Business Startup

Key Term Sheet Provisions: Conditions Precedent to Financing

This week in our series on key term sheet provisions, we’re taking a look at conditions precedent to financing. In order to understand conditions precedent to financing, you have to remember that the term sheet itself is non-binding. The conditions precedent to financing detail events that have to occur before the term sheet will become binding.

What Are Typical Conditions Precedent to Financing? There is typically a clause that states the funding is conditioned on the investors completing due diligence, and being happy with what they find. This condition gives the investors the right to walk away from the deal even after the term sheet has been signed, if they find something out about the company that makes them no longer want...

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Business Startup

The Latest Attempts to Detect, Prevent, and Remedy Employee Misclassification Abuses

In late 2011, the US Department of Labor (DOL) and the Internal Revenue Service (IRS) signed a Memorandum of Understanding that aimed to improve the two agencies’ efforts to put an end to the business practice of misclassifying employees in order to avoid providing employment protections. In addition, labor commissioners and other key agency players in seven states (Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington) have signed similar memos with the DOL’s Wage and Hour Division, as well as the Employee Benefits Security Administration, Occupational Safety and Health Administration (OSHA), Office of Federal Contract Compliance Programs, and Office of the Solicitor.

Detect, Prevent, and Remedy Misclassifications The memorandum of understanding comes as part of the DOL’s Misclassification Initiative to detect, prevent, and remedy employee misclassification. The ultimate goal...

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Business Startup

News Roundup 2012 Week Five: Initial Public Offerings, Insider Trading, Technology Contracts, Corporate Finance

Initial Public Offerings

Facebook Files Registration Statement As I’m sure you’ve heard, Facebook filed its registration statement today. The social networking giant is looking to raise $5 billion in a public stock sale that could occur this spring. Depending on demand from potential shareholders, the company could be valued at anywhere from $75 billion to more than $100 billion. The float (the publicly traded equity) of 5%, if the valuation ends up near the $100 billion mark, is unusually low for an IPO, and suggests that Facebook went public at least in part because it was hitting the 500 shareholder mark that increases regulatory requirements regardless of a company’s public or private status. Also, the company already has nearly $4 billion in...

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Business Startup

LLC Operating Agreement series: Economic Structures

The economic structure of a limited liability company relates to how and when distributions will be made to the owners (referred to commonly as “members”). Distributions may occur on a set schedule in regular intervals, when the LLC either redeems (or buys back) the member’s interest, or when the company liquidates. In this next installment in our series on LLC Operating Agreements, we’ll explore some considerations when structuring the distributions and allocation of profits and losses for your LLC.

Washington Law

The default rule under Washington law provides that members will receive distributions and allocations of profits and losses in proportion to the amount of capital each member contributed to the company. To clarify some of these terms: a distribution is any cash or property a member...

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Business Startup

Amending Online Terms of Service

A New Way for Consumers to Negotiate Favorable Terms of Service Online service providers typically require users to agree to their terms of service before rendering any services. Every time you sign up for a new online service you have to click “I Agree” to an agreement that can easily exceed 20 pages in length and is usually both legally binding and widely ignored. Most consumers probably believe that they have to agree to those exact terms in order to be able to use the service. But this may not be the case any longer.

A new online bookmarklet may allow consumers of web-based products to amend terms of service agreements. The program TOSAmend, designed by web application builder Kevin Owocki, is...

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Business Startup

Key Term Sheet Provisions: Redemption Rights

Today we’ll continue our series on key term sheet provisions by discussing redemption rights.

What Are Redemption Rights? Redemption rights provisions give investors a future right to have stock repurchased at the original purchase price plus declared and unpaid dividends. The provision can be drafted to provide for mandatory redemption or redemption at the investor’s option.

Generally the right doesn’t mature for at least 5 years, and the redemption payments are spread out over multiple years.

A recent survey indicates that only about one in five venture financings include terms providing for redemption rights.

What is the Rationale for Redemption Rights? Investors like redemption rights because they provide an alternative exit. If the company is neither collapsing nor rising quickly enough to be an acquisition target...

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Intellectual Property

Social Media Legal Issues: (Post Number 4): Trade Secrets, Confidential Information, and Your Company’s Social Media Strategy

Protecting your business’ confidential information is critical, and social media has undoubtedly made this process more difficult. The inherent nature of social media is to spread information— not to protect it. But if you—and your employees—understand trade secrets (and other confidential information), as well as who owns “your” social media accounts, you can help protect your business from the damage of inadvertent or wrongful disclosure.

So what is a “trade secret”? Generally, a “trade secret” is information that (1) is maintained in confidence, (2) has commercial value from not being generally known, and (3) is not readily ascertainable by proper means. The more detailed and difficult the information is to obtain, the more likely it is a trade secret.

For your information to...

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Business Startup

Understanding the Principled Negotiator

A principled negotiator is open to the view that there are bigger or better opportunities and solutions, and collaborative negotiations allow an opportunity to explore mutual interests. The principled approach was first made famous in Roger Fisher and William Ury’s conflict resolution book, Getting to Yes. Fisher and Ury described the four fundamental rules for principled negotiations:

1. Separate people from the issues. For this approach to work, you’ll have to learn to separate your emotions from the negotiation. Your emotions will inevitably become tangled up with the substantive issues of the task at hand. Once emotions come into play it’s hard to think rationally; we often act differently or say things we wouldn’t have said otherwise. Coming to an agreement will be that much...

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Business Startup

News Roundup 2012 Week Four: Apple, Executive Compensation, Online Privacy, Venture Capital

Apple in the News

Apple has huge quarter; launches revolutionary textbook platform; includes draconian terms in book publishers’ end user license agreement

Lots of Apple news this week. The technology giant posted its best quarter ever with revenues of $46.3 billion per quarter and a $13.87 net profit per share. The company sold 37 million iPhones and over 15 million iPads.

Apple also had exciting news about launching a new platform for textbooks. Apple has partnered with text book producers such as McGraw-Hill to make interactive textbooks for iPads. Textbooks in this format will be cheaper, easier to update, more environmentally friendly, and more portable. The interactivity and format will surely be a better and more exciting platform for those trying to learn...

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Business Startup

LLC Operating Agreement series: Management Structure

Over the next few months we’ll be discussing some of the common terms of an Limited Liability Company operating agreement in a series of posts. The operating agreement provides the framework for operating and managing the business. The operating agreement provides the rights and obligations of the members, including members’ management abilities and economic interests. Without an operating agreement, Washington LLCs are governed by the default provisions provided in RCW 25.15 . In this first post, we’ll discuss the management structures and choices available for an LLC.

Key Feature: Flexibility

In Washington, the LLC statutes are incredibly flexible. LLCs are easily adaptable to the changing needs or circumstances of the members and the business. There’s also flexibility when choosing the management structure of the company. The primary constraint...

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