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Today’s post highlights the federal securities law exemption for intrastate securities offerings made pursuant to rule 3(a)(11) and rules 147 and 147a.

As we’ve discussed previously, the Securities and Exchange Commission (SEC) is the governmental body responsible for the regulation and enforcement of federal securities laws that govern both interstate securities offerings and intrastate securities offerings. These laws are detailed in, among others, the Securities Exchange Act of 1933. The SEC is primarily concerned with regulating securities transactions that take place on a large scale (generally interstate), and so the ‘33 Act provides for an exemption from registration for intrastate securities offerings. Today’s post discusses the federal exemption for intrastate securities offerings under Rule 3(a)(11).

For purposes of this post, when we refer to “selling securities” we’re generally referring to companies raising investments under either equity or debt instruments. Here’s a prior post…

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Safe harbor; securities

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Washington State requires all businesses to meet minimum wage requirements. We discuss what they are, possible exemptions, and how to avoid complications.

Since most startups don’t have a large reserve of cash during their early days, it is common for startups to compensate founders and early employees solely with equity. While this allows startups to conserve what little cash they have, this practice could ultimately be very costly for the company if it runs afoul of wage laws. In today’s post, we discuss various ways that startups may expose themselves (and in some cases their founders, directors, and officers) to liability for violating wage laws, and some steps companies can take to limit that liability.

While the attorneys in our firm do not practice employment law specifically, we come across these issues frequently when working with startups and think it is something founders…

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Startup Corporate Culture; wage

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Today's post discusses the concept of securities offering "integration" or "integrated transactions" in securities law and startup law.

When companies raise money from investors, the transaction will be governed by securities laws. These securities laws have complex requirements that often “trip up” companies unfamiliar with the rules and their application. In today’s post, we tackle one of those areas of securities and startup law where companies often trip up: integration.

What is “Integration” in the context of a securities offering?

To better understand integration, you’ll need to first understand what a “securities offering” is. In very simple terms, a securities offering is a transaction where a company is offering to sell a security in exchange for (in most cases) cash. You can check out a discussion of the more precise definition of a security in our prior post.

Integration is a term in…

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Securities regulations

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In this post we discuss four important legal considerations for every startup.

Today’s post highlights some of the key considerations that founders of any startup company should have in mind as they begin the process of turning an idea into a business. The action items we discuss in this post are simple things to address early on in the company and can have immediate and lasting positive impacts for the company and its founders.

Forming a Corporation or LLC to Limit Personal Liability

One of the first steps the initial partners should take is to form a limited liability entity (either corporation or LLC in most cases) in order to limit the owners’ personal liability. Forming the entity will also open the door to discussing the initial ownership percentages, vesting provisions, and management rights….

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Today’s post dives specifically into the definition of “accredited investor” as defined in Rule 501 of Regulation D of the Securities Act of 1933

The definition of accredited investor is a topic we’ve touched on briefly in several posts throughout the years, but today’s post dives specifically into the definition of “accredited investor” as defined in Rule 501 of Regulation D of the Securities Act of 1933. We’ll also point out why it’s important for you to understand who is considered an accredited investor.

Definition under Rule 501

The SEC states that the definition of accredited investor is “intended to encompass those persons whose financial sophistication and ability to sustain the risk of loss of investment or ability to fend for themselves render the protections of the Securities Act’s registration process unnecessary.” The definition of accredited investor under Rule 501 includes several types of individuals and…

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Accredited Investors

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Today’s post highlights important considerations when transferring LLC ownership interests, including transfer restrictions and the right of first refusal.

When buying or selling an ownership interest in an LLC, it’s important to consider several key issues that may affect the transaction. Today’s post highlights some of these important considerations when transferring LLC ownership interests.

Are there any restrictions on your ability to transfer the interest?

Most operating agreements will provide provisions that discuss the process for transferring a member’s interest. Many operating agreements require the member to provide notice of the transfer and often include a right of first refusal, which right allows the company to match the terms of a sale of a member’s interest (more on this topic below). And some operating agreements do not allow for a member to transfer his or her interest without unanimous member consent.

If…

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Restrictions

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This post discusses Section 4(a)(7) of the Securities Act of 1933 and its impact in potentially making the resale of private stock easier.

Congress recently passed a new securities law exemption (Section 4(a)(7) of the Securities Act of 1933) that eases the limitations and restrictions surrounding the resale of private stock.  Prior to the new law, there were several regulatory hurdles that made the resale of private stock in a company difficult. As we’ve highlighted in prior posts, securities regulations require any sale of stock to be registered with the SEC (a time-consuming, expensive process), unless the sale is “exempt”—which means that the sale falls within one of the exemptions provided for in the securities regulations. (Check out one of our prior posts on securities exemptions and Rule 144 for more background on the regulations specifically surrounding selling stock in private companies as they applied…

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New Law Reduces Hurdles to Resale of Private Stock

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This post in the purchase and sale of a business series discusses employees and employment matters to consider when purchasing (or selling) a business.

One of the most important parts of a business is the people doing the day-to-day work. When looking into purchasing a business, it’s important to identify and understand the needs and rights of key employees, review existing employment agreements, and consider any employment related successor liability issues that may come up as part of the transaction. We’re continuing our series on the Purchase and Sale of a Business by highlighting important employee related considerations when purchasing a business.

Identifying (and Locking Up) Key Employees

Does the business you’re purchasing rely heavily on a few key employees? Especially for service-based businesses that rely heavily on relationships, these key employees can be one of the most valuable assets for the business. Making sure you…

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Locking up Key Employees

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A cap table (or capitalization table) is a spreadsheet listing all of your company’s securities (stock, options, etc.) and who owns those securities.

A cap table (or capitalization table) is a spreadsheet listing all of your company’s securities (stock, options, etc.) and who owns those securities. Cap tables provide a basic look into the “total pie” and each shareholder and option holder’s piece of that pie (basically who owns what). More detailed cap tables will include formulas that allow the company to model future transactions. 

There’s no one-size-fits-all way to structure your cap table. Some provide only a general summary of the breakdown of ownership in a company, while others include extensive details about the individual holder, the type of securities held, issue dates, ownership percentages on a fully diluted basis, and other granular details.

When’s the Right Time to Build a Cap Table?

It’s relatively…

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Cap Table Pie

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In today’s post we’ve highlighted the key issues you’ll want to consider when forming a Washington corporation.

A few weeks back, we provided a checklist for forming an LLC. In today’s post we’ve highlighted the key issues you’ll want to consider when forming a Washington corporation.

Check the Business Name. As we mentioned with LLCs, you’ll want to make sure the name you want for your corporation isn’t already registered with the Secretary of State (which you can check here). For corporations, you’ll need to include some reference to the fact that the company is a corporation, such as “Inc.” “Corp.” or “Co.”

Articles of Incorporation. The “Articles of Incorporation” is the document you file with the Secretary of State in order to form your corporation. This document must include (at the bare minimum) the name of the corporation, the…

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Building a house