Corporate Finance & Securities

Electronic Filing Depository

The most common method companies use to raise private capital requires filing notices with each state in which you have an investor. To streamline the process of filing these notices, the North American Securities Administrators Association, Inc. (“NASAA”) created the Electronic Filing Depository (“EFD”).

Who does the EFD help?

The general rule in the United States is that, unless you have an exemption, in order to sell stock in your company, you need to register your stock offering with the SEC. Stock registrations are so expensive and time-intensive that they’re not feasible for most all small companies. As we’ve discussed before, Rule 506 of Regulation D is a “safe harbor” for the private offering exemption of Section 4(a)(2) of the Securities Act....

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Corporate Finance & Securities

The Low Down on Valuation Caps and Discounts in Convertible Notes

It is common for startups to raise early rounds of financing through convertible debt. Convertible debt, generally called a “convertible note,” typically converts into equity when the company raises another round of financing. In anticipation of the conversion, many investors will negotiate for valuation caps and discounts. In today’s post, I’ve highlighted the basics of valuation caps and discounts in convertible notes.

What is a Valuation Cap?

A valuation cap provides that the convertible note holders will convert their debt into equity at the lower of the valuation cap or the price in the subsequent round of financing. Without a valuation cap, the note holders would generally convert their debt into equity at the same price as the shares issued in the...

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Corporate Finance & Securities

Investment Club: Securities Laws

Raising capital is a costly endeavor and it requires compliance with securities laws. But people who want to pool their funds to help businesses grow have some options to avoid being subject to more restrictive securities requirements. One option is to put together an investment club.

What is an investment club?

Investment clubs are groups of people who pool their money together to make investments. Members of investments clubs study different types of investments and then the group decides to buy or sell based on a majority vote of the members. The meetings of members may be educational and each member must actively participate in investment decisions. Often, investment clubs are set up as partnerships.

What’s the role of the SEC?

Investment clubs...

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Business Startup

Why a Repurchase Option Matters to Startups

Most founders are concerned about making sure each of the co-founders are invested in the company. Founders often ask about protecting against a co-founder leaving the company, taking his or her equity, and sharing in the potential future upside value of the startup without continuing to work for that right. To protect against this, startups often have a “repurchase option” to buy back shares from the departing founder.

When Can the Company Exercise the Repurchase Option?

While terms can vary, the shares issued to the founders are often subject to a vesting schedule that requires the founder fulfill certain obligations—e.g. to stay with the company a period of time, achieve certain milestones, or any other creative requirements the founders agree on— in...

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Corporate Finance & Securities

SEC Form D Amendments

When a company decides to raise capital, the company must file Form D giving notice of an exempt offering of securities with the Securities and Exchange Commission. Commission rules require the notice to be filed by companies and funds that have sold securities without registration under the Securities Act of 1933 in an offering based on a claim of exemption under Rule 504, 505 or 506 of Regulation D or Section 4(5) of that statute.

Companies and funds must file their Form D amendments with the SEC online using the SEC’s EDGAR (electronic gathering, analysis and retrieval) system. One question that often arises is this: when is a person or company required to file Form D amendments?

Form D Amendments Filing

A Form D filer should...

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Corporate Finance & Securities

When is a loan subject to securities regulations?


What is a security? Securities are contracts for an interest in a company, sometimes called an “investment contract.” A typical example of a security transaction is the sale of company stock in exchange for cash. The SEC’s definition of “security” includes a 30-item list that stocks, notes, bonds, and investment contracts, among others. We recently discussed the Howey case, which provides the test courts use when determining whether something is an investment contract. Today’s post looks into the circumstances under which a note or loan would fall within the SEC’s definition of a security.

To start: Why does it matter if something’s a security? Securities are extensively regulated because of the real risk that individuals and the companies they control could swindle unwitting...

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Brewery Law 101: Key Contracts for Breweries

We continue our Brewery Law 101 series by exploring some key contracts to consider when opening a brewery. Below we’ve highlighted a few key contracts for breweries. These agreements are importnat to have in place and understand in order to keep your brewery as protected as possible.

Commercial Lease Agreements

When you get to the point that it is no longer feasible to brew batches of beer in your basement, backyard, or garage, it’s time to begin exploring a commercial space to house your operations. Some important considerations (among others) to sort out as you begin hunting for the right space include: how large of a space do you need? Will you operate a tasting room or just brew beer to distribute...

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Business Startup

Brewery Law 101: Navigating the TTB

If you are considering opening a brewery, you will need to navigate the Alcohol and Tobacco Tax and Trade Bureau (“TTB”). In this latest post in our Brewery Law 101 series, we outline the general process for fulfilling the TTB requirements.

1) Beer Operation Identification:

One of the most important steps when starting out in the brewing industry is to decide the type of operation you want to build:

Brewery/Brewpub Pilot Brewing Plant Brewery/Brewpub

If you are interested in producing beer, malt beverages, or Saké for sale, operating a brewpub, or wish to alternate brewery premises with another brewery, you fall into this category.

Pilot Brewing Plant

You fall into this category if you wish to establish a pilot brewery either on or off brewery premises for research,...

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Intellectual Property

Purchase and Sale of a Business: Intellectual Property Considerations

We’re continuing our series on the purchase and sale of a business with a look into intellectual property considerations when purchasing a business. Intellectual property is a large part of many companies’ value. Failing to sort out potential restrictions on the use and further development of a company’s IP may leave the buyer with a significantly less valuable company than it anticipated. Below are some of the major intellectual property considerations to have in mind when you purchase a business:

Ownership of and Right to Use the IP

The first hurdle, and perhaps the most important consideration when reviewing a target company’s intellectual property rights, is confirming that it owns, or at least has a valid license for, all of the key...

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Intellectual Property

News Roundup: FCC Ruling May Lead to Better Internet Service; Fundraising Updates; etc.

FCC Updates Broadband Definition

The FCC voted to raise the minimum thresholds needed to meet the definition of broadband. Internet service providers now must provide download speeds of at least 25Mbs and upload speeds of at least 3Mbps to call their services “broadband.” The previous standard was 4Mbps for download speed and 1Mbps for upload speed.

While this sounds pretty innocuous, the new definition may have some interesting consequences.

A little background: In 1996 Congress mandated that the FCC report on whether broadband is being deployed to all Americans in a reasonable and timely fashion, and Congress defined broadband as high-quality capability that allows users to originate and receive high-quality voice, data, graphics, and video.

The first and most obvious consequence of the...

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