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California Law Impacts All Categories of Independent Contractors – Not Just Gig Workers – What Your Business Needs to Do Now

By Jennifer B. Rubin & Audrey Nguyen

California Governor Gavin Newsom has now signed AB 5 into law, effectively ban nearly all categories of independent contractors – not just gig economy workers. AB 5 will become effective on January 1, 2020 for all businesses that contract with individuals who perform services in California. Here is a summary of the law and what businesses need to do now.

Five Common Equity Incentive Plan Mistakes

By Sebastian Lucier

Equity Incentive Plans (aka, Stock Option Plans) are a standard feature in nearly every start-up.  Although the basic concept (granting an equity interest to an employee or other service provider) is simple enough, there are a few administrative and legal technicalities that need to be respected.  Below is a list of five common mistakes that start-ups make when administering their Equity Incentive Plans.

How to Distribute Equity in Your Start-Up

By Patrick Elahmadie

One of the most difficult decisions entrepreneurs face when planning the growth of their start-up is determining how to distribute equity among the founders, the current (and/or future) management team and other employees and consultants. There is no one-size-fits-all model for determining to whom to give equity and how much to give them: this process requires an in-depth look at a number of factors pertaining to the company, generally, and the recipient of the equity, specifically. 

CAUTION: Director Veto Rights in Financing Documents May Constitute “Disproportionate Voting”

By Lewis Geffen and Soobin Kim

Section 141(d) of the Delaware General Corporations Law (DGCL) allows the certificate of incorporation (COI) of a Delaware corporation to confer upon one or more directors voting powers greater than or less than those of other directors, thus resulting in “disproportionate voting” rights amongst the Directors.  When VC funds, their portfolio companies and VC lawyers read or think about DGCL 141(d) and this disproportionate voting, they usually, and narrowly, have in mind only the question of whether certain directors may have more than or less than one vote per Director on matters voted on by the Board, or a committee of the Board. 

How To Get Started: Dividing Equity, Getting Incorporated and Other Details When Beginning Your Business!

By Dinesh Melwani and Will Perkins

Posted on Medium (Nov. 8, 2018)

Just about every emerging business/start-up lawyer could write a book (and many have!) on the topics of equity division, incorporation and the innumerable ‘other details’ founders need to keep in mind when starting a business! We think you can only properly address these issues with any specificity in a face-to-face or phone-to-phone conversation and, with that in mind, this writing focuses instead on some high level concepts and discussion points to cover with fellow founders in advance of your first sit-down with corporate legal counsel — a meeting we strongly recommend (and which, dare I say, many firms (big and small) will offer at no charge)!

LLCs and Convertible Debt – Too Good to be True?

By Scott Pinarchick and Will Bussiere

Founders choosing a structure for their business are often drawn to the limited liability company, or LLC, for its overall flexibility in both taxation and governance matters. And founders seeking access to early capital, not to mention seed investors themselves, are often drawn to the convertible note as a simple, less expensive means to raise funds. But LLCs and convertible debt don’t always mix.

Digital Tokens: Rethinking the Term “Cryptocurrency”

By Daniel DeWolf, Rachel Gholston, and Marine Bouaziz

What are the similarities between a one dollar bill, a share of a company, and a pre-paid gift card? The answer is……..not so much! The same is true of the similarities between virtual currencies, security tokens, and utility tokens; in truth, not so much. Yet, if you follow the world of digital tokens in the media and popular press, you would think that virtual currencies, security tokens, and utility tokens are all very similar because they are often concurrently and interchangeably discussed under the topic of “cryptocurrency.”

Issues in Chinese Foreign Direct Investment in U.S. Early Stage Biotechnology Companies

By Flora Brookfield

There has been a marked increase in the amount of money being invested by Chinese investors into U.S. early stage biotechnology companies since 2017, spurred on by direct encouragement from Beijing through its Made in China 2025 industrial policy, which specifically targets biotech as a strategic industry eligible for greater government backing.  In the first half of 2018, Chinese venture capital funds and high net worth family offices invested $5.1 billion in US biotech companies, exceeding the $4 billion invested by Chinese investors in all of 2017.

Founder’s Stock – a Legal Fiction

By Michael Bill

In common usage, a founder is an individual who creates or helps create a company, but in legal terms, there is no such thing as a “founder” or “founder’s stock,” only early participants in a company’s organization and ownership of its initial equity capital. Why is this so? Because, for all practical purposes (from a startup’s point of view), there are two types of stock – common stock and preferred stock – and “founders” are just the initial holders of the company’s common stock, usually before any financing, in-licensing, or contribution of assets.

