Start-Up Entrepreneur Series: 83(b) Elections

In the Start-Up Entrepreneur Series, I will be taking a deeper look into some of the most common questions early stage founders face in putting together and operating their new businesses.  

The Start-Up Entrepreneur Series will be published each Wednesday morning until conclusion. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

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Two weeks ago, we discussed considerations associated with the issuance of Company stock to Founders.  One of these considerations was the concept of “vesting”. To quote this very blog:

“Vesting” is a fancy legal term for a number of separate, but interrelated concepts related to giving back stock if a purchaser (or grantee) either leaves a relationship with the company (time-based vesting) or doesn’t do what they said they were going to do (milestone-based vesting).

In short, while a Founder receives stock (or “units of interest” in a limited liability company), the Founder is not secure in his or her ownership of that stock until it is “vested”.  Prior to that point, such stock may be forfeited (or repurchased at below market cost) by the Company.

Which raises the age-old question: What about taxes?

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Financing Term Sheet Deep Dive: Anti-Dilution

Whether you’ve only recently decided to seek out capital for your business or you’ve already received (or made) your first offer, the term sheet (or “letter of intent”) is an integral part of the process.  

In this series we’ll look to shed some light on the legal language contained in that term sheet by taking a “deep dive” into the most often used terms and how choices made in selecting those terms can affect both Company and Investor.  Check out an overview here.

Financing Term Sheet Deep Dive will be published each Monday morning until conclusion. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

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Last week, in discussing the right of Investors to convert their preferred stock into common, we touched on the concept of “anti-dilution” provisions intended to alter the number of shares that the preferred stock might convert into.

Today, we take a deeper look at this complicated concept.

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Start-Up Entrepreneur Series: Non-Competition

In the Start-Up Entrepreneur Series, I will be taking a deeper look into some of the most common questions early stage founders face in putting together and operating their new businesses.  

The Start-Up Entrepreneur Series will be published each Wednesday morning until conclusion. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

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Last week, we discussed agreements designed to protect a Company’s intellectual property.  As part of that discussion, we brought up the concept of “non-competition”;  a provision (or set of provisions) designed to prevent a Company employee or contractor from absconding with the Company’s valuable information.

Today we discuss those provisions in more detail.

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Financing Term Sheet Deep Dive: Conversion

Whether you’ve only recently decided to seek out capital for your business or you’ve already received (or made) your first offer, the term sheet (or “letter of intent”) is an integral part of the process.  

In this series we’ll look to shed some light on the legal language contained in that term sheet by taking a “deep dive” into the most often used terms and how choices made in selecting those terms can affect both Company and Investor.  Check out an overview here.

Financing Term Sheet Deep Dive will be published each Monday morning until conclusion. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

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In our earlier discussions on the rights and privileges set out in a financing term sheet (including our discussions regarding voting rights, dividends, and liquidation preferences), we’ve noted that the phrase “on an as converted basis” or “as converted” has been used in the model terms to describe the full capitalization of the Company.

But what is this “conversion”?  How does it work?  And how does it affect the rights and privileges of the Investors and their securities?

The answer is fundamental to the nature of preferred equity offerings.

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TGIF: April 14, 2017 – On Being United…Against Ambiguous Contract Terms

Despite what you may have heard, lawyers are, in fact, human beings with interests and hobbies all their own. They are not, I repeat not, robots sent from the future solely for the purpose of billing hours, drafting documents, and negotiating terms.  Not all of them anyway.  

In TGIF, I touch on some of my own interests primarily through the lens of the “Rules of the Game”, focusing on the rules and incentives that affect many aspects of our daily lives. I may even crack a joke or two. Hard to say.

TGIF will be published regularly on (surprisingly enough) Friday mornings. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

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United, Dr. Dao, and The Contract of Carriage

Well, United Airlines had an interesting week, didn’t they?  For those of you who missed it, this is how Wikipedia (!) summarizes the events of Flight 3411.

On April 9, 2017 just before 5:20 p.m., O’Hare International Airport police forcibly removed passenger David Dao from United Express Flight 3411 after he refused to depart the airplane upon the demand of management. Dao screamed as officers pulled him out of his seat, and his face hit an armrest during the struggle. Officers then dragged him by his arms on his back along the aircraft aisle past rows of onlooking passengers. He was later seen with blood around his mouth. Prior to the confrontation, managers offered compensation to passengers to vacate their seats to make room for four airline employees who needed to travel to the destination, Louisville International Airport. Three other passengers complied, and Dao was selected to be fourth.

After video of the removal (and apparent physical injury) went viral, more information came out.

Continue reading “TGIF: April 14, 2017 – On Being United…Against Ambiguous Contract Terms”

Start-Up Entrepreneur Series: Information and Inventions

In the Start-Up Entrepreneur Series, I will be taking a deeper look into some of the most common questions early stage founders face in putting together and operating their new businesses.  

The Start-Up Entrepreneur Series will be published each Wednesday morning until conclusion. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

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Every new company has (or hopes to have) assets of some kind.  Some are physical. The retailer has his inventory, the service provider her equipment, the tech company its hardware.  For others (or for other parts of the same companies) its intangible. Software, information, prototype designs. But while many companies don’t need to worry about the protection of these “proprietary” assets, for others it is an absolute necessity.

Today we’ll take a look at one of the foundational incorporation documents for these IP-based companies: the Proprietary Information and Inventions Assignment Agreement (“PIIA”).

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Financing Term Sheet Deep Dive: Protective Provisions

Whether you’ve only recently decided to seek out capital for your business or you’ve already received (or made) your first offer, the term sheet (or “letter of intent”) is an integral part of the process.  

In this series we’ll look to shed some light on the legal language contained in that term sheet by taking a “deep dive” into the most often used terms and how choices made in selecting those terms can affect both Company and Investor.  Check out an overview here.

Financing Term Sheet Deep Dive will be published each Monday morning until conclusion. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

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Last week, we discussed one of the primary governance rights given by a Company to its Investors: board representation. This week, we talk about the other primary governance right: “protective provisions”.

Under most state laws, a corporation (or an LLC) cannot take certain significant actions without getting the approval (or “consent”) of the holders of the company’s equity. Generally, this right is held by a majority in interest of all such holders.

The term “protective provisions” is a fancy way of saying (in legalese) that in addition to getting majority approval, the Company must also get the approval of a set percentage of the Investor class in order to take certain of these actions.  In other words, the Investors are “protected” from the Company’s doing certain things without their having agreed.

Continue reading “Financing Term Sheet Deep Dive: Protective Provisions”