Articles Tagged with Silicon Valley business attorney

If you are looking into ways to market your business online, you have undoubtedly come across articles extolling the virtues of social media marketing. Sites like Facebook, Twitter, and LinkedIn allow businesses to target certain groups of consumers with pinpoint accuracy, interact with them directly, and build brand recognition. Furthermore, there are often no costs associated with creating social media presence for your business and there are certainly ways to engage in social media marketing without spending money on paid ads. If your business posts a piece of content that goes viral, it could easily result in millions of views from individuals who may become paying customers or clients.

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Unforeseen Liability

Before you rush out to join the social media marketing frenzy that is in progress, you should consider some of the legal issues that may be implicated. The good news is that it is completely possible to engage in social media marketing without incurring legal liability; it is important, however, to determine whether there are any legal problems that could potentially arise. Here are some of the potential issues to consider:

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

In the early stages of a merger and acquisition (M&A) transaction, owners may be willing to overlook certain differences in favor of focusing on the benefits of the deal. However, as the M&A transaction is completed, the rose-colored glasses may come off and sudden concerns may develop into serious legal disputes between owners. If these disputes are not handled correctly, it can result in long-term consequences, both financially and regarding the relations of the parties. The following are some information regarding common post-closing M&A disputes.

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Deferred Payment of Purchase Price

Many M&A agreements are structured such that part of the purchase price is paid at closing and the rest is paid at some point in future.  This is done with “earn-out” clauses and purchase price adjustment clauses, among others.  An earn-out clause is where the amount of future money paid depends on selling company’s performance after the acquisition, i.e. the money has to be earned after the closing before it is paid out.  These types of clauses are sometimes interpreted differently by buyers and sellers after the closing.  For example, if the selling company’s product is upgraded after the closing, the buyer and seller may view the revenues from those sales differently under an earn-out clause.  As another example, if the buyer and seller have different accounting practices that could certainly affect their interpretation of purchase price adjustment clauses.  Resolving these disputes can involve complex accounting and negotiations by both parties.

The last thing a business wants is the unexpected surprise of having to pay back money it has received from a customer for goods or services. Although charge-backs and payment disputes may be more common in today’s digital world, a startup or business will likely be caught off guard when it is served with a “preference action” filed by a bankruptcy trustee or bankrupt customer.

The Bankruptcy Code permits the trustee to avoid and recover from creditors for the benefit of all creditors of the debtor’s bankruptcy estate certain pre-petition transfers made within 90 days (and sometimes longer) of the debtor’s bankruptcy filing that would otherwise benefit one creditor at the expense of others. Such transfers are referred to as “preferences.”  Simply put, a preference is where a trustee can recapture certain payments made by the debtor prior to its bankruptcy filing.

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The avoidance and recovery of a preference payment helps to ensure equal distribution among the debtor’s creditors and is intended to discourage aggressive collection tactics by creditors that force the debtor into bankruptcy. An adversary proceeding (a lawsuit filed in the debtor’s bankruptcy) is required to avoid and recover a preference, but a preference action is often preceded by a demand letter from the trustee setting forth the trustee’s claims and demanding immediate repayment of the preference payment.

Corporate officers, partners in a partnership, and members of a limited liability company owe a fiduciary duty to the principal, i.e., the business entity, to act in the best interest of the organization. Failure to act in the principal’s best interest or actively competing against the principal to which a fiduciary duty is owed exposes the fiduciary, the agent of the principal, to civil liability. Care must be taken by the fiduciary not to compete against the organization to which they owe their duty of loyalty. The Silicon Valley Business Attorneys’s at Structure Law Group, LLP are highly experienced in preventing and resolving corporate disputes that may arise from a breach of fiduciary duty.

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The foundational tenet of agency law is the duty of loyalty owed by the agent, or fiduciary, to the principal or business entity. The duty of loyalty obligates the fiduciary to act in the best interests of the principal. The duty of loyalty extends to “all matters connected with the fiduciary relationship.”  Thus, the duty of loyalty prohibits fiduciaries from obtaining a benefit from others as a result of the fiduciary relationship. This prohibition extends to all dealings in which the fiduciary is involved on behalf of the principal. The duty to act with loyalty is not limited to financial matters.

The fiduciary’s duty of loyalty encompasses situations involving parties adverse to the principal. The fiduciary has an absolute duty not to act on behalf of a third party whose interests are adverse to those of the principal.  The fiduciary is duty-bound not to compete, either personally or on behalf of, another entity. The agent’s obligations last for the entire duration, and in some instances depending on contract language, last beyond the termination of the fiduciary’s relationship with the principal. However, agency law does provide for the fiduciary to plan and prepare to leave the principal, even to then compete with the principal.  Notwithstanding, the action taken by the fiduciary must not violate any other duty owed to the principal.

