Business Startup

LLC Operating Agreements: Transferring Member Interests and Adding New Members

As is the case with just about every provision in an operating agreement, the rules are flexible in regards to transferring member interests and admitting new members. This latest post in our series on LLC operating agreements details the default rules and common types of provisions related to transferring member interests, rights of first refusal, and admission of a new member.

Transferring LLC Ownership Interests Most LLC statutes distinguish between membership interests and member rights. The most important difference between the two is that the member’s transferable interest usually (but not always) includes only the member’s share in profits and losses and the right to participate in distributions (i.e. financial interests), and not the right to participate in management and control. Generally, a member’s financial...

Read More

Contracts

Best Practices for Hiring and Managing an Independent Contractor

Today, the use of independent contractors is becoming more and more prevalent. As jobs began to disappear in 2008, unemployed professionals decided to jump into the freelance waters and try their luck. As business try to stay lean, they have substituted a large staff of employees with independent contractors from a variety of industries. The nature of independent contractors involves work done outside the office, which can be difficult to oversee. Today’s post is aimed at giving you tips for how to manage your independent contractors.

Take Time to Hire the Right Person Many of issues that business owners face when working with independent contractors can be avoided by taking more time during the hiring process. Instead of hiring the first seemingly...

Read More

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...

Read More

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...

Read More

Contracts

An Important Step to Drafting Clear, Concise Contracts: Understanding “Representations and Warranties”

Think back to the last time you read a contract. You may have noticed the phrase “representations and warranties” or “represents and warrants” a dozen or so times and, perhaps, you thought how do these terms differ, and is it redundant to use both terms? Both representations and warranties are functionally the same, especially in this day and age. In this post we’ll define representations and warranties, and inform you why the traditional use of both terms in your contract may no longer be the best practice.

Understanding the Terms First, let’s explore the legal definitions and examples of each term, representation and warranty.

Black’s Law Dictionary defines “representation” as a statement of fact which was made to induce another to enter into...

Read More

Contracts

Getting to Know Your Employment Agreement: Details on the Key Provisions of a Standard Employment Contract

Your company is ready to hire an employee. You searched the internet for free employment agreements. You finally found one you’d like to use. Here’s the problem: you don’t understand what every term of the employment agreement means and, more importantly, how those terms are going to affect your business moving forward. Luckily, we’ve boiled down some of the key features of a standard employment agreement for you in this article.

Most employment agreements will include provisions that detail the employee’s duties, term of employment, salary, employment start date, and any included benefits of the job. In addition to these employee-specific provisions, there are additional provisions that most employment agreements include, such as:

Confidentiality: this provision requires your new employee to agree...

Read More

Intellectual Property

End User License Agreements

As part of our continuing series on basics of technology contracts, today we’ll take a look at end user license agreements.

What is an end user license agreement? An end user license agreement is an agreement between a software provider and a software user. The provider allows use of the software, but retains ownership of the software.

What do end user license agreements do? An end user license agreement should clearly explain the rights granted to the end user. Specifically, the agreement should address the permissible uses and the ability to reproduce the software.

For example, the provider may wish to limit use by subsidiaries or parent companies. Another approach is to limit the number of designated users (often called “seats”). And if the recipient...

Read More

146 N Canal Street, Suite 350   |   team@invigorlaw.com