When one forms a limited liability company (LLC) without a lawyer, there is a high likelihood that LLC membership interests will not be issued properly. This post describes how to issue LLC membership interests. It is adapted from a Quora question about LLC membership vesting that I answered.
Properly-Issued LLC Membership Interests
If LLC membership interests are issued properly, one would expect to see several things. (more…)
Vator Splash Oakland – a two-day startup competition and educational event – will take place May 6-7, 2014 at Jack London Square.
This post addresses how one may move an existing corporation to another state. It is based on a question that I answered on Quora (What state is best to incorporate an S-corp if you plan on moving away?).
I find that for most entrepreneurs, it makes sense to incorporate in the state where the entrepreneur resides. As I wrote in In which State should My Startup Incorporate?
Incorporate in the state in which you are doing business, unless there is a good reason to do otherwise [in which case the other state chosen probably will be Delaware]. (more…)
Many of my startup clients begin with a virtual office, rather than a physical facility. They do this for convenience and to save money – or because the client is located outside the U.S. Sometimes, however, a physical address is required. This post discusses commonly-used physical address alternatives.
Definition of Virtual Office
The term virtual office can have different meanings in different contexts.
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:
Future services seem like a great no-cost way to buy equity in a startup. In California, however, whether you legally can buy equity with future services depends on whether the startup is a corporation or a limited liability company (LLC).
Corporations Code Section 409(a)(1) specifies the types of “consideration” that can be paid for corporate shares. These include, for example, “money paid; labor done; [and] services actually rendered to the corporation or for its benefit or in its formation or reorganization”.
However, “neither promissory notes of the purchaser [subject to certain exceptions] nor future services shall constitute payment or part payment for shares of the corporation“. So a California corporation cannot grant shares in exchange for future services.
In 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.
When startups incorporate, they typically want to avoid the expense, delay and effort associated with registering the sale of their shares. In California, the most common exemption from registration is found in Corporations Code Section 25102 (f).
Section 25102 (f) says that a corporation need not register the sale of its shares if all of the following requirements are met:
- The shares are sold to no more than 35 shareholders.
- All purchasers have a preexisting relationship with the corporation or its officers, directors or controlling persons.
- Each purchaser is buying shares for the purchaser’s own account and not for resale.
- The offer and sale of the shares is not accompanied by the publication of any advertisement.
This post is based on and expands upon an answer I provided on Quora. Q. Which company suffix to choose: “Inc.”, “Corp.”, etc? What are the criteria?
Many states – notably including Delaware (General Corporation Law Section 102(a)(1)) but, under most circumstances, excluding California – require that the name of a corporation include a word or abbreviation designating corporate status. Those that are used commonly include Corporation (Corp.), Incorporated (Inc.) and Limited (Ltd.).
The choice is totally a matter of style. This is more a marketing issue than a legal issue.
In my experience, “Inc.” is most popular – typically without a preceding comma, nowadays, for a cleaner look. Indeed, most of my foreign clients say “an Inc.” when they mean “a corporation”!
Related post: What is an Inc. and Why Should I Want One?
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.
Last week Y Combinator announced The Handshake Deal Protocol. A “handshake deal” is an oral commitment to a funding transaction between a startup’s founders and an investor. The handshake deal is necessary in Silicon Valley because, in the world of startups, one must move quickly.
As Y Combinator notes, however, a handshake deal can create problems:
Unfortunately, things don’t work as smoothly in Silicon Valley as among diamond dealers. This is not a closed community of pros who deal with one another day after day. Many participants in the funding market are noobs, and some are dishonest.