Business Startup

Delaware- why is it the popular choice for incorporating your business?

For nearly a century, Delaware has been the most popular state for businesses to incorporate in. Unsurprisingly, most corporate lawyers are familiar with Delaware corporate law, which helps to explain why it is the natural suggestion for an alternative to the home state, but there’s more behind the allure. In this post we’ll address the principal reasons behind Delaware’s gravitational pull on incorporating businesses and why the allure is not likely to disappear anytime soon.

Flexible The allure starts with Delaware’s General Corporation Law statutes, which allow for flexible internal operating standards and limited liability for management. Many states have adopted similar statutes allowing for similar flexibility, but Delaware’s corporate statute has been consistently revised and fine-tuned to offer the most dynamic,...

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Business Startup

Democratizing Access to Capital Act

A few weeks ago we wrote about the Entrepreneur Access to Capital Act, a bill passed by the House that would enable businesses to raise capital through crowd funding. Senator Scott Brown has now introduced a similar bill, the Democratizing Access to Capital Act, into the Senate. Last week Senator Brown authored an article for Wired in which he hailed his bill as way to update the SEC rules for the Internet era.

What are the differences between the House and Senate bills? The Senate bill has four main differences from the bill that already passed the House. First, the Senate bill would limit investors to an investment of $1,000 per year per company. The House bill would allow individual investments of...

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Business Startup

Key Term Sheet Provisions: Vesting

Why Vesting is Necessary Imagine this: three founders form a company, and three months into their venture they complete a round of financing with two major angel investors. The three founders each own 25% of the company’s issued stock, and the two investors each own 12.5% of the issued stock. In month four one of the three founders decides to quit working for the company. If there were no vesting provisions, that founder would walk away from the company with the same stock rights as the founders that continue to work for the company. The investors would also lose a key part of their investment. And the founder walking away could still prosper significantly if the company takes off.

How Vesting Works To...

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Mergers & Acquisitions

AT&T upset over FCC’s ‘unfair’ report on the T-mobile takeover

Just two days after the FCC released its lengthy report depicting significant harms the public may face as a result of the AT&T proposed takeover of T-mobile, AT&T fired back by releasing a statement the labels the FCC report as a “one-sided…advocacy piece, and not a considered analysis.” AT&T accused the FCC as cherry-picking facts to support its position, and failing to provide the entire picture in an unbiased manner. In the report, the FCC claims that the merger would cause substantial harm to competition and consumers, including costs for customers, reduced incentives for innovation and decreased consumer choices. AT&T claims this is untrue and claims the FCC omitted certain facts that do not support its position. To bolster its...

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Business Startup

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

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 for collecting state sales tax in online transactions (e.g., The Marketplace Fairness Act which is currently in the Senate). On Wednesday representatives from Amazon and Ebay testified before congress on...

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Mergers & Acquisitions

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

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 during 2011 and 34,000 during 2010.  T-Mobile’s revenues are down 3.3% through the first three quarters of 2011, and Deutsche Telekom...

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Corporate Finance & Securities

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

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 say-on-pay measures get the attention of corporate boards, and recent studies demonstrate that the non-binding resolutions have practical consequences.

An Update – Causes...

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Corporate Finance & Securities

Key Term Sheet Provisions: Pay to Play

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. Conversion from preferred to common stock would also eliminate an investor’s rights in any other benefits that came with preferred stock.

These...

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Corporate Finance & Securities

Key Term Sheet Provisions: Liquidation Preference

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 to be divided after the preference is allocated.

Preference On the occurrence of a liquidation event, investors generally want to be ensured that they will receive at least their original investment. Investors...

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Intellectual Property

Crash Course on Intellectual Property Law

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

This post provides a basic explanation of each area of intellectual property, and simple steps you can take to protect your intellectual property:

Trademarks

Trademarks and service marks are protected under state and federal law. Logos, company names, product names, and slogans are some of the common marks that are protected under the Lanham Act (the federal statute governing trademarks). There are two primary categories of trademarks: plain-text marks (or word marks) and design marks. An example of a plain-text mark is “Nike”, and an example of a design mark is the Nike Swoosh.

 

What rights do trademark holders have?

A trademark holder has the right to exclude others from...

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