Tuesday, July 3, 2012

Announcing: Orange County EPIC Startup Accelerator- Pitch Your Company

Southern California startups can now look to a local group to help them prepare for rock-star growth.
Elevator Pitch Insight & Counseling- (EPIC) is an Orange County based mentoring and quasi-accelerator program.  They were formed to help startups looking for funding, companies that need to learn how to take their business to the next level, founders that want to commercialize their mobile app, and many other entrepreneurs.
The group was formed with the basic idea that one of the key components of success in most businesses and in life is the ability to clearly, concisely, and QUICKLY convey your story.  The common term used is the elevator pitch, which is usually some short message to get across who you are, what you do, and a call to action (what you are looking for).  The more you can practice and refine your elevator pitch, the easier it becomes and your potential for success can grow.  The more you can effectively and quickly put not only your company, but all your ideas out there, the quicker you should be able to get feedback and make any necessary pivot or change to your plans.
They are looking for people with passions for entrepreneurship, start-ups, angel investing, venture capital, and business in general.  They welcome ideas and will provide Meetup and other events for networking, workshops, elevator pitch competitions or practices, speakers, hackathons, and mentoring groups.  They do not currently provide any forms of direct funding, but may look into partnering with angel and other investors to incorporate seed financing for approved companies and further develop the program.
They know that you can't do it alone and need support, so consider this your support group.  Stay tuned for more information and apply to join their Meetup group to learn about future events.  You can view their Meetup group at http://bizla.ws/Mukqg8.
For questions or for more information, you can also email me through the "Ask a Lawyer" contact form on this website www.SiliconValleyStartupAttorney.com

Tuesday, June 26, 2012

I got a California LLC and trust or will online. That protects my assets and will save my home, right?…Wrong

People often misunderstand the different common tools used and how they all fit together when it comes to asset protection and estate planning, as well as business structures and succession planning, not to mention, tax planning and insurance coverage.

These are all very complex legal and financial issues that often mix, combine, and cross-over from one area to another. You can go online, get templates or find document preparation companies that can give you a standard form will, living trust, corporate formation, or limited liability company (LLC) formation document. True, that may be better than nothing, but is that really an effective way to deal with some of the most important issues of our lives, and those which most of us don’t want to think about…”What will happen to my stuff when I die and how can I keep as much of what I accumulate during my lifetime?”

Let’s look at a common example, a living trust (often called a family trust) can save your kids time and money in having to put your estate through the legal probate process in court when you die. In California, in most cases, the assets owned by someone when they die with or without a will are “probated” in court. This is the way to administer the terms of the will or state law on distribution of assets; however, state law provides automatic legal fees and certain costs, often simply based upon the value of the assets without deducting the debts owed. That can mean thousands or tens of thousands of dollars in costs for a so-called “simple” estate with one home worth $500,000. People use a written agreement, called a living trust, that tells a trustee what to do with their assets when they die and can help avoid having to go to court to probate the will. This saves time and money and keeps who gets what private, instead of becoming part of a court record somewhere.

In this example, people go online and get a trust then set it aside thinking everything is taken care of. There are so many more complex issues, even with a relatively small estate. If you own a home or car, simply transferring the asset into the trust only provides for who gets that asset when you die. It does not protect that asset from the reaches of creditors. With the ridiculous amount of lawsuits in the United States (over 30 million lawsuits filed per year in the US), all it takes is someone getting hurt at your home or in a car accident that your insurance company decides not to cover, or the suit awards more money to the plaintiff than your insurance covers, and suddenly all of your assets are in jeopardy. The trust in that case is simply an estate planning or asset transfer vehicle to give things to your kids to avoid probate. It was not planned as a protection from creditors who could foreclose on the home after your insurance company goes out of business (AIG almost went out of business & many insurance companies fail every year).

When it comes to businesses, forming a LLC or corporation is often a useful way to structure the business and separate the business from your personal affairs. It typically provides limited liability to protect your personal assets from the business’ creditors; however, if a lawyer can show that the LLC is really the same as your own personal business and not a separate entity, the LLC protection goes away. Also, if a creditor gets a judgment against you that you can’t pay, the creditor is going to go after your ownership interest in the LLC. Suddenly, the creditor owns your LLC or holds a lien against its assets or revenue. That could basically shut your company down. Even if you figure you can just file a bankruptcy to wipe out the debt, there are many types of debts that cannot be eliminated in bankruptcy and the court looks to your current income and assets to see what you can pay creditors.

Another interesting case, you forgot to disclose something on your insurance or bank credit application. Your insurance pays a claim or you take out a large sum on credit and the insurance company or bank find out about the forgotten disclosure (or outright lie). Suddenly the bank or insurance company are suing you for fraud and their money back, which cannot be discharged, even in bankruptcy. Many of the recent homeowners who have been up in arms about the wrongs the banks did with the foreclosure mess may not realize that they likely signed loan applications on stated income saying they made a certain amount of money that was exaggerated. The bank relied upon their representation of how much they made to determine they were credit worthy. The bank could sue the homeowner for fraud.

