Business Startup

Four Important Considerations When Launching a 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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Corporate Finance & Securities

Employee Equity Explained: Stock Options

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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Corporate Finance & Securities

The Definition of “Accredited Investor” and Why It Matters

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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Corporate Finance & Securities

New Law Makes 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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Business Startup

Entity Conversion in Washington

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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Mergers & Acquisitions

Business Purchase and Sale: Considering Employees

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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Commercial Real Estate

Understanding Your Commercial Lease: Insurance, Subrogation, and Indemnification

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.) The insurance, subrogation, and indemnification provisions of your commercial lease allocate risk between the landlord and the tenant (and each of their insurers).

Insurance

In nearly every commercial lease you will find 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 the...

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