You have an Idea for a Startup

How often are we at dinner with our friends, or grabbing coffee with a co-worker, when an idea strikes us… Wouldn’t it be great if there was startup company that ______? There should be a startup service that______! Why can’t they just add ______ to _______, I would use that all the time! What should be your first step? (Besides a killer algorithm that isn’t buggy, of course) First – you must think of a startup name! A name that grabs the user, but also encapsulates the idea of your product. Thought of a startup name? Dreaming of the way the logo will look like as Apple’s Featured App of the Week? Not so fast… you must make sure that you have the right to use the name in connection with your product and brand. There are several things you can do in the comfort of your own home, to check whether or not a name is available to use. Trademark Search  A simple trademark search will let you know if you will be able to trademark the product and use the startup name and logo in commerce.  You can conduct a trademark search on the State of Delaware – Division of Corporations You may use the Delaware Division of Corporations Entity Search to check if the name of your corporation is available. The name of your corporation cannot be the same of the name of any other corporation, although slight variation in the name is perfectly acceptable. You can conduct the search here: Internet Presence  Once you have figured out what the name of the corporation will be, it’s wise to reserve the name of your new corporation as a domain... read more

Non Disclosure Agreement and Startup Investors

Mutual Non Disclosure Agreements AKA NDA A mutual non – disclosure binds both parties to confidentiality. Definition of Confidential Information  The information that is bound to confidentiality is all information that the parties exchange. It is important to take note of the specific definition of what “information” includes, as written in your NDA. Intellectual Property Ownership A great concern for any company is to maintain full control and possession of its intellectual property. It’s important to specify whether or not the disclosure of confidential information would disturb the ownership of intellectual property. It’s preferable for any start up to include a provision that explicitly states that confidential information remains the Disclosing party’s property. Governing Law The governing law section is not one to skip over. By signing the non – disclosure agreement, you consent to be sued in the state specified in the clause, if a legal dispute shall arise. NDA Enforcement Before you disclose your startup corporation’s confidential information you should be aware that you need to resources to enforce your agreement. This means you will need a legal ‘war chest’ to pursue any violators. Even with an NDA you should be very careful who you share your confidential information with. As a general rule you can show someone WHAT your product does, without showing HOW it works. The HOW is what you want to protect. NDA’s and Investors Typically Angel or Venture Capital (VC) investor will not sign an NDA. Investors are pitched startups all day long; they fear that if they sign an NDA from each startup they will be exposing themselves to significant legal risk. Since investor... read more

Venture Capital, Investments and Form D

Venture Capital, Investments and Form D Startups and Privately held companies that are raising capital investment are required to register with the Securities and Exchange Commission, or file a Form D with the SEC to declare an exempt offering of securities. Form D is a notice that a Startup company is issuing an offering of securities that is exempt from registration with the SEC. Using Form D, a Startup company discloses information about the company and the offering to the SEC. This information includes names and the addresses of the Startups  executive officers, the size of the offering, and the date of the first sale. The form can be found here ( Form D must be filed within 15 days after the first sale of securities in the offering . The date of first sale is the date on which the first investor is contractually committed to invest (ex: the date the Startup receives the investor’s subscription agreement or check). The form is filed online, for free, using the EDGAR system. If you would like to set up a free consultation with an experienced San Francisco business attorney, please reach out to us at Sutter Law Firm.... read more

Professional Law Corporation

        Professional Law Corporation Attorneys that seek to incorporate their law practice in California must be aware of the various nuanced rules that govern the formation and practices of their professional law corporation. Governing Body The governing body of a Professional Law Corporation is the California State Bar. In accordance with the rules promulgated by the California State Bar, the corporation must be certified by the California Secretary of State and registered with the State Bar. The professional corporation must apply for a certificate of Registration as a Law Corporation. In order to apply for the certification, the law corporation must have a certified copy of the law corporation’s articles of the incorporation, as well as the proper bylaws excerpts. Name of the Corporation The name under which the law corporation intends to practice law must comply with the California State rules of Professional Responsibility and shall not be misleading. Ownership and Transfer of Shares The exact language from Rule 3.157 of the Law Corporation Rules of the State Bar must be used in the bylaws, when discussing the ownership and transfer of shares in the corporation. The purpose of the professional law corporation is to practice law, therefore the shares of the corporation must be owned by either an attorney at law or the corporation. What if a shareholder of a professional law corporation is disbarred or passes away? Rules regarding the transfer of shares are different depending on the circumstances of the removal of the attorney from the practice of law. Shares of a deceased shareholder must be sold or transferred to the law... read more

What is an “S” Corp?

