How Much Information Must I Provide to an Investor?
This post is based on a question that I answered on Quora. Q. Which tax documents is a startup obligated to disclose to its investors? Our angel investor is asking to see the full tax return (Form 1120S plus all Forms 1099). What are his rights versus the corporation?
A. I’ll give a multi-part answer.:
Can Personal Creditors Threaten My LLC?
I recently answered an Avvo question about whether personal financial problems would create trouble for the LLC that an individual was forming. The question and answer, substantially edited, are provided below.
Q. I am starting a new company. I wish to establish an LLC. I had a recent foreclosure and they are coming at me for 70k on a 3rd against the property. I also have a credit card judgment for 18k and 30k of other outstanding debt. Question is whether an LLC can protect me. I have investors placing 50-100k in this project and i cannot have any issues moving forward. [Emphasis added.] (more…)
Ten Tips for Success in the U.S.
Having helped more than a dozen foreign companies set up operations here during the past few years, I am pleased to offer “Ten Tips for Success in the U.S.” on the Downloads page – just Sign Up for Free Downloads using the drop-down list in the sidebar.
Here are the titles of the ten tips, which are discussed in greater detail in the document:
- Work with complementary businesses that are already established here
- Manage overseas personnel on the principle “trust but verify”
- Form your corporation or limited liability company properly
- Be ready for a legal system that is different from the one back home
- Identify and protect intellectual property (IP) that is used here
- Develop detailed employee and independent contractor agreements
- Choose an accountant with international tax experience
- Be prepared to obtain a federal employer identification number
- Conduct due diligence on potential investors
- Agree on business terms before you prepare a written agreement
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Investor Due Diligence Redux
On July 2, I posted Investor Due Diligence Should Go Both Ways. The thrust of that post: Founders should conduct due diligence on prospective investors just as investors conduct due diligence on founders.
In a similar vein, I just read Make Sure Your VC Isn’t A Jerk by Mark Peter Davis of DFJ Gotham Ventures. Well-written, succinct and worth reading.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Corporate Housekeeping: Keeping Documents in Order
From time to time, clients with established businesses have asked me to bring order to their legal affairs. I refer to this as ” corporate housekeeping “.
Usually, the request results from an extraordinary, but desirable, event. This might be an acquisition offer, a prospective new investor, or a restructuring for tax purposes. In each instance, the client quickly realizes that it has not been paying close enough attention to legal documentation.
Although the clients are in different industries, their stories are similar. In essence, they limit their legal activities and expenditures to those required to bring business in the door, satisfy customers’ needs, and pay employees. This approach works on a day-to-day basis. Yet when the extraordinary event comes up, the company suddenly needs to devote scarce resources to legal clean-up. (more…)
Investor Due Diligence Should Go Both Ways
Due diligence is a routine part of an investor’s decision whether to invest in a company. The company also should conduct its own investor due diligence.
A couple of years ago, I worked with a company (“Client”) that provided e-mail security products. Previously, Client’s founder (“Founder”) had arranged for an equity investment by a company controlled by an individual in Southern California (“Investor”).
First Mistake: No Legal Counsel
One of Founder’s huge mistakes was not seeking legal counsel to review the terms of the investment. Two of those terms were disastrous for Founder. (more…)
