Articles Posted in Start-Ups & Financing

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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.

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Businesses must endeavor to guard their trade secrets jealously. Failure to do so can wreak havoc upon development and growth. It will also give competitors a leg-up in the marketplace. Knowing and understanding California’s trade secret law is therefore critically important. Implementing multiple safeguards to prevent trade secret disclosure is necessary. If a business fails to implement reasonable safeguards to prevent trade secret misappropriation, then the business may be without recourse in court. Working closely with experienced business attorneys to develop the appropriate security measures to prevent trade secret theft could prevent disaster from striking. The San Jose San Jose business attorneys at Structure Law Group, LLP (in San Jose and Oakland) have extensive experience counseling businesses on how to best protect their trade secrets and defending businesses against trade secret misappropriation in court.

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California’s Uniform Trade Secrets Act (“UTSA”), which follows the Uniform Trade Secrets Act adopted in 48 states, defines a “trade secret” as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” (Ca. Civil Code §3426.1.)

In order to assert a claim for misappropriation of trade secret information, the owner of the trade secret information must identify its trade secret with sufficient specificity so that the information is separate from areas of general knowledge. For example, customer lists, marketing plans or pricing concessions are examples of broad categories of trade secret information. Or, the trade secret can be highly specific, such as a newly designed manufacturing process or the recipe for some sugary carbonated beverage, such as the recipe for Coca-Cola.

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A partnership is created whenever two or more people agree to do business together for a profit. Additionally, partnerships should ensure that they follow sound business practices once they begin their new venture.

Steps in Forming a Partnership

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The first step to forming a partnership is choosing its name.  In California, a partnership may use the last names of the individual partners or any fictitious names. If a fictitious name is used, it must be distinguishable from the name of any business name that is currently on record.  Before choosing the name, a search should be run in the following databases such as California Secretary of State or The United States Patent & Trademark Office.   If a fictitious name is used, the state of California requires that a fictitious business name statement is filed in the office of the county clerk where the partnership intends to do business.  The fictitious business name must also be published in the county newspaper for four weeks.

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Contracts are an integral part of conducting business and the necessity for certain contracts can arise from the very start of your company. The following are only some examples of important contracts for startups in California.

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Founders’ Agreement — If you are going into business with one or more people, having a comprehensive and clear founders’ agreement is imperative. This agreement can be likened to a premarital agreement: it foresees and addresses potential issues that may arise and sets guidelines for dealing with those issues. A solid and enforceable founders’ agreement can prevent a lot of legal conflict and costs down the road.

Nondisclosure Agreements — If you have the idea or formula for a unique product or process, you want to keep information confidential so others do not try to misappropriate your idea. However, it will be necessary to share information with co-founders, employees, investors, contract developers, and others involved in the project. In such cases, you may have others sign a nondisclosure agreement to ensure they will not disclose confidential information to other parties.

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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.

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Starting a business with a partner can be highly beneficial: collaborations offer many benefits and are particularly popular with startups and firms providing professional services. When you start a business with another person or people, the last thing you expect is to end up in a disagreement about business ownership. Unfortunately, these kinds of disputes arise on a regular basis and can have a significant impact on the success of your business as well as your personal bottom line.

Fotolia_71517132_Subscription_Monthly_M-300x200Business disputes can arise in a variety of contexts – here are some of the most common situations:

  • A party may attempt to assert authority which he or she does not have
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Business formation is imperative in order to properly operate a business. The selection of a business entity is important because it helps provide important benefits regarding ownership rights, taxes, and, depending on the entity selected, limited liability. Business law is governed on a state by state basis, and every business has the flexibility of incorporating in any state, not just the state of its principal place of business.llc

Delaware is the most popular state for incorporation. Delaware has a rich history of favorable business laws that have helped give it a very pro-business reputation. Because of this pro-business reputation, it may be very attractive to incorporate in Delaware. However, it is important that businesses be aware of both the pros and cons of incorporating outside of their state and in Delaware.

Pros of Incorporating in Delaware

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Contracts are utilized in every type of business and every business owner should know that written contracts should be carefully drafted, reviewed, and negotiated before signing. However, not every business deal is memorialized in writing and many agreements are based on verbal interactions and a handshake. Just as with written contracts, legal disputes can arise over deals that were verbally made. When a disagreement arises, the first question is naturally: is an oral contract enforceable under the law?

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Whether an oral contract is enforceable depends on several factors. The law requires that certain types of contracts be in writing in order to enforce the terms of the contract. Some contracts that may apply to businesses that must be in writing involve the following:

  • Contracts for the purchase or sale of goods that are worth more than $500;
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Whether you are starting a company or already have an established business, you will likely need legal advice on many different issues. From business formation to dissolution, an attorney can assist you regarding contracts, employees, mergers, corporate disputes, and much more. Because you want to hire the right attorney for your legal case, the following are five questions you should consider.

What is the lawyer’s business law experience?Fotolia_93396178_Subscription_Monthly_M-300x200

Laws regarding businesses can be extremely complicated and difficult to decipher. Just because an attorney handles cases in court involving individuals does not mean they can skillfully interpret business law and apply the laws to your case. You should ensure that the attorneys at the law firm you hire have extensive experience specifically in business law.

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In this day and age of online accessibility, all you have to do is a quick Google search to find an array of sample shareholder agreements at your disposal. While it may seem much easier to pay a few dollars and use an online template for your agreement than to consult with a business attorney, using a template can often result in costly legal disputes down the road. A shareholder agreement should always be uniquely tailored to address the specific circumstances of your corporation and a one-size-fits-all template will almost certainly miss some key issues or provisions.

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A shareholder agreement will differ from company to company though these agreements generally set guidelines for shareholder rights, management of the corporation, and legal recourse in the event of a dispute. The following are some provisions that can be key in a shareholder agreement:

Shareholder Rights

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