Start-up company

Impact of California Consumer Privacy Act on Startups

December 24, 2021 | Structure Law Group, LLP

Whether your company is headquartered or has a presence in California, you need to be aware of the California Consumer Privacy Act (CCPA), which went into effect in 2020. The consumer-friendly law applies to startups, companies, and other businesses that collect personal information from Californians.

The CCPA, which is intended to protect the privacy rights of consumers within the State of California, may require your business to make significant changes to your data privacy and collection practices.

Read on to find out whether or not the California Consumer Privacy Act may impact your startup and learn what you can do to ensure that your business is in compliance with the CCPA.

The Pitfalls Of a Stock Option Pool

September 10, 2021 | Karen (Xiaorong) Chen

A stock option pool has become an increasingly popular tool for startup companies. Entrepreneurs seeking to attract talented employees will often offer incentives that give employees motivation to make the company as profitable as possible, and equity compensation is a very popular option. There are different ways to offer these equity options to employees, and stock options pools are a popular choice. A pool allows a company to set aside a given portion of company stock to be issued to employees as stock options. While this is a convenient structure for many businesses, it is not always the best option. Learn more about the pitfalls of using a stock option pool – and the other options that might be better for your business.

The Difference Between Stock Options and Restricted Stock

Both stock options and restricted stock are forms of equity compensation made to employees. There are different restrictions that come with each form of compensation, and it is important for companies to understand these effects before making the choice of how to offer equity compensation. Restricted stock creates a role more similar to a traditional stockholder, and the employee may vote and receive dividends. Employers may also reserve the right to buy back restricted stock (or at least have the right of first refusal) in order to maintain control of the company. Stock options are more limited. Employees are usually limited to the right to buy company stock at a set price in the future. This right can create a windfall if company stock exceeds the set price, but it does not give the employee voting or dividend rights. Because there are no voting rights and no set number of shares, employers generally do not retain the right to buy back stock options. Both restricted stock and stock options can be subject to vesting requirements in order to encourage long-term employment.

Why Are Delaware Corporations So Popular?

September 3, 2021 | Austin Jackson

Delaware has long been known as a popular state for incorporation of a new business. Some entrepreneurs think this is solely because of tax benefits, but there are many legal and practical benefits to incorporating a new business in Delaware. Here are some of the most common:

Management Friendly

The Delaware General Corporation Law is considered to be friendly toward the management of corporations. There are many specific provisions that help corporations run more efficiently: for example, Delaware corporations have the option of using cumulative voting, while other states make it compulsory for corporations that are not publicly traded. The DGCL also allows for shareholder approval of mergers without separate votes in each class of outstanding stock. Special meetings can be limited to a call by the Board of Directors, which prevents the complications associated with shareholders calling special meetings. Finally, the DGCL embraces new technologies and now allows corporations to use distributed ledgers or blockchains to create and maintain the corporate records required by law. These and other provisions help corporations run more efficiently under Delaware state law.

Raising Capital Using Regulation CF

August 27, 2021 | Mark Figueiredo

New technologies have drastically changed the ways in which new startups raise capital. Securities laws and regulations are adapting to these changes to ensure that investors are still protected under federal securities laws when investing via new technologies. Regulation CF (aka Title III of JOBS Act) is a relatively recent rule that took effect in 2016 and recently updated in 2020. It allows new business startups to raise equity through crowdfunding, which means private from all Americans, instead of the richest 2% Americans. More importantly, crowdfunding is typically used for new companies to turn their customers into their investors, which is exciting news for startup founders. Learn more about how crowdfunding works, what its legal limitations are, and how to determine whether Regulation CF is the right tool for your new company’s capital funding, is added to every startup founder’s to-do list.

New Rules Raising Investment Limits

According to the SEC, companies currently may raise an aggregate of $5 million in a twelve-month period through crowdfunding securities. This is a significant increase from the original $1.07 million limit. The new limit greatly expands a new company’s ability to raise capital through crowdfunding. These changes also work to level the inequalities faced by small companies looking for startup funding options. Traditionally, large companies have had a competitive advantage in access to startup funding, but crowdfunding has changed the dynamic considerably.

How Much Equity Should Venture Capital Investors Get In A Startup?

August 13, 2021 | Mark Figueiredo

Venture capital is a critical source of capital for any new startup. However, venture capital does not need to come with overly draconian conditions. Venture capital may be contingent on the funders receiving Board seats, and funding is typically offered in exchange for equity. But just how much equity should venture capital investors receive? If too much is given away, founders may lose control of their own business. Founders must understand how to use equity strategically in order to get the maximum benefits.

Typical Apportionments or Dilution At Each Round Of Funding

Funding must account for the competing interest of founders, the initial seed investors, venture capital investors, and employees who receive equity compensation. This can make it difficult – if not impossible – to come up with a split that everyone considers to be “fair.” While each company has different needs, here is a common scenario at a Series A round of funding with venture capital:

What All Entrepreneurs Must Know About Startup Law

April 10, 2020 | Karen (Xiaorong) Chen

Here 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.

How do I Remove a Partner from my Business?

April 7, 2017 | Jaclyn Ford

Many partnerships begin among friends or individuals with similar interests who have a business idea together. However, having a good business idea and being able to cooperate to actually run a successful partnership are two very different things. In many cases, you may realize that your partner is not pulling his or her own weight or is even bringing the business down through his or her actions, or lack thereof. In such situations, you may naturally wonder what you have to do to remove that partner from the partnership and continue running the company without them.

Unfortunately, simply removing a partner and continuing with business as usual is often much harder than it seems. Your options should be closely evaluated depending on your specific circumstances. Having the assistance from a San Jose partnership attorney will help your business establish a binding partnership agreement that will allow the business to run smoothly and efficiently even if a situation arises between partners.

Do You have a Partnership Agreement?

Differences Between S- and C-Corporations

March 31, 2017 | Katya Mezek

Entrepreneurs are faced with numerous decisions when forming a business. First, they need to contemplate the nature of the corporate entity they wish to operate (i.e., corporation, limited liability company, partnership, etc.). This decision hinges on many factors including the type of business, the desired ownership structure, tax considerations and potential financing opportunities. If the entrepreneur determines that forming a corporation is most advantageous for his or her particular situation, then he or she must next decide whether the corporation will be taxed as an S-corporation or a C-corporation.

The “S” and “C” designations refer to different subchapters of the federal tax code. They each have their own governing requirements and qualifications, some of which are laid out below.

S-Corporations

The Basics of Crowdfunding – Part 2

March 17, 2017 | Mark Figueiredo

Types of Crowdfunding for Investors

Like other types of investments, all crowdfunding campaigns are not created equal and one campaign can vary significantly from the next. There are two main types of crowdfunding investments on which we will focus here: reward-based crowdfunding and equity crowdfunding. However, it is important to realize that these are not the only types of crowdfunding available for investors in today’s market. In addition, there are many guidelines, requirements and regulations differing for each type of crowdfunding.

Reward-based Crowdfunding

The Basics of Crowdfunding – Part 1

February 3, 2017 | Mark Figueiredo

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.

Types of Crowdfunding