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November 2011

Top Five News Stories: 11/24-11/30

by on November 30, 2011

Amazon & Ebay Weigh In On Online Sales Tax
Currently online retailers only have to collect state sales taxes if they have a physical presence in that state. If the retailer doesn’t collect the tax, it’s up to the purchaser to send the sales tax to the state. However, this rarely happens. Across the nation lost sales tax revenue from failure to collect online sales taxes is estimated at upwards of $23 billion.

There are a number of bills that have been introduced in Congress this year to create a national scheme… Read the rest

Could a failed merger with AT&T mean the end for T-Mobile?

by on November 29, 2011

AT&T announced on Thanksgiving Day that it would be withdrawing its request to have the FCC approve a merger with fellow mobile-phone industry giant T-Mobile. This clearly signals AT&T’s pessimism over the outcome of the pending antitrust case filed back in August and its effect on the merger. AT&T also announced it will report a nearly $4 billion write-off for fourth quarter earnings to account for break-up fees if the merger does not pass through the antitrust case. What does this all mean for T-Mobile?

Since 2009, T-Mobile has seen a steady decline in customers, with net decreases of 24,000… Read the rest

Say-On-Pay: An Overview, and An Update

by on November 28, 2011

An Overview
The Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law in August of 2010 included a requirement that publicly traded companies provide shareholders with a non-binding vote to approve executive compensation plans. These non-binding votes are commonly referred to as “say-on-pay” measures.

In accordance with Dodd-Frank, the SEC’s implementing rule, effective January 5, 2011, requires large corporations to provide their shareholders with non-binding resolutions to approve the compensation for named executive officers at least once every three years. Because the resolutions are non-binding, a vote rejecting executive compensation does not have any necessary consequence. However, failed… Read the rest

Key Term Sheet Provisions: Pay to Play

by on November 25, 2011

Pay to play provisions encourage investors to participate in subsequent rounds of investment. Such provisions provide incentive to continue investing by providing that if investors don’t participate in subsequent rounds proportionally to their investment, their preferred stock will automatically convert to common stock.

From an economics standpoint the pay to play provisions motivate investors to continue financial support by eliminating the liquidation preference that generally goes along with preferred stock. If an investor wants to keep their right to a 3X preference, they need to continue investing in the company. As one might expect, this can be a powerful incentive.… Read the rest

Key Term Sheet Provisions: Liquidation Preference

by on November 18, 2011

It’s Friday, so it’s time to continue our series on term sheets and take another look at an important provision in a financing term sheet. Today we’re discussing liquidation preference.

Liquidation preference terms only come into effect when there is a liquidation event. A liquidation event is usually defined as a merger, acquisition, or sale of substantially all company assets.

Preference and Participation
There are two components to a liquidation preference: preference and participation. Preference terms govern the taking of assets before other stock classes, participation terms instruct how the remaining assets are… Read the rest

Crash Course on Intellectual Property Law

by on November 18, 2011

Intellectual property law is broken down into four main areas:patent, copyright, trademark, and trade secret.

Here’s a crash-course on each, and how we can help you protect all varieties of your intellectual property:

Patent Law
Under federal law (35 USC §101) the categories of patentable inventions include: “any process, machine, manufacture, composition of matter, or improvement thereof.” A typical example of something that is patentable is an invention of a new technology. When Thomas Edison invented the light bulb, he patented it.

What rights does a person gain when he gets a patent?
A patent grants… Read the rest

Entrepreneur Access To Capital Act Passes House

by on November 14, 2011

On November 3rd, the House passed the Entrepreneur Access to Capital Act with overwhelming approval: 407-17. This Act would enable businesses to raise capital through crowd funding. Crowd funding is the contribution of small equity investments from many individuals.

Currently, federal and state laws governing the sales of securities restrict public solicitation of investors and limit fund-raising to sophisticated investors, or require a registration process that is cost-prohibitive for many entrepreneurs.

The Act restricts individual investments to $10,000 or ten percent of their annual income, whichever is lower. Businesses can raise up… Read the rest

Key Term Sheet Provisions: Price, Valuation and Dilution

by on November 11, 2011

Price per share is one of the most important terms to nearly every entrepreneur. Price is inextricably tied with valuation. How much an investor will pay per share depends on the value the company is calculated to be worth.

Premoney valuation is the value of the company before the investors’ contributions are factored in. Postmoney valuation is the value of the company after the investors’ contributions are factored in. For example a company might have a premoney valuation of $5 million. An investor may agree to contribute $3 million at an $8 million postmoney valuation. When discussing valuation terms make… Read the rest

Key Term Sheet Provisions

by on November 10, 2011

We’re starting a blog series on key term sheet provisions. Every Friday we will discuss a new topic. Our first topic is price.

You might want to bookmark this post as it will be updated with hyperlinks as we continue to address new topics in this series.

Personal Liability for corporate transactions after dissolution

by on November 9, 2011

In a recent Court of Appeals decision*, the honorable judge Laurel Siddoway reiterated the Supreme Court’s stance on applying the theory of promoter liability to post-dissolution corporate acts. This means, for purposes of individual liability, any acts occurring on behalf of the corporation after dissolution, whether voluntary or involuntary, must be made solely for the purposes of winding up the corporate affairs and business. A corporation’s key personnel may be held personally liable if they carry on any business that is not necessary to wind up and liquidate its business.

In Equipto Division Aurora Equipment Co. v. Yarmouth, the Supreme… Read the rest

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