practice, however, we have seen most startups take one of these three approaches. The first approach is to document the employment relationship and pay the founder a salary commensurate with his or her job functions. This is the approach that founders rarely choose, simply because usually startups are cash strapped and founders are more than willing to forgo cash compensation. The second approach is to document the employment relationship, set a salary for the founder in it, and then defer it, until the business has enough funds to pay the founder for his or her services. The pitfall of this approach is that salary deferral arrangements must comply with state and federal wage and hour laws, and often startups fail to come up with legally compliant deferral arrangements. The third and the most common approach is to remain silent on this issue completely, and only get the founders to execute agreements pertaining to their equity in the business, and confidentiality and invention assignment agreements.  Again, like the second approach, this approach too may cause significant liability under employment laws.

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AdobeStock_1049776145-300x200Texas entrepreneurs often embody a ‘do-it-yourself’ (DIY) ethos. In a typical startup, a compact team of committed individuals assumes various roles across the organization. While this approach can be instrumental in driving a company towards success, applying a DIY mindset indiscriminately can be detrimental and lead to significant costs for the business. Entrepreneurs must recognize when professional expertise is needed, particularly in areas with legal implications.

In recent years, we have seen several online services promote DIY legal services as an inexpensive way to help get a business up and running. But when it comes to understanding and complying with the multitude of federal, state, and local regulations that may affect a new business, legal advice is one area where you do not want to cut corners. Instead, you should strongly consider working with an experienced Texas start-up and financing attorney.

Beware of Legal Templates

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AdobeStock_505784791_Editorial_Use_Only-300x200Although platforms like Slack and Teams have become indispensable tools for modern collaboration, their widespread adoption raises crucial legal and compliance challenges for organizations. These platforms store a vast amount of user data, including messages, files and even employee metadata. They are subject to stringent data privacy regulations like the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA). The GDPR has stricter regulations for EU citizen data privacy, demands explicit opt-in consent and grants extensive data subject rights like access and erasure. On the other hand, the CCPA, which is focused more on California residents, prioritizes data transparency and consumer control through access, deletion and opt-out mechanisms for data sales. Yet/overall, both regulations emphasize the importance of user empowerment regarding their data, requiring organizations to implement robust data protection measures and obtain informed consent for data storage and usage.

While conversation platforms offer significant collaboration benefits, their use necessitates navigating data privacy and compliance complexities. As such, organizations must prioritize user rights by:

  • Informed User Consent: Organizations must obtain explicit user agreement for data storage and usage. This involves clearly outlining the types of personal data collected, the purpose of collection, and how the data will be used in accordance with data privacy regulations.
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AdobeStock_558703638-300x169When it comes to forming a new startup, a California limited liability company (LLC) offers a number of advantages. As the name suggests, an LLC protects the personal assets of individual members from business creditors. And since the LLC is a “pass through” entity, any profits are taxed on the returns of individual members.

But while this arrangement may be ideal for founder-run startups with just a few equity holders, once the business seeks financing from venture capital or other investors, it is often necessary to convert to a corporation. More precisely, a California LLC may need to convert to a Delaware Corporation. The California corporations attorneys at Structure Law Group can advise you on the benefits and drawbacks of making this move. Contact us today to schedule an initial consultation.

When Is a Conversion Necessary?

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AdobeStock_561003317-300x169Many startups in the San Jose area look to Delaware when establishing their corporate structure. You have probably heard that many top companies are incorporated in Delaware. Delaware is a popular state to form a corporation.  But what are the advantages to a Silicon Valley company operating in Delaware?  And how can you create your own Delaware company? The San Jose corporations lawyers at Structure Law Group, LLP can help answer these and other questions about the startup process.

What Are the Advantages of Incorporating in Delaware?

Despite being one of the smallest states, Delaware plays a significant role in corporate formation and law, offering numerous advantages. The state’s appealing tax laws are a primary factor for companies choosing to incorporate there. Corporations not conducting business in Delaware are exempt from the state’s corporate income tax, even if incorporated there. Instead, they are subject to a ‘franchise tax,’ which is typically much lower than corporate taxes in other states. Furthermore, Delaware offers considerable privacy for incorporators, requiring only the registered agent’s name on filings. Additionally, the state allows a single individual to establish a corporation and hold multiple corporate roles simultaneously.

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AdobeStock_287591012-300x200Starting a new business venture is an exhilarating journey, but also involves significant financial risks. Seasoned entrepreneurs understand the importance of safeguarding their personal assets from undue exposure. If you’re an aspiring entrepreneur in the Bay Area embarking on your first startup, the experienced San Jose startup and financing lawyers at Structure Law Group can provide valuable guidance on developing a comprehensive asset protection strategy.

Although every situation is distinct, here are a few essential considerations to keep in mind when safeguarding your personal assets from potential business liabilities:

Create a Limited Liability Business Entity

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AdobeStock_86494120-300x200The phrase “due diligence” is often used in the law and is a critical component when contemplating a business transaction. Due diligence means thoroughly investigating and analyzing the facts and key terms of the deal before engaging in a major business transaction, such as acquiring a company or investing in a start-up. These deals involve decisions that can have a significant financial impact, potentially involving millions or even billions of dollars. Therefore, it is essential to ensure that all parties involved are fully informed and aligned before finalizing any agreements.

The experienced Silicon Valley mergers and acquisitions lawyers at Structure Law Group can assist you in performing due diligence before entering into a transaction, either as a buyer or a seller. We know how to spot the various “red flags” that can doom a proposed deal and provide expert guidance on how to steer clear of or resolve such hazards.

The Key Elements of Due Diligence

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AdobeStock_102097403-300x200As of January 1, 2024, all entities that are not exempt in California must file reports on their “beneficial ownership” with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). These reporting rules were part of the Corporate Transparency Act (CTA), which itself was enacted by Congress as part of the 2021 Department of Defense authorization bill. The Los Angeles corporate law attorneys at Structure Law Group, LLP, can advise you on your company’s obligation under the new rules and how to avoid potential regulatory issues with FinCEN.

New Requirements for Disclosing “Beneficial Owners” of Foreign and Domestic Companies

At its core, the CTA is an effort to enhance the Treasury Department’s ability to identify and take legal action against potential money laundering activities. In adopting the CTA, Congress determined that many actors involved in illegal activities like terrorist and tax fraud used “shell” companies to conceal their identities and move their illegally obtained proceeds through the U.S. financial system undetected. Given that corporation law varies from state-to-state, there were no uniform national requirements for reporting the actual or “beneficial” owners of many corporate entities.

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