This is not to say you should do nothing. You can still setup a living trust for estate planning purposes or form a LLC to structure your business, but there are other tax planning and asset protection tools that can be used to avoid losing your home or business to some plaintiff’s lawyer.

Solid financial planning for the future involves more than figuring out who gets your stuff when you’re gone and how much you should spend each month or put in your 401k. A good financial plan for your future looks at all aspects of your life to consider: cash flow, budgeting (estate conservation), retirement, credit, estate plan, asset protection, business succession plan, business protection and structure, taxation, insurance coverage, and overall risk management. Many people wait until its too late and their lives are turned upside down. Even if you don’t have much or are young, consider talking to a financial planner who can cover all the legal, financial, business, insurance, and tax issues to plan today for all your tomorrows.  

Schedule a Free Initial Consultation to discuss your tomorrow:
Chris Barsness, Esq. MBA, Senior Associate
Barth Calderon, LLP

SEC Adopts New Dodd-Frank Proxy Disclosure RE: Compensation Committees & Corporate Governance Proxy Disclosures

On June 20, 2012, the U.S. Securities and Exchange Commission adopted new and amended rule 10C to the 34 Act and amended Rule 407 under Regulation S-K (See Text & Rule under 17 CFR PARTS 229 and 240). This was required to be implemented pursuant to Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Rule 10C-1 directs the national securities exchanges to establish listing standards that, among other things, require each member of a listed issuer’s compensation committee to be a member of the board of directors and to be “independent,” as defined. The securities exchanges must use the following criteria in determining “independence” of the compensation committee members:

“(1) Independence. (i) Each member of the compensation committee must be a
member of the board of directors of the listed issuer, and must otherwise be independent.
(ii) Independence requirements. In determining independence requirements for
members of compensation committees, the national securities exchanges and national securities associations shall consider relevant factors, including, but not limited to:

(A) The source of compensation of a member of the board of directors of an issuer,
including any consulting, advisory or other compensatory fee paid by the issuer to such member of the board of directors; and

(B) Whether a member of the board of directors of an issuer is affiliated with the issuer, a subsidiary of the issuer or an affiliate of a subsidiary of the issuer.
(iii) Exemptions from the independence requirements. (A) The listing of equity securities of the following categories of listed issuers is not subject to the requirements of paragraph (b)(1) of this section:

(1) Limited partnerships;
(2) Companies in bankruptcy proceedings;
(3) Open-end management investment companies registered under the Investment
Company Act of 1940; and
(4) Any foreign private issuer that discloses in its annual report the reasons that the
foreign private issuer does not have an independent compensation committee.”

The committee in its role as a committee of the board may retain, in its discretion, compensation consultants and legal counsel; however, they are not required to follow the recommendations of the consultant, advisor, or attorney. They are also required to perform an independent review of the amounts paid to and relationship of any hired advisor to look for conflicts of interest. The requirements will essentially be implemented and policed by the listing agency, but the requirements do not apply to smaller reporting companies.

Under amended Rule 407, the following was added to corporate governance proxy disclosures: “With regard to any compensation consultant identified in response to Item 407(e)(3)(iii) whose work has raised any conflict of interest, disclose the nature of the conflict and how the conflict is being addressed.”

The new rules will be effective 30 days after their publication in the Federal Register and listing agencies have 90 days to implement them into their listing standards. Issuers will be required to comply with the new disclosure and proxy rules for annual shareholder meetings with director elections on or after January 1, 2013.

Friday, June 15, 2012

Corporate Startup Lawyer Expands Orange County Business Law Services

Chris Barsness, Esq. MBA has joined with Barth Calderon, LLP to provide high quality, cost-effective legal and finance services for individuals and businesses of all sizes throughout California.

Mr. Barsness has practiced law for over 10 years and will continue to provide legal and business counsel for a wide array of clients, from founders, start-ups, entrepreneurs, to emerging growth companies, and publicly traded micro to mid-cap companies.  His practice will focus on start-up issues, small business and individual finance, asset protection (including protection of intellectual property), corporate transactions, securities law compliance, contracts, real estate, and bankruptcy.
Description: http://siliconvalleystartupattorney.com/wp-includes/js/tinymce/plugins/wordpress/img/trans.gifBarth Calderon, LLP is headquartered in Orange County.  They are known both locally and nationally as a premier provider of legal services designed to protect the assets of individual, family and business clients.  They recognize sound financial planning can provide individuals and businesses with the freedom to pursue goals and the ability to honor commitments. They approach the practice of law with this in mind. Every legal matter they handle is analyzed from a financial planning perspective. This provides a practical approach for clients confronting legal issues.

Mr. Barsness will continue representing Silicon Valley and Los Angeles tech, startup, and emerging growth companies, in addition to this expansion further into Southern California.

