Business Transactions

Using Equity as Compensation in a Tech Startup

February 5, 2016 | Mark Figueiredo

Many startups in the tech sector are idea-rich and cash-poor, meaning that their most valuable (and often only) asset is their intellectual property that may have the potential to be worth a substantial amount of money. While some startups are able to move their ideas from concept to deployment with relatively little labor involved, many of these ideas require the assistance of developers, programmers, engineers, and marketers, all of whom are skilled professionals who can easily command salaries well into the hundreds of thousands of dollars per year.

For this reason, many startups are faced with the issue of how to pay their employees during the development and launch phase, before they are generating any revenue. Of course, one option is to borrow the money or to seek investors – a solution that has significant pros and cons which should be considered. Another very popular option is to offer employees equity shares in a company in lieu of cash compensation. In some cases, this may take the form of equity for a lower salary than they would normally expect, while in others an equity share may be the only compensation they receive.

There are many issues that tech entrepreneurs and founders should consider when offering equity as compensation. These include the following:

Incorporating your Tech Startup: The Importance of Bylaws

January 29, 2016 | Mark Figueiredo

According to an article published by Forbes in late 2014, 42 technology startups potentially looking at a 2015 IPO had raised venture financing of at least $1 billion. With the potential for the creation of significant wealth in a relatively short period of time, it is no wonder that many people are seeking to enter the tech marketplace with new ideas that have the potential to impact the way that millions of people conduct their daily lives.

Incorporation is one of the major steps involved in the growth of a tech startup and involves creating a distinct business entity that can own intellectual property, issue stock, raise capital, and is subject to rules of corporate governance. Incorporation can be a complicated process and involves filing paperwork with the Secretary of State’s office in the jurisdiction in which you wish to incorporate.

What are Bylaws?

Due Diligence in Acquisitions: Five Issues to Thoroughly Investigate

January 22, 2016 | Mark Figueiredo

A comprehensive evaluation of a target company is a critical component of any successful corporate acquisition. Often referred to as a “due diligence evaluation” or “due diligence review,” this process involves fully evaluating the company that is being acquired (the target) in terms of its assets, liabilities, litigation risks, intellectual property matters, as well as other issues that could have an impact on the feasibility and advisability of a particular acquisition.

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The most effective way to ensure that a thorough due diligence investigation is conducted is to retain legal counsel that is familiar with representing buyers in mergers & acquisitions. Some of the most important issues to address in a due diligence review of a potential corporate acquisition are discussed below.

The target company’s financial matters – Issues such as financial statements, liabilities, margins, future projections, and potential capital expenditures should all be fully evaluated. This is often the first aspect of due diligence.

The Role of an Attorney in a Corporate Merger

January 15, 2016 | Mark Figueiredo

A corporate merger is a transaction in which two or more companies combine to form one entity. Due to the complexity of merger transactions, it is highly recommended that anyone contemplating entering into such a transaction retain legal counsel. Here are three examples of how an attorney can assist in a corporate merger.

An attorney will structure the way that a transaction occurs

Mergers can occur in a variety of ways such as a reverse merger, horizontal merger or vertical merger with consideration being made with stock, cash, a combination of both and other variations. Each of these merger structures have various legal and tax implications that are often significant. For this reason, the advice of a skilled attorney is critical to structuring a merger transaction in the most beneficial way possible.

What Does a Corporate Board of Directors Do?

January 8, 2016 | Mark Figueiredo

Very generally stated, the Board of Directors of a California corporation is responsible for the way in which the corporation is run. California law requires every corporation in the state to have a board of directors and, according to the text of the law, “all of the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board.” While this may make is seem as if a company’s board of directors participates in the everyday management of the business, this is usually not the case, and corporate boards regularly delegate management of a business to individuals who may or may not be a member of the board.

How is a Board of Directors Formed?

When a company incorporates, it is required to file a document called “articles of incorporation” with the Secretary of State’s Office. This document establishes much of the basic identity about a corporation, including its name, how much stock it will issue, and the way in which the board of directors will be chosen. California law requires that every board of directors has a chairperson or a president (or both), a secretary, and a treasurer or chief financial officer (or both), as well as any other named officers that may be required by a corporation’s bylaws.

