Funding for Startups: Seed Financing
Most entrepreneurs are constantly looking for money to support their small businesses. Startups have three major options for funding: self-funding; loans; equity. In this article, we discuss seed financing, when owners give up equity in their small businesses in exchange for funding from third parties. Article discusses Simple Agreements for Future Equity (SAFEs), convertible notes and preferred shares.
- Published in Business formation and startups, Securities, Small business investing
Fiduciary Duties 101
You may have heard about fiduciary duties, something about loyalty and care, but truth be known, you have no idea what that all means. Let’s set the scene. Your startup company is up and running. You have consulted with your startup lawyer about forming the company as a limited liability company. What duties do you owe to those who have invested in the company. They are after all part owners and have invested their hard-earned money into your company. You talk with your startup lawyer and he or she explains that you owe the owners a fiduciary duty—fiduciary what, you ask? If you violate these fiduciary duties, you may be personally liable. Well, that should get your attention. This article discusses what a fiduciary duty is and who it is applied to.
- Published in Business disputes and litigation, Business formation and startups, Limited liabilty company, News & Resources, Small business investing
Lessons from Failed Business Acquisition
Half of acquisition deals close. The other half don’t. I recently represented a client in a transaction in which the deal died. She offered to share lessons learned from an unsuccessful acquisition. In this article, she has given us four lessons learned from the ultimately unsuccessful negotiations. These are the four major lessons she wanted to share with other potential purchasers of small businesses: lesson 1: seek legal guidance early on; lesson 2: be specific about due diligence requests; lesson 3: early misalignment is a sign of the future to come; and lesson 4: better understand certifications for government contractors.
Selling Interests in an LLC: Securities Considerations
You have a small company and formed the business as a limited liability company. You think that securities laws are only for large companies. But If you think that the Securities and Exchange Commission is not interested in selling some membership interests in your LLC, you may want to think again – and ready this article. You have to be worried about federal and state securities laws only if you are selling securities. The big question is whether membership interests in an LLC are “securities.” The sale of certain limited liability company interests may fall within the ambit of a securities transaction. This article addresses the question of whether ownership interests in a LLC are subject to securities laws. In the next article, we will discuss what are the implications of treating the sale of ownership interests in a LLC as a securities transaction. Then you need to think about who you can sell those LLC interests to and who can represent your company in finding investors.
- Published in Mergers and acquisitions, Securities, Small business investing
Startup Legal Problems: Pitfalls for Founders
This article is about some of the traps that lie in wait for unwary founders. Remember that any startup has numerous issues to deal with starting on day one of the formation of the new business. A new business owner who fails to be ready on day one proceeds at his or her own peril. Startup legal problems can take numerous forms and this article discusses some of the major issues such as failing to assign the IP to the new company, failing to reduce investor or partner agreements to writing, agreeing to a “standard” agreement, failing to observe corporate formalities, and failing to take into account that partners may die, get divorced or file for bankruptcy.
Crowdfunding ABC’s: Small Business Funding by the Hordes
Primer on crowdfunding for small businesses. The startup or small business faces daunting challenges in attracting funding. Simply, startup funding isn’t simple. The Jumpstart Our Business Startups Act of 2012 (the JOBS Act) added another arrow in the quiver of those looking for funding sources for their startup or small business. Crowdfunding has been around for a while, but the JOBS Act added an entirely new dimension to crowdfunding. This blog post discusses innovations recently introduced to allow the small business to attract investment through crowdfunding. The new crowdfunding rules are “designed to assist smaller companies with capital formation and provide investors with additional protections.” Crowdfunding may not be for every small business, but you should at least familiarize yourself with the contours of the JOBS Act crowdfunding and decide whether it is an avenue that your small business may want to pursue.
- Published in Securities, Small business investing
Investors for Startups: Terms of Engagement
If you ask entrepreneurs what are their major challenges in getting a new business off the ground, the three most common responses are money, money, money. There are indeed other major challenges but the primary concern of most new businesses is how to attract startup funding. Whether the entrepreneur is opening a small service business or introducing a new product onto the market, the challenge of funding looms large. When these small business owners face a major hurdle in attracting funding to support their new businesses, either as they are starting out or as they try to grow the business, they have at least three options: funding their business with their personal reserves; taking out a loan; attracting investors. This Rosten Law blog briefly discusses each of these options.
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