Mr. Barsness writes various articles and provides informational resources for clients on his blogs:



More information about Barth Calderon, LLP can be found at:
Barth Calderon, LLP  |  333 City Blvd. West, Suite 2050  |  Orange, CA 92868  |  (714) 704-4828


Shortlink to this article:  bizla.ws/LgYeWt

Sunday, June 3, 2012

Private Placement Memorandum (PPM) Templates- Why To Beware DIY, Discount or Free Forms

A common issue faced by entrepreneurs, founders, start-ups, and other small businesses is how to get documents when they need to raise money for their venture or enter into various agreements, hire employees, or protect their intellectual property. The cash strapped individuals often look to discount or free services online to help them do things like obtain sample templates, incorporate, or get other form documents they can use. There are definitely times you can use these sample form templates or online services and there is a link to some document / forms websites, term sheet resources, and sample financing documents on my Top Startup Resources page. There are private placement memorandum (commonly referred to as PPM) templates online that can give a starting point and I go over what a PPM is, why you need one, and what should be in one on this page.

When it comes to do it yourself legal services, you can save money by doing certain things yourself. Most lawyers don’t create a contract or other document from scratch in most cases, they have sample forms they have used in the past or they get samples through practice guides or other attorneys. The service you are paying for with the attorney is to tailor the form to your specific needs; however, the additional invaluable service is their guidance and recommendations for other things that you need to consider. For example, if your friend offers to loan your newly formed corporation money, you may find a sample loan or promissory note template and just use that. However, you may not know about state and federal laws that you could violate by putting in improper terms or failing to file the required securities exemption filings. This can affect the future of your business and you could end up having to refund the money paid or may be prohibited from offering or selling any security in the future (this includes most forms of raising money, whether loan or sale of stock). Another example is the online incorporation services that people use. The founder may not realize that simply filing incorporation papers with the secretary of state. There are securities law exemption filings usually required and failure to comply with record keeping, corporate governance, and corporate procedures can result in the founder having personal liability for the corporation’s debts or other obligations. The founders suddenly find themselves losing the limited liability protections of the corporation and may even have to file a personal bankruptcy to avoid the liability.

A PPM template could be used, but the disclosure of risks, securities law compliance, and other issues are those things that need to be changed to fit the specifics of the transaction taking place. In addition, laws change over time and vary by state, so a template may have been fine in one state in 2001, but you have no idea if what you are getting really is the most up to date and local form you could use. An example is the change recently made by the US Securities and Exchange Commission to the definition of an “accredited investor” which can affect qualifying for securities law exemptions and certain parts of a PPM or the host of related documents (which use usually don’t get with discount DIY services). You can read about the change to accredited investor here.

In addition, I go over some of the common issues and questions faced by new companies on this page.

So with this brief warning, use forms, templates and discount services at your own risk, but at least call an attorney to see if you can get some free guidance to understand all the potential issues or steps you need to take.

Friday, May 25, 2012

Business Start-Up Toolkit- A Guide to Lean Startup Legal & Advisors

I was reading an article in this month's (June 2012) Entrepreneur magazine by Ann C. Logue entitled "Beyond the Handshake- Having a business partner can be valuable.  Having the wrong-or no-partnership agreements can be disastrous."  It details the experiences I hear every day by founders, entrepreneurs, and startups.  Most know they need quality legal and business advice in the early stages of their growth, but don't want to spend the money on it.  With the advent of online document and template sharing, discount legal document prep companies, and companies out there like LegalZoom and RocketLawyer offering low-cost or free legal documents, I very often hear and see the impact that is having.  I have worked both in the trenches of many a cash-poor startup and also as an attorney advising these same type of companies or founders and wanted to give some additional guidance and solutions from both perspectives.
Education and information are some of the most critical areas for any start-up.  They need to know their product, know their market, learn how to commercialize their product or service, and how to go from idea to a functioning business.  I put together a handbook with some of the common areas operationally, administratively, financially, and legally in my Startup Bootcamp 101 e-Book (Click to download free pdf) to provide some basic education on those aspects of business start-ups.  There are web resources that I have tried to compile as well at this Blog, but there are tons of resources in the form of books and online materials.  Some recommended books are Venture Deals by Brad Feld, the Lean Startup by Eric Reis, and the Startup of You by Reid Hoffman.  I will discuss some of the do's and don'ts when trying to stay within a "lean startup" mentality, but also when you do yourself a disservice by trying to cut corners to save money.

