Articles Posted in Start-Ups & Financing

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AdobeStock_224157473-300x200Convertible notes are a popular method used by startup companies to raise capital for a new business. There are, however, different types of convertible notes, and it is important for new business owners to understand the pros and cons of each. It is also critical that business owners understand the long-term consequences of convertible notes on their future business operations and financing.

Maturity Date

SAFE (a Simple Agreement for Future Equity) is a convertible note in which an investor converts his or her investment into equity in the company. With a SAFE agreement, the investment converts to equity at any future equity financing. There is no maturity date. Thus, the investor could convert the debt to equity the very next day if an applicable equity financing is completed. KISS is a different type of convertible equity that may or may not have a maturity date.

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AdobeStock_377846636-300x225Shareholders have important legal rights under California law. These rights protect a shareholder’s ability to make informed financial decisions about their ownership rights in a company. If you do not understand these legal rights, a company can try to get around them and benefit itself at the expense of its own shareholders. The experienced shareholders’ rights attorneys at Structure Law Group can help you protect your legal rights in order to shield your financial interests. Learn more about your shareholder rights – and the limitations placed on these rights.

Statutes

The California Corporations Code provides shareholders with the specific legal right to inspect corporate documents. The statute allows for the inspection of the accounting books, records, and minutes of proceedings of the shareholders and the board and committees of the board (or a true and accurate copy if the original has been lost, destroyed, or is not normally physically located within the State of California). This inspection can be made with a written demand on the corporation by any shareholder (or holder of a voting trust certificate) at any reasonable time during usual business hours. The statute requires that the demand be made for a purpose reasonably related to the holder’s interests as a shareholder.

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AdobeStock_83043455-300x200It is never easy to break into the competitive world of technology. Now, in the midst of a once-in-a-lifetime global pandemic, new businesses face more challenges than ever. The good news is that there are still funding programs available to small business owners and startup companies in California.

What is CalCAP?

The California Capital Access Program (CalCAP) is a program designed to offer financial assistance to small business owners in California. CalCAP assists banks and other financial institutions in making loans and funding more available to small businesses. CalCAP is a reserve that acts to underwrite losses that financial institutions sustain on small business loans. This allows them to make more loans available to small business owners.  Loans are available for startup capital, expansion funds, and even for working capital to keep your business afloat during production shutdowns and loss of business due to COVID-19.

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AdobeStock_92258605-300x181Here in Los Angeles, there are myriad opportunities for creative entrepreneurs – but it is important to protect your and your business’s legal rights before you begin operations. Doing so will allow you to get through the difficult initial startup stages of a business free from legal disputes over equity, management rights, and other legal issues.

Structuring Your Company

One of the first issues you must resolve is what type of business entity you should form. Corporations (including C Corporations and S Corporations), limited liability companies (LLC), general partnerships, limited partnerships, and sole proprietorships each have unique advantages and disadvantages. There are different tax implications and legal protections associated with each type of entity. For example, if you choose to form an LLC, you may enjoy both limited liability protection and pass-through taxation benefit (meaning no tax will be imposed on the LLC level, and all profits or losses will pass through to the members of the LLC on their individual tax returns). However, if you have capital raising needs in the near future, LLC may not be a good choice because many investors may not accept LLCs for many reasons. This is why it is important to consult with a Los Angeles business attorney about the specific needs of your particular business. An attorney can help you select the business entity type that best meets your business goals.

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AdobeStock_258960515-300x200In recent years, it has become more and more common for technology and other startups to attract and compensate their employees through grants of stock and stock options.  In Silicon Valley, stock options have become an expected element of compensation.  For startups competing with more established companies for talent, stock and stock option grants have become an effectively mandatory element of compensation.

The ubiquity of stock options masks their underlying legal complexity.  Employers need to ensure that their equity compensation programs comply with applicable law, including federal and state securities laws, or risk substantial fines and other penalties.  For example, Credit Karma was fined $160,000 by the SEC for failure to comply with the federal securities laws.