The exchange of cash for payment for a goods or services is rare these days. We have certainly become a digital society. Business make advances daily to make transactions more efficient and convenient. However, businesses engaging in e-commerce must not compromise security for expediency. Additionally, businesses store infinite amounts of personal data about their customers. These businesses, such as health care providers and health insurance companies, not only must safeguard their electronic transactions but must also secure sensitive information and proactively combat data breaches. Failure to do so can lead to a huge economic loss for the customers and the company. The savvy business attorneys at Structure Law Group, LLP advise businesses on the best practices to prevent data breaches and counsel them on the necessary steps to take if such an unfortunate event occurs.

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In California, people have a constitutional right to the safety and integrity of their personal information. California’s information security act defines personal information as any information that could identify or describe a person. Personal information is also an individual’s name, address, social security number, license number, medical information, and the like. A business in possession of such information must take reasonable steps to prevent disclosure of private information. California law obligates businesses to implement security measures reasonably designed to protect the integrity of the private information. Every business entity, from a sole proprietorship to a multi-national corporation is subject to the information security act.

California law broadly defines “data breach.” Data breach includes any “unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal information maintained by the person or business.” The information may be used in good faith for the benefit of the person whose information is disclosed, provided that such disclosure is authorized.

Everyone knows what they say about real estate: location, location, location. This same axiom is definitely true for many businesses too. While some businesses may operate out of homes and employ their workforce remotely, many operations require a physical location to which workers and customers go on a daily basis. For example, stores, restaurants, and other locally-serving businesses always want to have a prime location with lots of foot traffic and easy access in town. Others, such as manufacturers, need large warehouses with affordable rent and room for all their equipment. While many business owners choose to own their building, many others do not have means to do so, or may not want to commit to one location long-term. For these reasons and more, many business owners lease their commercial spaces.

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For any type of lease agreement or contract, you want to be sure that all of the provisions are fair and reasonable. A proper lease will set out your rights as a tenant, and you want to be sure it does so adequately. A commercial lease will also designate your responsibilities as a business tenant, and you should be aware of any terms that require unreasonable or difficult responsibilities from you. Because each of these lease types can be complex documents with confusing legal language, you should always have any potential leases reviewed by a highly experienced business attorney prior to signing.

Of course, you will want to make sure the length of the lease and rent requirements suit your needs. The following are some additional terms your attorney will consider and review:

Issuing equity in a company is a popular form of employee compensation. This trend is especially popular here in Silicon Valley, where startup companies often defer cash compensation to their employees in exchange for a share of future growth through the issuance of equity. If you own a non-public company, you may wish to compensate your employees partially by issuing them equity in the company. Equity aligns incentives between employers and employees while enabling employees to build up wealth over a longer term. Equity issuance can be done in different ways, including by issuing restricted stock grants or by issuing stock options. Each of these forms of compensation can have its own pros and cons and you want to make sure you carefully analyze the decision and decide which is best for your circumstances.

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Restricted Stock

Restricted stock is a stock award that will not fully transfer to the employee until certain conditions have been met. These conditions can include a certain length of time working for your company, meeting certain performance or financial goals or milestones, and more. These restrictions can be helpful for owners to ensure that employees do not simply walk away from your venture and that they must wait for the award to vest before they receive the stock benefits. In addition, by making an 83(b) election with the IRS within a certain period of time after the restricted stock grant, employees can save significantly on the tax burden once the stock vests. If no election is made, however, employees may face hefty tax liability at the time of vesting depending on the value of the shares. Restricted stock is less risky and easier to manage in comparison to regular stock.  However, restricted stock has less favorable tax treatment than options.

It is not uncommon for businesses in today’s global economy to engage in international transactions. More often than not, these transactions require an exchange of business and/or legal documentation. Although these documents are signed and exchanged by those who have been engaged in business together, there are times when the documents must still be authenticated in order to be used in a foreign country from which the document originates.

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The Hague Convention of 1961 established a certification to authenticate documents to be used in foreign countries. This certification is known as an apostille. The apostille is attached to the document that is being sent overseas and it certifies the authenticity of the signature of the documents; it does not actually certify the contents of that document. The apostille is required to be used by a designated verifying authority in a country party to the Hague Convention.

Apostille Requirements

A business will select a certain business entity at the time of formation for a variety of different reasons. One of the most important reasons businesses elect a certain type of business entity is to protect owners and investors from personal liability. Business entities such as corporations and limited liability companies (LLCs) remain attractive because they protect owners, investors, members, etc. from personal liability. On the other hand, entities such as a sole proprietorship or partnership leave owners open to personal liability for corporate debts.

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Yet, while limited liability protections exist for corporations and limited liability companies, these protections are not impenetrable. Rather, personal liability may, in some circumstances, run through the company and attach to its owners and investors. This is called “piercing the corporate veil” and it is something of which all businesses, whether starting out or established, should be well aware.

How Can the Corporate Veil be Pierced?