Can Founders Pay For Their Stock in Cash or Contribute Intellectual Property?

January 1, 2016 | Mark Figueiredo

Starting a business entity is a complicated issue that can be compounded by things such as founder’s stock and each founder’s respective contribution. Equity considerations can be extremely important in starting a business, especially when one founder contributes intellectual property (IP) rather than cash or labor.

What is Founder’s Stock?

Awarding a company founder stock is a relatively common practice in business formation, particularly in situations in which a startup is new and not yet generating income. Doing so gives the contributing founder a measurable property interest in the newly formed entity. Typically, these stocks have a very low face value so that the founder receives a large amount of stock respective to his or her contribution.

Payment Bonds and Government Contracts

December 25, 2015 | Structure Law Group, LLP

Contractors, subcontractors, and suppliers have many tools at their disposal to protect their rights under construction contracts. While the mechanic’s lien is one of the most common ways a contractor or supplier can ensure full payment for their services, this type of legal tool can only be used for private construction projects against the private property owners. For this reason, many people who enter into government contracts may wonder what their options may be under the law to make sure they are properly compensated for their work. One of the most important tools under such circumstances is the payment bond.

What is a payment bond?

Payment bonds are common in many large-scale private construction projects and are further required in by California law for the following:

The Importance of Contract Management Systems in Business

December 18, 2015 | Krystle Warren

Enforceable contracts that accurately describe an agreement between the parties are essential to any business, regardless of industry. Contracts arise in many relationships, including with partners, businesses, suppliers, employees, and client or customers, and a company of even moderate size could easily have thousands of contracts with various parties. For this reason, implementing a system to manage contracts and ensure compliance can significantly improve efficiency, improve compliance, and reduce the risk of incurring legal liability that can arise from contract disputes. In addition, an effective contract management system can help automate certain tasks, significantly reducing the risk of human error resulting in a costly dispute. Below are 4 ways in which implementing a contract management system can help businesses in every aspect of the contract lifecycle management process.

Keep all contracts in a central repository – This benefit may seem simple, but consider the inefficiency involved in an employee searching through files upon files for a contract that may have been executed years ago. An effective contract management system can keep a copy of the contract itself while also summarizing key facts regarding the agreement in a way in which they are easily accessible to those searching.
Create a database of standard agreement and pre-approved substitutions – There is no need to reinvent the wheel every time your company enters into a new agreement. Creating a standardized contract for use in recurring situations as well as standard substitutions that are pre-approved for use can significantly improve efficiency in contract drafting and execution.

Opening a Business in California as a Foreign National

December 11, 2015 | Mark Figueiredo

Many individuals who are citizens of foreign countries want to take advantage of the economic market in the United States. More specifically, California is a particularly popular state in which to start a business as a foreign national due to the close connections with the tech industry and the large and diverse population, among other reasons. If you are a foreigner considering conducting business in California, there is good news for you—neither residency nor citizenship is required to do so. Instead, you need only go through very similar steps as a U.S. citizen starting their own business with the state.

The following are some important steps that you must take to start your California business:

Choose your business entity – This is an important decision with many implications and your options, including corporation, limited liability company, limited liability partnership, or limited partnership, should be carefully weighed. An experienced business attorney can assist you in choosing the correct entity for your type of business and your goals.

Mechanics Lien Law basics for Owners, Contractors, and Subcontractors

December 4, 2015 | Structure Law Group, LLP

Too often, a contractor, subcontractor, laborer, or material supplier on a construction job does not receive the compensation they deserve for the work they have performed or supplies they provided for the project. Fortunately, California law provides a method by which contractors and others can pursue adequate payment. If the job is a private construction project, a primary tool for receiving payment is the mechanics lien. The following are some brief explanations for frequently asked questions amount mechanics liens in California.

What exactly is a mechanics lien?

A mechanics lien is a tool that creates a security interest in the property on which you worked. After a certain amount of time and if payment is not received from the property owner, you can then sue to foreclose on the lien to satisfy the lien amount.