Business Law Breakdown – Amendments to the Delaware General Corporation Law Prohibit Fee-Shifting and Endorse Forum Selection Clauses

Nick-Feldman-smNick Feldman’s practice focuses on corporate transactions, including mergers and acquisitions, dispositions, private equity transactions and general corporate matters for both public and private clients, focusing on middle-market and emerging growth companies. In addition, Nick counsels companies in connection with entity formation, corporate governance, federal and state securities laws and compliance, joint ventures, employee incentive plans, executive employment agreements and other executive compensation matters.  Nick also serves as an Adjunct Professor at Loyola Marymount University, where he lectures on media law topics.

___________________________________________________

DelawareOn June 24, 2015, Delaware Governor Jack Markell signed several important amendments to the General Corporation Law of the State of Delaware (the “DGCL”) into law. The amendments, which will become effective on August 1, 2015, prohibit “fee-shifting” provisions and endorse forum selection provisions, among other changes.

Prohibition on Fee-Shifting

In response to the Delaware Supreme Court’s decision in ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014), the DGCL amendments invalidate “fee-shifting” provisions in certificates of incorporation or bylaws of stock corporations. In ATP, the Court upheld a bylaw imposing liability for legal fees of a nonstock corporation on certain members of the corporation participating in the litigation.

The new legislation narrows the ruling in ATP by way of new DGCL Section 102(f). That statute provides that a certificate of incorporation may not impose liability on a stockholder for the attorneys’ fees or expenses of the corporation in connection with an “internal corporate claim” as defined in new Section 115 (discussed below). The legislation also adds a similar restriction on fee-shifting provisions in corporate bylaws to Section 109(b). An amendment to Section 114 provides that the restrictions on fee-shifting provisions do not apply to nonstock corporations.

While the legislation invalidates fee-shifting provisions in certificates of incorporation and bylaws of stock corporations, it does not bar such provisions in stock purchase agreements or stockholders’ agreements.

Authorization of Delaware Forum Selection Clauses

The 2015 legislation confirms the holding of Boilermakers Local 154 Retirement Fund v. Chevron Corporation, 73 A.3d 934 (Del. Ch. 2013), adding a new Section 115 to the DGCL which confirms that a corporation’s certificate of incorporation or bylaws may require internal corporate claims to be brought exclusively in the courts of the State of Delaware. “Internal corporate claims” are defined to include claims of breach of fiduciary duty by current or former directors, officers, or controlling stockholders, or persons who aid and abet such a breach.

 Section 115 does not expressly authorize or prohibit provisions that select a forum other than Delaware courts as an additional, non-exclusive forum for internal corporate claims. However, it does invalidate any provision selecting courts outside of Delaware, or any arbitral forum, to the extent such a provision attempts to prohibit litigation of internal corporate claims in the Delaware courts. And, as with the fee-shifting amendments, it does not invalidate non-Delaware forum selection provisions in a stockholders’ agreement or other separate written agreements with stockholders.

Stock and Option Issuances

With respect to stock issuances, the new legislation amends Section 152 of the DGCL to clarify that the board of directors may authorize stock to be issued by the determination of a person or body other than the board, in one or more transactions and in such amounts and at such times as determined by the authorized party. In order to do so, the board must set certain parameters at the time it authorizes the issuance(s), including fixing the maximum number of shares that may be issued, the time frame during which such shares may be issued, and a minimum amount of consideration for which they may be issued.

Additionally, the legislation permits the board to delegate the ability to issue restricted stock to officers of the corporation on the same basis that the board may delegate the ability to issue options under Section 157 of the DGCL. Both Sections 152 and 157 are further amended to clarify that the board may determine the minimum consideration for such stock or options by way of a formula which references or is dependent upon extrinsic facts, including market prices.