pBeta- Permanent Beta- The New Color of Your Parachute

My site pBeta.Us is in development to provide entrepreneurs, founders, businesses, and really anyone tools, resources, guidance, and a forum to discuss the development of their own permanent beta.  P-Beta is a state of being fluid and constantly changing and adapting to your environment, the market, and your personal or business needs.
Reid Hoffman, co-founder of LinkedIn, in his recent book “The Start-Up of You“  describes how running a start-up can be compared to how individuals should approach their career progression.  He uses the term permanent beta to describe the process of what start-ups use and people can learn from.  Beta has several definitions, but the core has to do with measuring existing change or whether change needs to occur.  In finance, beta often has to do with volatility of pricing, so measuring how much change is involved.  In the tech world, beta is often the label applied to so-called “beta tests” where a computer product or software is launched in its current state to see if there are any problems with the software that need to be fixed and to get a reaction from the market to measure other aspects related to marketing as well.  It comes down to being willing to and measuring change based upon current conditions and the marketplace.
Mr. Hoffman uses “permanent beta” to explain how start-ups and individuals should always be watching for changes that need to occur and being flexible to adapt in order to succeed and survive.  So in one’s career, one may need to adapt their thinking to react to market needs to stay competitive.  This willingness to change and adapt I believe is like a fluid motion where you are always aware of your environment.  To me, using the word “permanent” with beta tends to sound like a final point; however, I would argue that you should think of it as a “perpetual” beta.  The meaning attached is really the same, but to me, perpetual gives more of the meaning of the fluidity to constantly adapt to survive.  Continuously changing has helped me during some difficult times in my career.  When the type of work you want to do has slowed down due to the economy (the marketplace), you often have to find something else you may know how to do to survive.  I love helping start-ups and entrepreneurs; however, in 2008 and 2009, funding for small business and start-ups became much more difficult to come by.  I decided to refocus my law practice to an area of law that had become very needed with high demand which I already knew how to do, bankruptcy and foreclosure/real estate litigation.
Perpetual beta is the state of being always willing to adapt to the changing marketplace and moving in a fluid motion testing where you can be successful and making the necessary changes along the way.  Like a start-up, you may test certain things out and not be successful in many of them; however, you learn from each “failure” (although I don’t consider them a failure when you are trying and learning).
The purpose of this site is to constantly provide advice, guidance, resources, and some real like stories of people or company’s changes made to stay in perpetual beta.  Part of this site and my other main site SiliconValleyStartupAttorney.com is to tear down the veil of secrecy behind things that people want to or should know, such as the law, fund raising, finance, and venture capital.  Just as Jim Cramer has done on his TV show, books, and website Mad Money®.  He wants to educate the consumer and states “That’s why we try to help you understand the rules of their game.”  He is a former big banker making tons of money on Wall Street, but saw that people couldn’t make the changes they needed without the right info.  This is the information age and there is no reason to keep secrets behind the doors of lawyers, doctors, hedge fund managers, or investment bankers.  Cramer goes on to state, “You can’t make money in the market if you don’t understand it. It’s like playing Monopoly without knowing what Pennsylvania’s worth, or how much it costs to put a hotel up on Boardwalk. My job is to make sure you have not just the facts, but also the rules – and those rules are always changing.”
As the rules and market change, you or your business need to be able to change and learn.  I plan to do a century ride sometime before I die.  A century ride is a bike ride for 100 miles.  My bike skills have been in perpetual beta since I was 4 years old.  I went from a tri-cycle to training wheels to dirt bike and now I’m learning to ride long distances on a lightweight high-tech road bike (with wheels as wide as a toothpick which can be tough).  Keep your life in pBeta and teach others how to pBeta.Us.  Bring your comments or requests for info here and I would highly suggest Reid’s book “The Start-Up of You” which you can find online or at your local bookstore.

Friday, May 11, 2012

Why Venture Capital is Not "Vulture Capital"

There is this feeling among many founders and entrepreneurs that venture capital is the "dark side" and inherently evil.  I have been very surprised to hear things like "we don't want to go down the road with Vulture Capital" in the heart of venture capital in places like San Jose, Menlo Park, Mountain View, San Francisco, and Palo Alto.  While I do agree that there are some bad apples, negative aspects of VCs and VC funding, and a general perception of VCs as sharks, I would argue that VCs are an invaluable part of the US economy and the use of VC funding has been extremely useful in the growth of many successful US companies.
Part of the problem is that people don't understand exactly what VCs do and how VC works.  The public only hears about a VC firm making billions off of an IPO and how VCs are like vultures that swoop in and take over the company and get rid of all existing employees.  You can read my take on issues of company founders having a hard time giving up control here, but giving up some control is required in many situations to bring in the capital to make the company grow.  Investors put money into a company to make money, not to make the world a better place.  That is business 101.

Tuesday, May 8, 2012

Credit Report Use Limited In California Employment Decisions AB 22

A common question asked by start-ups or even just average average businesses is what information they can ask or use in vetting their potential employees.  Some common forms used may be background checks, drug screening, and reference checks.  Due to the economy creating many credit problems for average citizens (even more so with entrepreneurs who often use their own personal credit to bootstrap their company), I will take a look at the use of credit reports in making employment related decisions. 

Existing federal law provides that, subject to certain exceptions, an employer may not get a credit report without prior disclosure of that the employer wants to obtain one and the employee consents. Existing federal law further requires, subject to certain exceptions, an employer, before taking any adverse action based on the report, to provide the consumer with a copy of the report and a written description of certain rights of the consumer. 