What is an “S” Corp? So you want to incorporate in California. [Do not pass go if you would rather incorporate in Delaware – instead read this blog].  Which Corporation should you choose to incorporate under? S Corporation:  What’s in a name? An S Corporation (also known as S-Corp) gets its name from the Chapter 1, Subchapter (S), Part I of the Internal Revenue Code. The Code defines an “S Corporation” as a small business corporation for which an election under Section 1362(A) is in effect for the year. What is it? Corporation elects a special taxation status with the IRS. In order to elect S Corporation status, you must file Form 2553 with the IRS. The form must be re-filed each year with the IRS. Requirements: A corporation may elect to be treated as an S Corporation only if its: A domestic corporation, Has no more than 100 shareholders, Its only shareholders are individuals, estates or exempt organizations, And has only one class of stock. Owners of the corporation must be US Citizens or Residents. S Corporations cannot be owned by C Corporations nor LLC. Corporations that are ineligible to elect S Corporation status include financial institutions, insurance companies, corporations to which the 936 election applies, or former Domestic International Sales Corporation. Taxation Benefits: S Corporations elect to pass corporate income through to the shareholders for federal tax purposes. This avoids the double taxation on the corporate income on both the corporate and the individual shareholder level. The profits and losses of the business are instead “passed – through” the business and reported on the owner’s’ personal tax... read more

Free Startup Pitch Event this Wednesday October 28th in San Francisco!

The Sutter Law Firm (in conjunction with George Parrish and Eric Trabold) is now sponsoring and organizing the Society3 Startup Pitch Night. This event takes some of the brightest of Silicon Valley and San Francisco Startups and lets them pitch to investors and customers. This is a great event for Press, Startups and Investors. Startups, bring your pitch! And investors, bring your checkbooks. This is a free event for all. We will be hosting this event every month, it all starts October 28th at 6:30 pm. Click Here to Register Via Meetup!... read more

Mergers and Acquisitions in California

What You Need to Know About Mergers and Acquisitions in California By Eric H. Milliken, At Sutter Law Firm, San Francisco’s premier business law firm. There is a lot of legal assistance that is required in any merger and acquisition (M&A) deal especially if the idea is to increase the shareholder value over and above the sum of the two companies separately. This reasoning especially becomes attractive for businesses when times are tough and the future looks uncertain. In any case, getting experienced legal representation during this process can help achieve the main goal of M&A i.e. of increasing shareholder value. This is because M&A require deep legal understanding of the company’s goals and operations as well as of the laws pertaining to combining two businesses in California. Your company needs a legal negotiator who can ensure that not only are all M&A laws being followed but that your rights are being protected as well. This is true whether you are the financially healthy business owner agreeing to merge with another company or whether you are the struggling company hoping to survive by aligning yourself with another company. Having experienced legal counsel will also help keep your investors happy. San Francisco and Silicon Valley investors want to ensure that their best interest will be represented throughout the merger or accusation. Probably the first thing to understand about M&A is that mergers and acquisitions are two terms that are not synonymous but mean slightly different processes. The example just quoted comes under the category of acquisition where a financially healthy company entirely takes over a struggling startup or other company.... read more

Startup Vesting Stock Tax Election “83(b)”

By Chase Addams, a San Francisco Business Attorney 83(b) Election You’re getting hired by a fledgling San Francisco Start-Up company, and you’ve just signed a Stock Purchase Agreement granting you a vesting equity interest in the Company.  Congratulations and good luck.  But watch out.  Upon the initial grant of this stock to you, the clock starts running on your ability to make an 83(b) election under the Internal Revenue Code of 1986.  You have 30 days from the date of grant.  So what does that mean to you and what should you do? At some point you have to report to the IRS (and get taxed for) the difference between the fair market value of the equity you’ve been given, and the price you paid for it (the “difference”).  This reporting can either happen when you purchase the equity OR when your equity is actually freed of restrictions (ie, the Company’s repurchase right expires) and the shares vest to you.  The difference is taxed as ordinary compensatory income.  To be clear, in instances where equity is granted immediately and there is no vesting schedule, there is no decision to make and 83(b) does not apply.  After vesting, when you’re ready to sell your equity or otherwise dispose of it pursuant to the terms of her Company Stock Purchase Agreement, the transaction will be taxed again as a capital gain. The 83(b) election is a directive to the IRS to assess taxes on the difference at the time of stock purchase.  While the fair market value at the time of stock purchase will oftentimes equal the amount paid, the IRS... read more