Funding Portal Rules for Regulation Crowdfunding a/k/a Equity Crowdfunding

The JOBS Act from way back in 2012, set forth the Crowdfunding exemption to the securities laws, and required that any Funding Portal that engaged in Crowdfunding registered with the SEC and became a member of FINRA.  In late 2015, the SEC came out with the Regulation Crowdfunding Final Rules and forms to permit companies to offer and sell securities through Crowdfunding and to regulate the intermediaries which can sell the crowdfunded securities.  The latest Funding Portal rules have been finalized by the SEC and FINRA. Read more

Use your Retirement Plan to Fund your Startup

First of all, I won’t advise anyone to withdraw their 401(k) funds early as the tax hit the IRS enacts is insane.  If you are thinking about doing that, please don’t, or at least don’t do so until you’ve spoken to your accountant.

This post will, however, detail how to use your qualified retirement plan or IRA to start a new, or buy an existing, business.  This name given to the process I’ll discuss is rollovers as business startups (“ROBS”).  The main gist is that an individual’s current retirement plan is rolled over into a newly established 401(k) plan sponsored by a startup company and then used to purchase the startup company’s stock.  The ROBS arrangement allows income taxes and penalties (see IRC Section 72(t))to be avoided because it is a rollover from one qualified plan to another. Read more

Ten Tips for Pitching your Startup to Investors

I volunteer at a couple of small business incubators and programs.  I was sitting in on a mock pitch last week and giving some pointers on how the entrepreneur could polish their pitchdeck and overall presentation. I figured I’d put these up so people can take a look.  The below are offered to any startup looking to raise money: Read more

Series LLCs

If you are one of those people who is tired of having to form seperate entities (LLCs or corporations) for each type of business you operate, or for each piece of real estate that you own, a Series LLC may be useful to you. Nearly a decade ago, the state of Delaware introduced a legal entity that would become known as the Series LLC. Despite its origins in Delaware, several other states have now started to permit the usage of Series LLCs.  Read more

Benefit Corporations (B-Corps) & Other “Good Vibe” Corporate Structures

It used to be that if you wanted to start a corporation and the end goal was not to maximize shareholder value (or other typical corporate goals), you’d start a not-for-profit corporation.  That’s no longer the case. Now in New York (and at least six other states) you can form a Benefit Corporation (a “B-corp”) which has other purposes besides making money.  There are also other strategies you can use in a for-profit company to give it more of an egalitarian feel.  We’ll discuss below. Read more

How to form a Single Member LLC in New York State

There are a lot of small businesses out there operating as sole proprietorships, that is they operate the business through the individual(s), and there is no formal entity.  Many sole proprietors tell me that they’ve filed a d/b/a with the local county (here, the counties of Onondaga, Tompkins or Monroe), and therefore believe that is all they need to ensure that they are not personally liable, but this is not correct.

The main reason people incorporate or organize LLCs is to limit liability.  Debts and contractual obligations are not something that you want to owe personally if you can avoid it.  Setting up an LLC will create a seperate legal entity from yourself that you will operate the business through, own business assets, and contract through.  Not much has to change when you form a single member LLC.  LLC’s are also useful because the IRS will let you choose how you want the LLC taxed (either as a disregarded entity, S corp or C corp).

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Hack-a-thon Agreements

I hit on the Hack-a-thon craze in an earlier post. The IP that is created by the hackers in these programs has to be owned by someone, although there are still times where everyone walks away not knowing what everyone’s rights are.  If nothing is ever signed by all participants and the hackathon sponsor, its unclear who owns what.

There are a couple different options.  The sponsor may want to own everything, or may want to at least have a perpetual paid up license to use the IP created.  The hackers should get some rights as well, but its been hard to delineate what and how it should be handled.

A friend of mine and a fellow startup lawyer, Dave Capuccilli of The Capucilli Firm has been working on a solution to this dilemma. Check out his latest iteration to a Hack-a-thon Collaboration Agreement, courtesy of Docracy.  Its a great way to ensure all hackers and the sponsor get a fair shot at using the IP created.

I currently represent a few companies that were born at Hack-a-thons and Startup Labs (a similar idea but slightly different format/program), and if they had an agreement like this signed before they came to me it would have made things much smoother.

Remember to make your 83 B elections! Here’s why and how to do it

As I’ve written about in the past, founders of a startup should have their equity vested. There are times when you may not want to, but the majority of the time it is beneficial. Some investors may insist upon it, although its one of the things in the negotiations.  If the founder’s stock is vested, they should make an 83-b election.  To not do so could turn into a lot of tax due to the IRS over the years the stock will vest.  We’ll discuss how it works and how to make the election here. Read more