Tuesday, April 24, 2012

Can I pay a startup attorney with stock or options?

So a major issue faced by many startup founders, especially when they are bootstrapping, self-funded, or just watching their cash, is how they can get legal or other services with little to no cash.  The fall back position is to give the advisor or service provider a "piece of the action."  The founder often wants to use stock in the company they formed or stock options to avoid using cash, but still obtain needed advice and guidance.  Here are the main problems you will run into:

1)  Valuation-  You will have a difficult time agreeing on a valuation of the company's stock.  The founder often feels that they have the next greatest invention or idea of all time and the company is already worth billions despite having no business model or revenue (just watch an episode of Shark Tank on ABC).  The valuation is what you use to determine the value of the stock in comparison to what the services are worth.  (e.g. 1,000 shares of stock valued at $1 per share in exchange for $1,000 worth of services)  The service provider or advisor may have a different idea of what your company or idea is really worth.  If you can't come to some agreement on the value of the stock, you won't get them to sign on.

Thursday, April 19, 2012

Why Tech Startups Get Funding, Not More "Meaningful" Ones

I read a good post yesterday from Chris Dixon on his blog about why there aren't more "Meaningful Startups."   In the article and comments, the discussion had to do with why tech companies, more specifically, internet startups get the majority of funding instead of companies that seem to solve a bigger societal problem, such as curing a disease.  He argues that the other what some might call "more meaningful startups" don't get off the ground because they have a hard time getting funded and this is due to time to exit and amount of capital required.

I tend to see that funding and society are major reasons for the tech funding boom.

Wednesday, April 18, 2012

SEC Adopts Rules For Definitions of Terms in Derivatives

On April18, 2012, the SEC, jointly with the Commodities Futures Trading Commission (CFTC), implemented part of the Dodd-Frank Act by adding definitions for use in interpreting what are swaps-related transactions.

The new Rule 3a71-1 under the Securities Exchange Act defines the term “security-based swap dealer” consistent with the criteria set forth in the Dodd-Frank Act as someone who:
  • Holds themselves out as a dealer in security-based swaps.
  • Makes a market in security-based swaps.
  • Regularly enters into security-based swaps with counterparties as an ordinary course of business for their own account.
  • Engages in activity causing them to be commonly known in the trade as a dealer or market maker in security-based swaps.
There is an exception for those who are only involved in a de minimis quantity of these transactions to not be held to this rule.  The rule will go into effect 60 days after the rule is published in the Federal Register. 

You can read the entire release and rule through the SEC's website at:

Monday, April 2, 2012

What Do the JOBS Act, Reg D Change, and Crowdfunding Bills Actually Say? Which bill is right? Read H.R. 3606

I have noticed quite a bit of confusion in blogs when discussing crowdfunding, the JOBS Act, and other recent legislation regarding small business, startups, and emerging growth companies.  Even respected news organizations don't get the specifics exactly right about what this legislation actually says, so I thought I would set the record straight.

President Obama is set to sign H.R. 3606 this week.  The best way to know exactly what this bill says is to read it, despite the somewhat dense language and references to other parts of U.S. law.  Here is a link to the actual PDF format of H.R. 3606.  For an overview and summary of this bill and its history you can read here.  These are links directly to the information provided by Congress.  Some of the confusion has been that the legislative process involves a very confusing system where bills are introduced, amended, and sometimes added to existing bills.  That was the case with the JOBS Act and the crowdfunding provisions.  H.R. 2930 was the original crowdfunding bill that passed the U.S. House and went to the Senate, but did not actually pass the Senate.  After adding and deleting portions from various amended versions similar to H.R. 2930, the crowdfunding and other provisions were all put into one bill called H.R. 3606.  This passed the Senate and then went back to the U.S. House after amendments to be passed.  It has passed and was forwarded to the President for signature on March 27, 2012.  He is expected to sign it this week.


Monday, March 26, 2012

I hired a developer and they now claim they have a copyright on the code, how did this happen?

In this day of a new app being developed every day, how does the company owner or management know who owns the code developed and when they could lose control over it?

Most issues of ownership for software code fall into areas of copyright (a form of intellectual property or IP), since they are usually "written works of authorship" and primarily covered by US copyright law.  Copyright protection provides the author with protection from reproduction by others.  There are times when works can be reproduced without violating a copyright under things such as the "fair-use doctrine," such as when sample pages from a book are reprinted in a blog with commentary by the blog author about their thoughts or criticisms about what is being said in the book.  The rights for copyright protection are generally given to the original author of the work for long periods of time (anywhere from 70 years to over 120 years depending upon all the facts).  After that amount of time has passed, the work is considered in the public domain and others can copy it without worrying about infringement. 

