In California, corporate directors are protected by the so-called Business Judgment Rule (“BJR“): They are not responsible for honest mistakes of business judgment. A recent case revealed that in California the BJR does not protect corporate officers.
During 2007, Indymac Bank bought more than $10 billion in risky residential loans, ultimately generating losses of more than $600 million. Indymac closed, and the Federal Deposit Insurance Corporation was appointed receiver.
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I recently received, via Quora, a private question about setting up an LLC membership interest (rather than shares of a corporation) with reverse vesting (see Rewarding Key Personnel: Restricted Stock or Options?). That question, and my answer, are reproduced below with minor editing.
Q. I am starting a company and forming as an LLC. My co-founder will received a reverse-vested membership percentage. I’ve found plenty of sample restricted stock agreements, but nothing for LLCs and memberships. Do you have any suggestions where I can find a sample agreement?
A. Sorry, I know of no such document. I believe there are two somewhat-related reasons why this is the case:
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In How to Defeat a Cybersquatter, I wrote about using ICANN’s comparatively quick and inexpensive Uniform Domain Name Dispute Resolution Policy (UDRP) to defeat cybersquatters. The domain name NewtGingrich.com recently was squatted upon – but I doubt that Newt will be able to use the UDRP successfully to recover that domain.
Gingrich Communications had owned NewtGingrich.com since 2004, but apparently forgot to renew the domain name in August 2011. By December 2011, it was owned by American Bridge 21st Century, a progressive Political Action Committee. (In the interim, it was owned by entities in Chihuahua, Mexico.)
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A short while ago, I answered a Quora question about whether and why a startup might want to form a general partnership. The question and my answer are reproduced, with emphasis added, below.
Q. What are some of the reasons a business might organize itself as a general partnership? Considering all the liability risk that general partners might potentially face, why not organize as a limited liability company? Was there an era when the general partnership was an attractive form and, if so, why?
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In an article published today (Chasing the New Angel Investors), the Wall Street Journal discusses why entrepreneurs must work ever-harder to persuade angel investors to invest.
According to the article, although seed and startup angel investment has increased, there are several reasons why that money is more difficult to attract:
- Since the recession, many angels have become more demanding, looking for proof of marketplace acceptance rather than a hunch that it exists.
- Angel groups, which syndicate deals among their members, have a more-formal review process that may involve discussions by dozens of potential investors.
- With less venture capital available, angels are more concerned about whether a company can grow to profitability or a successful exit.
The article’s advice for entrepreneurs: Have something to show, know your business thoroughly, and polish your pitch.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
A recently-acquired client is one of three inventors of a device that received a U.S. patent. She asked me whether she can freely license to an LLC owned by two of the inventors the right to manufacture products covered by the license. I replied “yes” – here’s why.
35 U.S.C. Section 262 says:
In the absence of any agreement to the contrary, each of the joint owners of a patent may make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners.
In other words, each of the co-inventors, who jointly own the patent, can exploit the patent as she sees fit - and she need not share any profits with the other patent owners.
Furthermore, each inventor can assign or license to third parties her right to exploit the patent, thus my client can grant to her LLC a license to manufacture products covered by the patent without financial obligation to the other inventors.
Please note that this is different from situations involving jointly-owned copyrights, where profits earned by one owner must be shared with the others (see I’m One of Several Authors – Who Owns the Copyright?).
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
The evening of Wednesday, November 16, the Silicon Valley Academy of Startup Entrepreneurs (SVASE) will present “What’s Hot – What VCs Like and Why” as part of its East Bay Series. Here is the event description:
To build a fundable company, you need to know the areas that investors are focusing on. Venture capitalists specialize in identifying important and lucrative opportunities before they become trends. So, what are VCs intrigued by today? Where will their money be invested? What is the effect of recent economic conditions? Learn what you will need to build a company that capitalizes on the latest developments.
Panel members will include:
- Brent Ahrens, Canaan Partners
- Cindy Padnos, Illuminate Ventures
- Randy Hawks, Claremont Creek Ventures
The event will take place at the beautiful Crow Canyon Country Club and will include a tasty buffet dinner.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Several days ago, a Quora question and answer caught may attention. The question asked about things some lawyers do that break, rather than make, deals. I was intrigued by the response “[s]ending over very aggressive opening terms as a negotiating ploy”.
That is a situation I have faced only rarely – most of the time, my clients’ counterparties are pretty reasonable. When excessively unreasonable terms do appear, however, there is a simple response: I refuse to negotiate. Instead, I reply along the line of the following:
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Several years ago, a friend lamented that he was not very good at negotiating on behalf of his professional-services business. He felt that clients were better at “bluffing” and other negotiating techniques than he was, so he often was paid less than he should have been. I told him the single most important thing he needed to know if he wanted to negotiate successfully:
You have to be willing to walk away.
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Today I answered a Quora question about what a letter of intent is and what it should contain. The question and my answer (each edited slightly) are reproduced below.
Q. What is a letter of intent? What are the legal implications of a letter of intent? What is the purpose? Which elements minimally comprise a letter of intent?
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Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.