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.

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.

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:
 http://www.sec.gov/news/press/2012/2012-67.htm

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.


 

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. 

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.

"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.