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

© 2009-2019 Dana H. Shultz, Attorney at Law

Section 25102 (f) – Securities Law Compliance if You Incorporate in California

Banner for California Department of Business Oversight, where Section 25102 (f) notices are filedWhen 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.

(more…)

Which is Best – “Inc.”, “Corp.” or Something Else?

Logo for Quora, the source for a question about Inc. and Corp.

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.

When a Handshake Deal Isn’t Really a Handshake Deal

Logo for Y Combinator, which announced The Handshake Deal Protocol

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.

(more…)

WSJ: Most Accelerators Are of Doubtful Value

WSJ.com logo

Accelerators offer entrepreneurs seed funding and one-to-one mentoring in exchange for an equity stake, making a profit when some of their startups receive institutional (VC) funding. However, according to a Wall Street Journal article published yesterday (Start-Ups Crowd ‘Accelerators’), most accelerators – especially those outside Silicon Valley, Boston and New York – are of doubtful value.

(more…)

You Can’t Use “Corp” in the Name of an LLC (in CA or NY)

Logo for Quora, symbolizing Dana Shultz's answer to a question about the name of an LLC

This post is based on a question about limited liability companies that I answered on Quora. (The answer focuses on NY, because that was the questioner’s state, and CA, because that is where I practice.) Q. Can I use the word “Corp” in the name of an LLC (for example, AcmeCorp LLC or WhateverCorp LLC)?

The section reference? below has been updated to reflect California?s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).

A. No. NY LLC Law Section 204(e) states, inter alia, that the name of an LLC may not contain “corporation” or “incorporated” or any abbreviation or derivative thereof. This prohibition is not unique to NY. California Corporations Code Section 17701.08(e) has a similar prohibition for LLC names.

Check out all posts about LLCs.

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.

Why You Shouldn’t Use a Finder to Find Venture Capital

Picture of a compass (for determining direction based on magnetic North)

I recently spoke with three startup entrepreneurs who had just retained a finder to locate venture capital in exchange for an equity stake in the form of warrants (the right to purchase shares at a specified price by a specified date). They got very nervous when, after reading their agreement with the finder, I told them the business and legal reasons why retaining the finder was a bad idea: (more…)

Angel Investment: California Leads in Deals and Dollars

Hslo Report logo

On March 8, The Angel Resource Institute, Silicon Valley Bank and CB Insights released the first Halo Report, which analyzes early-stage investments by angel investment groups. Of particular note: In 2011, California accounted for 21% of the deals and 29.8% of the funds invested.

Other noteworthy findings: (more…)

How Can I Have Reverse Vesting in an LLC?

Quora logo

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? (more…)

Is there Any Reason to Form a General Partnership?

Logo for Quora, where Dana Shultz answered a question about whether to form a general partnership

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 paraphrased, 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?

(more…)

WSJ: Angel Investors are Getting Harder to Sell

WSJ.com logo

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.