Federal and State Securities Laws

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AdobeStock_274449599-300x199Launching a startup is an exciting time for entrepreneurs. There are many people involved in many processes that could make or break your business. During this time, your intellectual property (IP) can be exposed to many different people and businesses. It is important to protect it from theft and unlicensed usage. At Structure Law Group, our experienced Silicon Valley startup attorneys know how to protect your legal interests in IP at all stages of business formation. Call 408-441-7500 to schedule your consultation with a lawyer.

The Reasons Entrepreneurs Don’t Protect Their Intellectual Property

Forbes recently reported on some of the most common reasons entrepreneurs fail to protect their property:

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In late 2018, CarrierEQ Inc. (Airfox) and Paragon Coin, Inc. were investigated and ordered by the SEC to make refunds available to their investors – in sum, the SEC’s order meant that Airfox may have to refund nearly 15 million dollars while Paragon would have to potentially refund 12 million dollars. These SEC reports highlight the importance of hiring an experienced blockchain attorney in this emerging field of law. From drafting your Articles of Organization to structuring your initial coin offering (ICO) or security token offering (STO), protecting the cryptocurrency of your clients with an experienced Silicon Valley blockchain attorney at Structure Law Group, LLP is essential.

Understanding Security Token Offerings (STO) & Blockchain Technology 

Unlike well-known digital currencies like Bitcoin or Ethereum, STO’s are security token offerings that allow companies to sell digital tokens to accredited investors prior to the digital tokens having any technical functionality.  This means STOs are often governed by federal security laws and must be registered with the SEC or find a proper exemption from registration. STOs are designed to function as traditional securities but are offered, sometimes in fractions, through blockchain transactions. Blockchain technology offers many benefits, including:

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So, you’ve decided to incorporate your business in California and form a corporation. This corporate structure provides multiple benefits in California, including certain California tax benefits and legal protections. Every state has different requirements for forming a corporation, and California is no different. Whether you’re incorporating a new business, a small business converting to a corporation, or a multi-national corporation coming to the states, the experienced corporate attorneys at Structure Law Group, LLP can help. Contact our experienced business attorneys at 408-441-7500 or online to schedule your free corporate consultation.

Types of Corporate Entities in California 

There are multiple types of business entities in California. From a sole proprietorship to a general stock corporation, you must choose the entity that’s right for you. Once you elect to form a California corporation, you must choose which type of corporation best suits your business. California recognizes the following types of corporations:

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Avoiding the Most Common Business Lawsuits 

Defending against any lawsuit has the potential to sink a Silicon Valley start-up. You must defend against even frivolous litigation especially so in today’s fast-paced and ever-expanding startup industry. There is no way to bulletproof a business from all litigation, but there are ways to greatly reduce the likelihood of lawsuits and their financial impact on your business. The experienced business litigation attorneys at Structure Law Group, LLP can help advise and protect start-ups against business litigation before it happens. While you can’t protect against all litigation, you can protect against the most common legal complaints against businesses. Business attorneys commonly defend against the following lawsuits:

  1. Breach of Contract Claims – Sometimes start-ups enter into contracts that aren’t favorable, or they run out of funding to fulfill their obligations. The business lawyers at Structure Law Group can review and draft the terms of any proposed contracts and include certain protective indemnification and liquidated damage clauses to reduce the cost of or prevent litigation.
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In the Silicon Valley technology sector, intellectual property is more than just a buzzword. It is an asset with the potential to generate significant income for years to come. Intellectual property includes patents, copyrights, and trademarks. Many employers protect their intellectual property with invention assignment agreements and confidentiality agreements.

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What types of Agreement can be used to protect my company’s intellectual property?

There are many different types of agreements that employers can use to protect their intellectual property. The appropriate one for your business depends on what specific protections your business wishes to enact. An invention assignment agreement is a contract that establishes the employer’s ownership over all creations (including patents, trademarks, copyrights, trade secrets, and other inventions) that are created at the employer’s expense on company time.

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