Thursday, March 22, 2012

Insider Trading Crackdown on Congress- STOCK Act | H.R. 1148 S.1871

The Stop Trading on Congressional Knowledge Act (STOCK) has now passed both the U.S. House and Senate and should be signed into law by the president very soon. (Actual Text | Bill Summary & Status) H.R. 1148 or Senate Version S.1871 is the bill that seeks to impose heavier restrictions on insider trading that is done by or is connected to members of congress, federal employees, or employees of congress. Insider trading is covered by the Securities Act of 1934 and other related federal legislation and rules by the SEC and CFTC. It occurs when someone uses inside information as a basis to trade in stocks, commodities, or other types of securities. Inside information is defined as material non-public information. An example would be someone who works for a public company, gains information about something about to happen with that company that has not been disclosed to the public (e.g. significantly increased profits, new products about to be launched, etc.), and trades based upon that information.

Wednesday, March 14, 2012

"I didn't realize an email or downloading an app could be an enforceable contract"

With the ever changing technology and world in which we live, practices of how things are done change over time. This includes things like entering into contracts or modifying those agreements. Many people try to rely on the "I didn't sign anything" or "I didn't know" defense to get out of a contract, especially in the online or electronic context. These defenses may sound valid, but often people are not able to use them when it comes to things like email or online services. Several laws were put into place on the federal level and adopted by some of the states that address concerns about online transactions or agreements. The Electronic Signatures in Global and National Commerce Act (E-sign) and Uniform Electronic Transactions Act (UETA), and Uniform Computer Information Transactions Act (UCITA)(few states adopted this one) are all examples of such laws. These laws seek to make electronic communication or transmission of information relevant in the modern world to create things like enforceable contracts. They also put protections in place for consumers to avoid consumers being taken advantage of by things like hiding terms or conditions of use or making it clear that someone is being obligated by clicking on the "I accept" box or button. As just a few examples, courts have found that emails back and forth can be considered a signed written contract or that emails amended a contract, even though the physically signed agreement said amendments must be in writing. So your physical signature of your name is not required to obligate you. Also, when you click on that "I accept" button or even just by downloading a piece of software, you could be obligating yourself to certain contract provisions that may restrict or limit what you can do with their online service or software. The biggest thing that courts will usually look to is whether the party had notice of what they were agreeing to and whether they intended to agree. The intent to agree can sometimes be inferred by the fact that someone downloaded the software or took some other affirmative step, even if they later claim they didn't intend to be obligated. So just because you didn't physically sign a written contract, be aware that the next time you download an app or send off various emails, you may be agreeing to be bound by contract provisions which you may not have even bothered to read. Also, just because you aren't being charged for a service, your use of the software or other online service may obligate you to follow their terms and conditions of use.

Monday, February 20, 2012

What is the difference between SAAS and regular software licensing?

Companies providing SAAS, or software as a service, are different than traditional software providers. The main distinction is that a typical software provider will charge for software that the buyer installs (after download or through a CD or other medium) the software code until their local computer. The purchaser is also granted a license to use the software, usually for a certain period of time. The buyer is buying a product in the software, but they are really getting a license to use that software. For accounting purposes, those software sales are classified generally as purchases of a product, even though there is often no physical product given to the buyer. SAAS is when the provider company generally hosts the software on their own server and provides the software to the purchaser online. The main difference is the delivery method. SaaS is often referred to as software on demand. Each type has its own set of legal and tax characteristics/implications. Software licenses generally book the revenue from the front end costs to purchase the software as a product upon the time of sale. SaaS generally spreads the revenue recognition over a period of time during the subscription period. Tax liabilities therefore accrue at different times in the revenue cycle. There are also different types of agreements that are used as a software license agreement or end user agreement. SaaS agreements are usually setup as a subscription for a certain period of time to use the software and traditional software agreements are a license to use the software code, often also for a period of time but the purchase happens at initial purchase. Some traditional licensors try to limit the use period and require users to pay to renew their license after expiration or limit the number of users or number of computers it can be installed on. The difficulty is obviously that once the person has the software installed locally, it is difficult to enforce any kind of restriction if they fail to renew their license. Some could enforce this through things like only providing support or software updates if the user is current on their license fees (subscription). SaaS gives the company much more control over their code since there is typically no local installation and they retain complete control of their code. Of course SaaS requires online connections to run the service, but the availability of the internet has made that almost a non-issue. Some Saas will provide customers the service for free and earn their revenue from ads on the sites. It is pretty easy to see that the control and flexibility of SaaS make it the preferred method for most software.