Liability Considerations for Delaware Public Benefit Corporations

By Christina Bailey and Will Perkins

A public benefit corporation (PBC) is a statutorily designated type of corporation in Delaware that melds two concepts that are often seen as opposites: maximizing profit and providing public benefit. This choice of entity presents a compromise for those companies who are committed to operating in a responsible and sustainable manner, while acting as a for-profit entity.

The Form is Always Wrong

By Daniel DeWolf and Samuel Effron

Mintz attorneys are often asked as to why we don’t simply provide “forms” on our website that can be downloaded and used.  After all, a number of law firms let you download term sheets and other forms such as SAFEs. Our simple answer is: THE FORM IS ALWAYS WRONG! Legal forms are merely starting points and most forms are typically only half an inch deep. A successful enterprise truly needs so much more depth than what is provided in a basic form.

What to Do Now if You Want to Sell Your Company

By Jeremy Glaser

A typical sale transaction can take six to eight months to complete from the time the decision to sell is made. Consequently, it is important that any business owner seeking to sell his or her business in the near term take immediate steps.  The following are some key questions every potential seller should ask to assess their readiness and some key steps they should take to make sure they are ready for a sale.

New Beneficial Owner Threshold Eases VC Fundraising

By Talia Primor, Rachel Gholston, and Daniel DeWolf

Small venture capital funds and special purpose vehicles, which otherwise qualify as “venture capital funds,” can now raise money from up to 250 beneficial owners and remain within the 3(c)(1) exemption of the Investment Company Act of 1940 (the “Investment Company Act”).

New York City Bans Salary History Inquiries

By Alexander Song 

In accordance with a new regulation that took effect on October 31st, 2017, New York City employers are now prohibited from inquiring about or relying on salary history during the hiring process. This ban makes it an unlawful discriminatory practice for an employer, employment agency, or employee or agent of the employer to: (1) inquire about the salary history of an applicant; or (2) rely on salary history of an applicant to determine salary, benefits, or other compensation for such applicant during the hiring process. Employers should revise their hiring processes in order to ensure their compliance with the new law as soon as possible.

Company “Branding” and the Benefits of Federal Trademark Registration

By Susan Neuberger Weller

Selecting and protecting your “brand” should begin from the very moment a business is in the process of being formed, whether that business is a sole proprietorship, partnership, corporation, limited liability company, or some other type of entity. It makes no difference whether the entity is a for-profit or not-for-profit organization, and the size of the entity is also irrelevant. Your “brand” is your public facing identity by which you will be known and through which your reputation will be developed. The goodwill you develop in your “brand” will be one of the most important and valuable assets you own.

Is a Series LLC Right for Your Business?

By Amy Burkhoff

The Series limited liability company (the “Series LLC”) is more nuanced than an ordinary limited liability company, and for the right user, it provides flexibility that will streamline administration better than other alternative entities. Although there are some risks and uncertainties relating to the Series LLC, as discussed further below, the Series LLC is a useful tool to create a series of limited liability companies in a single vehicle, preserving limited liability and reducing the administrative expenses necessary to organize different lines of business or manage different properties.

InsureTech Connect 2017 Panel Discussion: Maximizing Profits via Products and Alternative Business Model Innovation

By Heidi Lawson

After being in the insurance industry for several decades in a variety of roles, I frequently get asked which insurtechs I think are going to be successful. In sum, I believe the insurtechs best positioned for success are those that are unlocking entirely new markets, thinking past the standard producer model, adding additional revenue streams, and utilizing distribution channels that allow them to efficiently reach more customers. Here are some of the topics our panel discussion focused on at InsureTech Connect 2017.       

SAFEs: The (Not So) Simple Agreement for (Potential) Future Equity

By Brian Novell and Daniel DeWolf

Historically, most start-up companies were funded either by the offering of equity or by loans in the form of convertible promissory notes. Recently, however, there have been some hybrid instruments created to fund start-ups. Most notably, and quite popular these days, is the use of an instrument called a SAFE. “SAFE” is an acronym for “simple agreement for future equity.”

The FTC’s Uber Consent Order: A Warning to Fast-Growing Companies

By Brian Lam and Cynthia Larose

Recently, Uber agreed to a proposed Federal Trade Commission (FTC) consent order (“Consent Order”) to settle charges in an FTC complaint (“Complaint”) regarding behavior stemming back to at least 2014. Acting Chairman Maureen K. Ohlhausen has stressed the implications this has for other companies:

FTC Asked to Investigate Google’s Matching of “Bricks to Clicks”

By Brian Lam and Cynthia Larose

Recently, the Electronic Privacy Information Center (“EPIC”) asked the FTC to begin an investigation into a Google program called “Store Sales Management.”  The purpose of Store Sales Management is to allow for the matching goods purchased in physical brick and mortar stores to the clicking of online ads, or as we refer to the practice, “Bricks to Clicks.”