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

© 2009-2018 Dana H. Shultz, Attorney at Law

What are Non-voting Shares?

Photo of a ballot for post about non-voting shares

This post explains what non-voting shares are and why a corporation might want to authorize them. This is part of Dana Shultz’s Canonical Questions on the Law® series of questions and answers about legal issues, concepts and terminology.

In this post, I will focus on non-voting common shares. Preferred shares raise issues that go well beyond voting rights. (See What Is Preferred Stock?)

(more…)

Should We Authorize Preferred Shares when We Incorporate?

Certificate for preferred shares

This post discusses whether founders should authorize preferred shares, in addition to common shares, when they incorporate.

As I discussed in What is Preferred Stock?, corporations typically issue preferred shares to institutional investors, such as venture capitalists (VCs). The term “preferred” refers to preferences that those shares have relative to common shares.

(more…)

How Most States Chose “Shareholder” as Delaware Kept “Stockholder”

Cover page from Delaware Laws 1875 for post about terms shareholder and stockholder“Shareholder” and “stockholder” are synonyms. This post explains how most states came to use the former term in their laws, while Delaware consistently has used the latter.

Before Delaware had a general corporation law, Delaware’s legislature created each corporation. The Constitution of Delaware – 1831 so provided in Article II, Section 17, but made no mention of stockholders (or shareholders).

Following a constitutional amendment, Delaware adopted its first general corporation law in 1875. (See Laws of the State of Delaware, Vol. 15 – Part 1, beginning at page 181.) That law includes a few references to “stockholder”, none to “shareholder”. (more…)

Non-solicitation Provision Overturned in California

Graphic with reference to California Business and Professions Code, referenced in a case upholding an employee non-solicitation provisionIt is common knowledge that California generally prohibits post-employment non-compete provisions. However, people know far less about law pertaining to post-employment non-solicitation provisions.

In this post, I will describe existing post-employment non-compete and non-solicitation case law. Then I will discuss a recent case that may signal a new direction.

Background – Non-competition Provisions Disfavored

Business and Professions Code Section 16600 is the statutory basis for California’s post-employment non-compete prohibition: (more…)

Board Members Aren’t Necessarily Equal in Delaware

Logo of the State of Delaware bor post about board members having unequal voting rightsPeople typically think about corporate board members having equal voting rights: One director, one vote. However, for Delaware corporations, that is not always the case.

Delaware Statute – Board Members

This unusual situation is the result of a Delaware statute. (more…)

What Is a Smart Contract?

Screenshot of a Google search for " smart contract "The term ” smart contract ” has been appearing a lot, lately. (A recent Google search returned more than 4 million hits!) But there is confusion and misunderstanding concerning what this term means.

This post explains what smart contracts are, and what they are not. (more…)

Delaware Corporation Stockholders Can Waive Inspection Rights

Seal of the Delaware Division of Corporations, symbolizing this post by Dana Shultz about how stockholders can waive inspection rightsSeveral years ago, I wrote about stockholder inspection rights. (See Which Financial Information Must a Corporation Provide to its Shareholders? ) This post explains how stockholders of a Delaware corporation can waive inspection rights.

Delaware General Corporation Law Section 220 gives stockholders a right to “inspect for any proper purpose, and to make copies and extracts from…[t]he corporation’s stock ledger, a list of its stockholders, and its other books and records”. Furthermore, “proper purpose” means “a purpose reasonably related to such person’s interest as a stockholder.” (more…)

How Does a Corporation Declare a Dividend?

Photo of cash symbolizing post about how to declare a dividendThis post discusses the process by which a corporation may declare a dividend. This is part of Dana Shultz’s Canonical Questions on the Law™ series of questions and answers about legal issues, concepts and terminology.

Please note that this post assumes that the corporation will pay a cash dividend to its shareholders. If, instead, the corporation wishes to pay a stock dividend (issue more shares to existing shareholders), then somewhat different rules will apply. (more…)

What Does ” Reserved ” Mean in a Contract?

Logo for Quora, where Dana Shultz wrote about why one sees " Reserved " in a section of a contractIn this post I will explain why one sometimes sees ” Reserved ” in a section of a contract. I first presented this information in a Quora answer. Please see What is a “Reserved” clause in a contract?

Sometimes Sections are Deleted from Contracts

Sometimes (especially in olden days), when one no longer needed a Section in a contract, the lawyer drafting or revising the contract didn’t want to remove that Section entirely. The reason for this reluctance? Removal would require changing the numbering of the following Sections. (more…)

Blame Your Lawyer – An Underappreciated Legal Service

Photo of Scrabble tiles spelling "lawyer" for post about how to blame your lawyerIn this post I will explain why, sometimes, it can be helpful to blame your lawyer for something that really is not the lawyer’s fault.

In my experience, this situation typically arises when a client is negotiating business terms with a counterparty. (more…)