Sunday, February 19, 2012

Jeremy Lin files for trademark protection for "Linsanity"

On February 13, 2012, New York Knicks sensation Jeremy Lin, through the law firm of Arent Fox LLP, filed for trademark protection for the "Linsanity" name. According to the filing with the U.S. Patent and Trademark Office, he filed for protection for a variety of uses, such as on backpacks, clothing, water bottles, caps, toys, action figures, and sports drinks. The filing is actually filed after two other individuals from California who filed a few days prior to Lin. There are certain Right to Publicity laws in California that protect celebrities names. California Civil Code Section 3344 states that a person shall not use another's name, voice, signature, photograph, or likeness, in any manner, on or in products, merchandise, or goods, or for purposes of advertising or selling, or soliciting purchases of, products, merchandise, goods or services, without such person's prior consent. Obviously, the term "Linsanity" would have to fall within the definition of his name to qualify for this protection. Often someone who files for the trademark and gets the application approved gains rights if they filed prior to another. However, there are common law trademark rights that can apply if the trademark was used in commerce prior to the filing. It is not just cut and dry of who files first. Lin's counsel will probably be much more willing and able to pursue the trademark application through to the end and can oppose the other trademark applications, so we can't guarantee it, but I would guess that the other trademark filers will not get very far in their attempts to cash in on the "Linsanity." Interestingly, one of the other filers is from Los Altos in California which is right next to Lin's hometown of Palo Alto.

Friday, February 10, 2012

Doug Whitman and Whitman Capital charged by SEC with insider trading

The SEC charged Whitman and Whitman Capital with insider trading for trading on stock tips for material non public information about pre-release earnings for Polycom and Google's quarterly earnings. A brief overview of the complaint is discussed here.

Sunday, February 5, 2012

HR 2930 & 2940- New Access to Capital for Startups, Easier to Raise Money with CrowdFunding, Rule 506 changes, and Use of Intermediaries?

There are definitely pros and cons with both HR 2930 and 2940. Having been in the position of a cash-strapped start-up trying to raise money, I can see the huge benefit of the changes for raising cash from small investors with intermediaries (basically a "finder") and advertising rules. However, the lack of disclosure requirements could allow for fraud on potential investors and not enough oversight.

I am a little surprised I don't see more posts regarding these from other corporate, startup, or securities lawyers. Here is a link to a good discussion on HR 2930 by the Securities Law Prof Blog.

Given that it appears that both HR 2930 and 2940 may pass the US Senate and be signed by the president and the recent recommendation by the Advisory Committee on Small and Emerging Companies for the SEC to make similar changes to SEC rules for 506 Reg D private placements, it appears these changes may take effect in the next several months. It may have some negative consequences on investors, but I think it will help with small startup companies fund raising abilities. There will be some work for corporate and securities lawyers to interpret and help companies implement these changes in the near future.

Stay tuned, I will try to keep track of the progress of these bills and provide updates as available on my blogs. barsnesscohen.blogspot.com and chrisbarsness.tumblr.com Twitter: @BarsnessLaw | www.siliconvalleystartupattorney.com

Wednesday, February 1, 2012

Facebook shows lots of cash and revenue, high valuation

In Facebook's S-1 registration statement, the most recent rounds of funding over the last year or so were sold at a price of $20.85 per share of Series A common stock. This places the valuation used for those raises somewhere in the neighborhood of making Facebook worth $86 billion, without taking into account any convertible preferred shares or option exercises. Some other items of interest are the consolidated financials. Facebook shows that as of 12/31/2011, it has close to $1.5 billion in cash, cash equivalents, and marketable securities. In addition, it also lists net income of $1 billion for 2011. Clearly companies have learned since the dot-com era on how to have real revenue recognition from an online company. We will have to see where the investment community puts for the initial share price, but I have heard rumors of somewhere in the $30 range putting the market cap well over $100 billion. To put that into perspective, that could approach or go beyond the valuations of Google and General Electric. It is funny to see reports on the news about all the "instant millionaires" or billionaires after the IPO. Anyone familiar with securities knows that it is not that easy. There are SEC rules, federal and state laws, as well as contractual restrictions on the ability to sell any stock that someone at Facebook may own. It appears the terms of any lock up and market standoff agreements exempt Mark Zuckerberg, but most executives, officers, directors, and employees will be restricted in when, how, and how much stock can be sold off. In addition, Mr. Zuckerberg still has to comply with securities laws when selling any stock. So, yes, there will be instant millionaires on paper, but someone has to own a large number of shares and be able to sell them to realize the status of a millionaire. That being said, more than likely, some founders, venture capitalists, early investors, and early key employees will do very well off their early involvement in the company.

Facebook Files $5B S-1 Registration Statement (Ticker: FB)

