The Canal Street Blog

Business-focused legal discussion

Four Important Considerations When Launching a Startup

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

  Gavin Johnson

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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Employee Equity Explained: Stock Options

Today, we are continuing our series on Employee Equity Explained by discussing stock options.

  Collin Roberts

Today, we are continuing our series on Employee Equity Explained by discussing stock options specifically.

Stock options are contracts that allow an employee to buy shares (this is called “exercising” the option) at a fixed price. Options are different than receiving stock because an option is exactly as it sounds; it’s an option to buy stock upon certain conditions being met, such as vesting (discussed below).

There are two standard types of stock options: Incentive Stock Options (“ISOs”) and Nonstatutory Stock Options (“NSOs”).

ISOs provide the recipient with certain tax benefits but they can only be provided to employees of the company, not independent contractors or non-employee board members. Additionally, only $100,000 in ISOs can be exercisable in any given year. NSOs on...

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The Definition of “Accredited Investor” and Why It Matters

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

  Gavin Johnson

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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Non-waivable Provisions of the Washington Limited Liability Company Act

In today's blog post, we'll discuss the non-waivable provisions of the Washington Limited Liability Company Act in more detail.

  Charlene Angeles

Significant changes to the Washington Limited Liability Company Act went into effect on January 1 of this year. As I wrote in a previous blog post on the Washington Limited Liability Company Act changes, the changes were intended to make the law easier to understand and give members more flexibility in how they want to manage and operate an LLC. Under the old act, the non-waivable provisions were scattered throughout the act. Under the new act, the non-waivable provisions are all listed in one place for convenience— in Section 25.15.018 of the RCWs. In this blog post, we’ll discuss the non-waivable provisions in more detail.

The LLC Act allows members of an LLC flexibility in outlining through the LLC Operating Agreement how...

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Important Considerations When Transferring LLC Ownership Interests

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

  Gavin Johnson

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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Employee Equity Explained: Basics of Stock Options, Restricted Stock, and Restricted Stock Units

Issuing employee equity in a startup, or any business, is a great way to compensate and incentivize employees.

  Collin Roberts

Issuing equity to employees in a startup, or any business, is a great way to compensate and incentivize employees. However, employers and employees are often confused about the various types of equity compensation available and the pros and cons of each type of employee equity. In this series of blog posts on employee equity, we will continue our discussion of employee equity compensation plans by detailing the various types of equity that employers can grant and lay out the reasons for choosing one over the other.

When someone receives “equity” in a company, this means that they are receiving stock or future rights to stock in the company. By owning stock in a company, that person will then become a shareholder,...

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New Law Makes Resale of Private Stock Easier

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.

  Gavin Johnson

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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Entity Conversion in Washington

In today's blog post, we discuss the basics of how to complete an entity conversion in Washington state.

  Charlene Angeles

In a previous post, we discussed how the entity conversion bill passed by the Washington State Legislature in 2014 allowed companies to complete a conversion (instead of going through a merger) to change a company’s entity structure. You can use a conversion to change your entity structure to a different form (i.e. from an LLC to a corporation) or change your domicile to a different state. We continue the discussion about conversion in this post by going into more detail about the steps to complete a conversion.

Eligible Entities

Washington law allows conversions between domestic limited liability companies (LLCs), corporations, and limited partnerships. Washington law also allows these domestic entities to convert to foreign entities (a foreign entity is an entity incorporated in...

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Business Purchase and Sale: Considering Employees

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

  Gavin Johnson

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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Understanding Your Commercial Lease: Insurance, Subrogation, and Indemnification

This post in the Understanding Your Commercial Lease series discusses insurance, subrogation, and indemnification.

  Gideon Dionne

In this latest post in the Understanding Your Commercial Lease series we’re going to discuss insurance, subrogation, and indemnification. (Subrogation will often be grouped under the insurance provision in your lease.) These provisions of your commercial lease allocate risk between the landlord and the tenant (and each of their insurers).

Insurance

Generally, in every commercial lease there’s going to be robust insurance requirements for the tenant that are mandated by the landlord. The tenant is going to be required to pay for insurance that will include general liability insurance, property damage insurance for the tenant’s property, business interruption insurance, automobile liability insurance, worker’s compensation insurance, and then often an umbrella policy. The landlord will often ask the tenant for insurance they would probably...

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