Business Startup

Incorporating in Washington Versus Delaware: What’s Best for Your Startup?

One of the first steps when forming a company is to decide which state is best to “register” your company. Today’s post highlights some of the reasons why you may want to considering incorporating in Washington versus Delaware.

I heard Delaware was the best state to incorporate my company, is that true?

It is true that Delaware has a specialized court that handles corporate disputes (the “Court of Chancery”) and is recognized as the nation’s preeminent forum for determining internal corporate and other business disputes. Delaware also has friendly corporate statutes and a well-developed, widely understood, and closely followed body of corporate law. But Washington state also offers advantages unmatched by Delaware (and many other states).

Two of these advantages are the simple incorporation...

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Business Startup

Delaware Says No Writing Necessary for Board Resignations

A recent Delaware court case discussed what type of action is necessary for directors to resign from a corporation’s board of directors. Ultimately, the court held that director resignations need not be in writing because Delaware Code Section 141(b) is a permissive statute.

 Summary of the Case

The CEO of Biolase, Inc, Federico Pignatelli, thought that Biolase’s board needed more experienced directors, and he asked some of the board members to resign so he could fill their positions with more seasoned directors. The board members resigned. But without Pignatelli’s knowledge, the directors he wished to replace had also aligned themselves with the new board members in order to try and replace Pignatelli as CEO. In an attempt to disrupt the new board...

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Corporate Finance & Securities

Delaware Issues Important Decision Regarding Director Duties

The Delaware Chancery Court issued the post-trial decision in In re Trados Incorporated Shareholder Litigation. The Court affirmed that directors which were designated by the venture capital preferred shareholders owed fiduciary duties only to the common shareholders.

The Court found that the directors had interests that conflicted with the interests of the common shareholders. And because they were conflicted, the directors lost the protection of the “business judgment rule”—the BJR presumes that directors are acting in the best interests of the company and its shareholders when making a decision. Instead, the directors were judged by the “entire fairness” standard. Under that standard, the directors were affirmatively required to prove that the process they followed to make the decision was fair and...

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Business Startup

Legislative Definitions of Social Media for Employment Law Purposes

Six states have now prohibited employers from requesting social media passwords during the hiring process. Bill Carleton, at his blog Counselor @ Law, had a number of attorneys (including myself) grade the various legislative attempts to statutorily define employment law. Take a few minutes to check out Bill’s post, which you can find here.

Thanks to Bill for first compiling the definitions and links in a single document and then compiling the opinions and posting the results on his blog!

Here are the full grades and comments I sent to Bill:

California

As used in this chapter, “social media” means an electronic service or account, or electronic content, including, but not limited to, videos, still photographs, blogs, video blogs, podcasts, instant and text messages,...

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Corporate Finance & Securities

Recent Cases Affirm Difficulty in Challenging Board Decisions on Executive Compensation

Two recent Delaware cases confirm that the Court of Chancery will not substitute its judgment for that of a disinterested and informed board on executive compensation decisions, including severance, so long as there is a rational basis for the board’s decision. Reaffirming its reliance on the business judgment rule, the court decided in favor of the board’s decision in two recent derivative actions challenging severance/retirement packages for departing employees.

Zucker v. Andreessen In Zucker, the court granted defendant Hewlett-Packard’s motion to dismiss on claims that HP’s directors committed corporate waste by approving a $40mm severance package for its former CEO, Mark Hurd. In ruling, the court found that there was some rational basis for the board of directors to decide that the...

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Litigation & Dispute Resolution

Delaware Courts Top U.S. Survey of Courts

For the ninth consecutive year the Delaware Courts have been listed as the top courts in the U.S. The survey, sponsored by the U.S. Chamber Institute for Legal Reform, takes into account a number of factors, including judges’ impartiality, timeliness of decisions, and judges’ competence. On the other end of the spectrum is Chicago, deemed the worst court system in the U.S. by the survey. Washington state was the 22nd ranked state.

What makes Delaware Courts so special? One of the major reasons that Delaware Courts are held on such a high pedestal is that they have a specialized court system known as the Court of Chancery that handles all corporate matters in Delaware—which comprise the vast majority of litigation in Delaware....

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Business Startup

iVLG News Roundup Week 37: Mergers & Acquisitions, IPOs, Preferred Stock

Mergers and Acquisitions

Yahoo and Alibaba Close Deal Yahoo has agreed to sell back half of its interest in the Chinese Internet company Alibaba. In 2005 Yahoo acquired a 40% interest in the company, but since then relations between the two companies have become strained, especially as Yahoo failed to meet investors’ expectations. As part of an agreement reached earlier this year, Yahoo will sell another 10% of its Alibaba holdings back to the company when the company files an IPO, and the rest of its Alibaba holdings after the IPO. Yahoo’s remaining interest in Alibaba is valued at just over $8 billion, which accounts for more than 40% of Yahoo’s market value.

IPOs

Fall IPO Calendar Filling Up Take a look at iposcoop.com’s IPO...

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Business Startup

iVLG News Roundup Week 27: Corporate Finance; Public Offerings; Contracts; Etc.

Securities Regulation & Corporate Finance

JOBS Act Deadline Comes & Goes without SEC Action Congress imposed upon the SEC a July 4th deadline to implement rules under Title II of the JOBS Act that would enable companies to engage in general solicitation under Rule 506 of Regulation D. But on June 29th SEC Chair(wo)man Mary Schapiro testified before Congress that the SEC would not be able to enact rules within the 90 period proscribed by Congress. Ms. Schapiro did state that the SEC anticipates having a vote on a draft rule later this summer:

“The Securities and Exchange Commission will miss its first rulemaking deadline to lift the general solicitation ban as mandated by the Jumpstart Our Business Startups Act, but a draft...

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Business Startup

The Business Judgment Rule

What is the Business Judgment Rule? Corporations are managed under the direction of a board of directors. The board has a fiduciary duty to protect the interests of the corporation, and to act in the best interests of its shareholders. If directors take actions that are not in the best interest of the corporation, shareholders may bring a lawsuit against them. In order for a shareholder to succeed in a case against a director, the shareholder must overcome the business judgment rule which creates a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interest of the company.

How Does...

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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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