Today, as was much anticipated, Facebook filed its S-1 registration statement with the SEC. Their proposed ticker symbol for trading is requested to be "FB". For a link to the actual S-1 filing, click here. The filing is for a public sale of up to an unknown number of shares of common stock for a proposed maximum raise of $5 billion. Their listed corporate strategies are: Expand Our Global User Community. We continue to focus on growing our user base across all geographies, including relatively less-penetrated, large markets such as Brazil, Germany, India, Japan, Russia, and South Korea. We intend to grow our user base by continuing our marketing and user acquisition efforts and enhancing our products, including mobile apps, in order to make Facebook more accessible and useful. • Build Great Social Products to Increase Engagement. We prioritize product development investments that we believe will create engaging interactions between our users, developers, and advertisers on Facebook, across the web, and on mobile devices. We continue to invest significantly in improving our core products such as News Feed, Photos, and Groups, developing new products such as Timeline and Ticker, and enabling new Platform apps and website integrations. • Provide Users with the Most Compelling Experience. Facebook users are sharing and receiving more information across a broader range of devices. To provide the most compelling user experience, we continue to develop products and technologies focused on optimizing our social distribution channels to deliver the most useful content to each user by analyzing and organizing vast amounts of information in real time. • Build Engaging Mobile Experiences. We are devoting substantial resources to developing engaging mobile products and experiences for a wide range of platforms, including smartphones and feature phones. In addition, we are working across the mobile industry with operators, hardware manufacturers, operating system providers, and developers to improve the Facebook experience on mobile devices and make Facebook available to more people around the world. We believe that mobile usage is critical to maintaining user growth and engagement over the long term. • Enable Developers to Build Great Social Products Using the Facebook Platform. The success of our Platform developers and the vibrancy of our Platform ecosystem are key to increasing user engagement. We continue to invest in tools and APIs that enhance the ability of Platform developers to deliver products that are more social and personalized and better engage users on Facebook, across the web, and on mobile devices. Additionally, we plan to invest in enhancing our Payments offerings and in making the Payments experience on Facebook as convenient as possible for users and Platform developers. • Improve Ad Products for Advertisers and Users. We plan to continue to improve our ad products in order to create more value for advertisers and enhance their ability to make their advertising more social and relevant for users. Our advertising strategy centers on the belief that ad products that are social, relevant, and well-integrated with other content on Facebook can enhance the user experience while providing an attractive return for advertisers. We intend to invest in additional products for our advertisers and marketers while continuing to balance our monetization objectives with our commitment to optimizing the user experience.

Friday, January 27, 2012

SEC Advised to Allow General Advertising in Rule 506 Offerings

In a January 6, 2012 letter, the Advisory Committee on Small and Emerging Companies advised the Securities and Exchange Commission's chair, Honorable Mary L. Schapiro, that it should relax or modify existing restrictions on general solicitation and advertising of private placements. They are recommending that fund raising under Rule 506 with its restrictions to only using "accredited investors" and other investor protections are sufficient. They stated that the prohibition against general solicitation and advertising is not necessary and is too prohibitive in allowing companies the ability and access to raise capital under a Reg D Rule 506 offering. The SEC has not taken action yet on this advice; however, it is interesting to think that a private company looking to raise money could potentially use general advertising or solicitation to accredited investors. Would this create a sort of "public offering" of securities under Rule 506? The advisory letter is very brief, but one could see a rule change that allows companies some ability to publicly offer securities, provided they only accredited investors purchase the securities. This goes against the view that existing law and rules do not allow a company to even solicit the sale of securities to someone who is not already an accredited investor. Some clarification would be needed to allow companies and their counsel to navigate any changes, but this could ease things up for start up, emerging, or even steady growth companies that need access to capital. We will have to see what the SEC decides to do with this advice.

Thursday, January 26, 2012

TARP will continue to haunt taxpayers

<p>No one hears much about TARP anymore, but a recent report shows a gloomy picture for the next 5 years.  The US can spend up to another $51 billion on various programs.  Taxpayers are still owed over $130 billion and own over 70% of AIG and 30% of GM.  </p>
Who knows how long it will take to pay back all those funds and get things back to normal, but in my opinion, the economy has not shown any signs that you can spend your way out of a depression.

Tuesday, January 24, 2012

Delaware Chancery Court Considers Whether a Reverse Triangular Merger Constitutes an Assignment by Operation of Law

Delaware Chancery Court Considers Whether a Reverse Triangular Merger Constitutes an Assignment by Operation of Law

SEC Proposes New Rules Calling For Greater Independence Standards for Compensation Committees and Their Advisors

SEC Proposes New Rules Calling For Greater Independence Standards for Compensation Committees and Their Advisors

The First 100 Days of Say-On-Pay Mark Many More Failed Votes and the Advent of Say-On-Golden Parachutes

The First 100 Days of Say-On-Pay Mark Many More Failed Votes and the Advent of Say-On-Golden Parachutes

Spotlight on Pay For Performance Intensifies as ISS Releases New Evaluation Methodology for 2012 Proxy Season

Spotlight on Pay For Performance Intensifies as ISS Releases New Evaluation Methodology for 2012 Proxy Season

Update on New Reporting Rules for Stock Splits, Recapitalizations, Mergers and Acquisitions

Update on New Reporting Rules for Stock Splits, Recapitalizations, Mergers and Acquisitions

Regulatory Update: SEC Adopts Final Rules Defining "Accredited Investor" Consistent with Dodd-Frank

Regulatory Update: SEC Adopts Final Rules Defining "Accredited Investor" Consistent with Dodd-Frank