The High-touch Legal Services® Blog…for Startups!

© 2009-2016 Dana H. Shultz, Attorney at Law

When Is It OK to Incorporate Online?

Ads for "incorporate online"Many entrepreneurs need to control expenses – including legal fees. One way to do that is to incorporate online rather than work with a lawyer. Occasionally I am asked, “When is it OK to incorporate online?

My greatest concern when entrepreneurs incorporate online is that they have no way to know whether the process has been completed properly. This is particularly true with respect to issuing shares – a critical task.

In answering this question, I look for activities that increase the likelihood of a dispute or a lawsuit. I ask:

Social Media and Investors – WSJ Explains How

Logo of WSJ.com, which published an article about social media and investorsIn an article published today, the Wall Street Journal discusses how social media and investors can come together for the benefit of startup entrepreneurs. (If You Look Good on Twitter, VCs May Take Notice)

According to the article, more “venture capitalists are taking social media into consideration before they decide to pour millions of dollars into a startup” [emphasis added].

The article includes the following eight tips [emphasis added] for how to bring a startup’s social media and investors together most effectively.

  1. (more…)

WSJ: VCs Reducing Appetite for Risk

WSJ.com logo

In an article published today (Venture Capital to Suppress Its Appetite for Risk in 2013), the Wall Street Journal reports that venture capitalists have dramatically lowered their appetite for risk, reducing the power of Internet entrepreneurs who are seeking funding.

The article notes that:

  • In light of disappointing stock-market performance of Facebook, Zynga and Groupon, VCs are investing less in consumer Internet companies.
  • During the past year, valuations have gone down significantly.
  • On a quarter-over-quarter basis, the number of deals, the amount invested and the percentage of “up” rounds all have declined.

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WSJ: New Industry Hubs Drawing Entrepreneurs and Investors

WSJ.com logo

In an article yesterday (Where the Action Is), the Wall Street Journal discussed seven centers of innovation across the U.S. – other than well-known locations, such as Silicon Valley and Boston – where entrepreneurs, investors and government are working together to develop specific industries.

Those industries and their locations are:

  • Outdoor Sports Gear – Ogden, Utah
  • Cybersecurity – San Antonio, Texas
  • Information Technology? – Kansas City, Kansas / Missouri
  • Life Sciences – Indianapolis, Indiana
  • Health Care – Nashville, Tennessee
  • Beer Brewing – Asheville, North Carolina
  • Nanotechnology – Albany, New York

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.

Attention Entrepreneur: Have You Planned Your Estate?

I frequently talk to individuals who are about to start new businesses. Sometimes, our conversation reveals that the nascent entrepreneur is:

  • Age 30-something,
  • Married, and
  • Parent of a young child, or has a first child on the way.

When I learn this, I immediately ask, “Have you done any estate planning?” The answer invariably is “No.”

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WSJ: Entrepreneurs Turn to Peer-to-Peer Loans

WSJ.com logo

In an article yesterday (“Peer-to-Peer Loans Grow”), the Wall Street Journal discussed increasing use of peer-to-peer lending sites such as Prosper and Lending Club by small-business owners.

The reason such use is increasing: During and since the financial crisis, small businesses have had a difficult time obtaining bank loans, and the loans that they can obtain often have unfavorable terms.

How peer-to-peer lending works: The borrower pays the site a fee. The site analyzes the borrower’s creditworthiness, sets an interest rate accordingly, and posts the loan. Investors anonymously invest small amounts – less than $1,000 – in loans that interest them. As each loan payment is made, each investor receives his or her portion. Because the site has low overhead, borrowers pay a lower interest rate that they would to a bank; in turn, investors receive a higher return than they would from many other investments.

The sites are regulated by the Securities and Exchange Commission. As a result, they issue prospectuses that highlight the risks of using the sites. For example, the Prosper Prospectus includes more than 20 pages of risks related to borrower default, Prosper’s ability to service the notes, and the like.

Perhaps most important, in the event of a? default, the lenders cannot go after the borrower directly. As a result, lenders should be prepared to lose the entire amount of their investments. However, with default rates of less than three percent, peer-to-peer lending can make sense for investors who spread their money in small chunks among many loans – and it makes a huge amount of sense for borrowers who cannot obtain money elsewhere.

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.

You May Not Need a Lawyer (Yet)

U.S. Small Business Administration logo

A few days ago, a first-time entrepreneur contacted me, asking that I advise him on such issues as employees vs. independent contractors, equity compensation, and the like. As we exchanged e-mails, however, I could see that there were fundamental business issues to which he had not given sufficient consideration. (more…)

WSJ: Web Start-Ups Get Upper Hand Over Investors

WSJ.com logo

In an article published today (“Web Start-Ups Get Upper Hand Over Investors”), the Wall Street Journal reported (emphasis added) that “As venture capitalists scramble to get a piece of Silicon Valley’s new Web boom, entrepreneurs … are finding they have the upper hand.

Here are some of the points the article makes about the latest Web boom:

  • As VCs search for the next Facebook or Twitter, some entrepreneurs are positioned to have a greater say about how much they raise and deal terms.
  • Bidding among VCs is driving up the price of many deals.
  • Angel investors are driving up the prices of the tiniest early-stage companies.
  • Some entrepreneurs are taking advantage of the situation by seeking the best advisors rather than the greatest amount of money.

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.

What Must We Do if We’re Going to Be Acquired?

photo of document binders standing next to one another

A successful exit by acquisition is one of the great thrills of entrepreneurship. That exit does not come easily, however. This post discusses, by category, the most important documents and information that you will need to provide during the acquirer’s due diligence process.

Corporate Documentation

  • Articles of incorporation and bylaws, as amended
  • Minutes of board and shareholder meetings and actions
  • Share transfer ledger, including name and address of each shareholder
  • Agreements pertaining to shares and shareholders’ rights (buy-sell, voting rights, etc.)
  • List of holders of option or warrants and all applicable agreements

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