Start-Up Entrepreneur Series: Directors and Officers

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 talked about the various documents that make up the governing “law” of a corporation (or LLC).  This week, we’ll talk about the individuals that govern the actions of a corporation: the Board of Directors and Officers.

(Note that because of the inherent flexibility in the LLC structure, a discussion of an LLC’s management at a generalized level is not possible.  Know that an LLC can be organized as we discuss below (and that many do in order to emulate the more understood corporate form), but that it can also be organized in myriad other, distinct ways.)

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Financing Term Sheet Deep Dive: Liquidation Preference

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 a financing term sheet by taking a “deep dive” into the most often used terms and how choices made in selecting those terms can affect both the Company and the 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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If dividends are the interest paid on a standard loan, then the “liquidation preference” is the return of principal.  Together they form the economic spine of the stock (or other securities) sold to the Investor, and, as such, should be the primary focal point of negotiations related to the Company’s value.

Put simply, a “liquidation preference” is an amount of money which the Company agrees to pay to the holders of its preferred stock (or other securities being sold) prior to (or in “preference”) to all other funds it is to pay its other stockholders upon the Company’s sale (or “liquidation”).

Unlike in a standard bank loan, however, a “liquidation preference” can take many forms, some much more costly than others.

TGIF: March 24, 2017 – Abiding Andromeda in Ancient Japan

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 ultimately affect all of us in pursuing our life’s endeavors. 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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Mass Effect Andromeda – Optimism in a Sea of Cynicism

This week sees the launch of the latest in one of the most well thought of western video game role-playing series: Mass Effect.  In previous games, your character (called Shepard, or “The Shepherd” when series creator Bioware really wanted to step up the haughtiness) helped fight off the existential threat of giant mechanical squid things from beyond called “The Reapers”.  Ah, video games.  The third and final game of the original trilogy in particular, really delved into the “end of all things” of it all ( I mean, just listen to this.)

Rightfully thinking that after two sequels, “galaxy-wide apocalypse” could not easily be topped, the newest game in the series, “Mass Effect Andromeda“, takes a different approach.

Start-Up Entrepreneur Series: Governance Documents

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.  

Start-Up Entrepreneur 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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The day-to-day operations of a business are dependent on many things: market trends, customer relations, vendor management, the CEOs mood.  But from a legal perspective, the operations of a company (whether a corporation or LLC) are governed at the highest level by the interactions of two or three primary sets of rules set forth in only two or three primary sets of documents.  While we’ll get into the details of what these rules can permit (or prohibit) later in the series, it is important, first, to get an overview of how they generally interact.

Financing Term Sheet Deep Dive: Dividends

Whether you’ve only recently decided to seek out capital for your business or you have 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 a financing term sheet by taking a “deep dive” into the most often used terms and how choices made in selecting those terms can affect both the Company and the 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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When you take out a home loan or put money on your credit card, it is on the understanding that the bank (or other institution) lending you money will expect something back for the trouble. In the case of a traditional loan instrument that “payback” comes in the form of interest, generally described as a percentage of the amount initially lent (or “principal”).

In the equity financing world, the “payback” concept is instead captured by the notion of the “dividend”, or right to receive funds from a company solely because of the stock that you hold.

Let’s take a look at a few of the options.

TGIF: March 17th, 2017 – March Madness in Equipoise

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 resulting incentives that ultimately affect all of us in pursuing our life’s endeavors. 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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The NCAA Tournament and Perspective

Last week we talked about plane crashes, the Michigan basketball team, and the importance of looking at incentives when listening to differing perspectives on current events.  This week we carefully examine whether or not Jim Harbaugh would crash an airplane if he determined it gave his team a competitive advantage.  No, not really, but it is a fun thought experiment.  (My best tongue-in-cheek guess: He absolutely would if he could assure that there were no injuries greater than those experienced by the basketball team last week.  I mean they won the Big Ten Championship for heaven’s sake. If he can nail down that small “risk issue”, look out air traffic controllers.  Wolverine One is coming in for a landing.  Hard.)

No, this week we stick with basketball to celebrate one of my favorite things on Earth: “The Tournament”.

Start-Up Entrepreneur Series: Corporation or LLC? (Part II)

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.  

Start-Up Entrepreneur 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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This post is a continuation of our discussion on the differences between corporations and LLCs (if you missed Part I, check it out here).  Note: As I did not want to split this discussion up over three weeks, this post is a bit longer than most.

How likely are you to follow “corporate formalities”?

One of the primary purposes of setting up a new business entity (rather than just operating as a “sole proprietorship” or similar “individual” form) is to protect yourself and your investors from liability for the actions of that entity.  As I tell it when giving presentations on forming a business: you set up a corporation (or an LLC) to prevent someone from seizing your house if your company gets sued.