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Top 5 Reasons for a California Company to incorporate in Delaware

Company founders frequently ask their California business attorneys whether they should incorporate in California or Delaware.  The answer in the view of DPA Law, PC in San Jose is this depends on the founder’s objectives and goals for his or her new company. As a California based company (meaning one with its primary place of business in California or one with its corporate “nerve center” here—the place where the corporation’s high-level officers will direct the corporation’s activities) choosing De..

Choose Your Business Structure

The business structure you choose will have legal and tax implications.  This summary is not intended as a substitute for working with qualified corporate counsel or a business attorney before choosing a structure for your business.  But it may help you ask some of the right questions. While this list is not exclusive, as business attorneys we receive more questions about the following: Sole Proprietorship A sole proprietorship is the most basic type of business to operate.  It is in fact not separate from i..

What Startup Founders Need To Know About Term Sheets From Sophisticated Angel Investors & VC’s

A startup’s receiving its first term sheet is generally an important early milestone. And while investor term sheets are not generic, they are designed to protect the investors’ investment – not the company. So it is not uncommon for founders and sophisticated investors to diverge on what a deal should look like. Because term sheets are largely non-binding, the investment occurs only if and when the parties agree on definitive deal documents. Those documents are supposed to reflect with detail the term shee..

How To Revive A Suspended California Corporation

In an earlier post we address why a California corporation’s status sometimes becomes suspended and how to avoid this (May, 2015: Why Does The “Active” Status of a California Corporation Get Suspended, and How is This Avoided?”)  As we explained, a corporation can be suspended either by the Secretary of State for failing to file its annual Statement of Information, or by the Franchise Tax Board (FTB) for failing to pay taxes or file tax returns. As one might anticipate, reviving a California corporation whi..

Stock options – The major differences between ISOs and NSOs & the 83(b) election

There are two major differences between incentive stock options (ISOs) and non-qualified stock options (NSOs): the type of person who may receive the option award and the tax consequences upon option exercise.   This is not to suggest that there aren’t other technical distinctions but, this post will address only these two.  It also reviews the benefit of the 83(b) election. ISOs Are For Employees, Not Independent Contractors ISOs can only be granted to employees.   NSOs can be granted to anyone: employees,..

What Startups Need to Know about Business Contracts & Common Intellectual Property Errors

First time startup founders often overlook key intellectual property concepts and provisions in their business arrangements and contracts.  This is particularly true for those who self-incorporate through LegalZoom or similar sites.  While some of this can often be cleaned-up by a corporate attorney after the fact, this is not always the case.  And, sometimes, even when it is, doing so presents a costly drawn-out diversion of time, energy and resources.From the experience of DPA Law, PC’s attorneys advisin..

EMPLOYER END-RUNS AROUND CALIFORNIA’S PUBLIC POLICY AGAINST EMPLOYEE NON-COMPETITION AGREEMENTS

With limited exceptions, California courts treat non-competition agreements with California based employees as unenforceable restraints on trade contrary.  Companies headquartered outside of California, however, often seek to avoid this outcome by using choice of law and forum selection clauses in their California employment agreements—provisions which say the agreement is governed by the law of specified state other than California (choice of law), and that lawsuits must be heard in the courts of such other..

Data Security Provisions and SaaS Master Service Agreements: Part I of II

Software as a service (or SaaS) providers hosting and processing customer or vendor data for other businesses increasingly find themselves having to address customer demands that the controlling master service agreement (MSA) include heightened data security covenants for certain sensitive data—which potentially includes personally identifiable information of the customer’s customers, vendors, and employees. These data security provisions go beyond customary confidentiality covenants whereby a party agrees..

Stock Purchase Rights and Founder’s Shares

A stock repurchase right with regard to a founder is a provision in a stock purchase agreement permitting the issuing corporation to  repurchase certain of the founder’s shares should she leave the corporation before an agreed minimum period of time has elapsed.   Venture investors tend to require that a corporation have such a repurchase right with founders as a condition to their investing.  They do this generally to align the founder’s risk with their own.The Early Departing Founder Where there are..

Qualified Small Business Stock-what is it and why does it matter to Startup investors?

Investors in startups frequently require the corporation to warrant in connection with sale of its stock that the startup’s shares are qualified small business stock within the meaning of Section 1202 of the Internal Revenue Code (the Code).  The reason is that Section 1202 allows a certain taxpayers to exclude from taxable income a portion of the gain realized on the sale of qualified small business stock.  Section 1045 of the Code further allows certain taxpayers to defer recognition of potentially all su..