Ratification of Defective Corporate Acts

The 2015 legislation makes several amendments to Section 204 of the DGCL, which sets forth the procedures for ratifying stock or corporate acts that would be void or voidable due to a “failure of authorization.” The amendments clarify and confirm certain provisions of the ratification process and provide additional guidance as to the specific requirements for the filing of certificates of validation, including: (1) confirming the requirements for a board of directors and stockholders to adopt and ratify one or more defective acts; (2) providing for ratification of the initial board of directors where it was not named in the original certificate of incorporation nor elected by the incorporator; (3) addressing the voting standards applicable to the ratification of the election of a director where the original vote obtained was defective; (4) clarifying the requirements for certificates of validation; (5) confirming the scope of acts by the board of directors or officers that may constitute a defective corporate act susceptible to cure by ratification; and (6) confirming that certain “voidable” acts may be cured by ratification under common law.

Implications: Action Items for Delaware Corporations

A Delaware stock corporation that has adopted a fee-shifting provision should consider amending its charter and/or bylaws, as applicable, to remove the provision because it will no longer be enforceable once the new legislation takes effect.

Further, Delaware corporations that have not previously adopted a Delaware forum selection clause should consider adopting one. And, as with fee-shifting provisions, a Delaware corporation that has adopted a forum selection clause prohibiting litigation of internal corporate claims in the Delaware courts should amend the clause to make clear that such claims may be brought in Delaware in addition to, or instead of, the forum currently specified.

___________________________________________________

For more information about services for your legal needs, contact Nick Feldman at nfeldman@stubbsalderton.com or (818) 444-4541.

SAM Client Efficient Power Conversion’s CEO Alex Lidow Featured in LABJ and WSJ Articles

Alex LidowAlex Lidow, CEO of SAM Client Efficient Power Conversion (EPC) has been featured in articles published in the Wall Street Journal (6/22/2015) and Los Angeles Business Journal (6/21/2015) The LABJ articles outlines their release of a more efficient product that could upend the $30 billion power conversion market dominated by International Rectifier, his former company.

To read the full story, click here

The Wall Street Journal story discusses the use of gallium-nitride instead of silicon in circuits and transistors.  EPC uses gallium-nitride transistors for devices such as audio amplifiers, wireless charging devices, cellular base stations and a prototype pill-style device that can X-ray people’s colons as a substitute for colonoscopies.

To read the full article, click here.

SAM Preccelerator Program Companies Showcase at TechDay LA 2015

Several Preccelerator Program companies showcased their businesses at the first annual LA TechDay LA at the California Market Center on Thursday, June 18th.  Companies included Rally, Verde Circle, Team(You), and SAM joint venture FlashFunders.

IMAG0124_1 IMAG0126_1 IMAG0134_1

IMAG0122_1

TechDay is a massive science fair for startups. Startups have the opportunity to show off their products to thousands of consumers, the highest caliber investors, hordes of press, the most sought after talent, and the greatest pool of tech enthusiasts looking to celebrate emerging venture.

For more information about the Preccelerator Program, contact Heidi Hubbeling at hhubbeling@stubbsalderton.com or (310) 746-9803.

SAM Client Iris.tv Raises $5.3 Million to Deliver Video Recommendations

Iris.tvSAM client Iris.tv has raised $5.3 million in Series A funding for technology that makes personalized video recommendations to viewers who watch short clips online.  The startup’s customers are lifestyle, entertainment, sports and news organizations that own and publish a lot of short videos online, and who want to drive audiences to watch more videos through their own apps or websites rather than on YouTube or Facebook.

Publishers or networks can generate more revenue from videos viewed through their own apps, potentially, said Iris.tv CEO Field Garthwaite, in part because there are fewer distractions there than on social media platforms.

If users do fast-forward past one clip to see another using Iris.tv, the next recommended clip will be a video from the same content company that is tailored around their interests.

Investors in Iris.tv’s funding round included Sierra Wasatch, BDMI, Progress Ventures and individual backers including Machinima founder Allen DeBevoise, Lions Gate CFO James Barge as well as executives from Nielsen and AEG.

SAM Partner Louis Wharton represented Iris.tv in this transaction.

To view the full press release in the Wall Street Journal, click here.

For more information on our Venture Capital & Emerging Growth practice, contact Louis at (818) 444-4509 or lwharton@stubbsalderton.com.

SAM Alert – “.sucks” gTLD – End of Sunrise Period Quickly Approaching

.sucksAs the Internet Corporation for Assigned Names and Numbers (ICANN) has released new generic top-level domains (gTLDS), clients concerned about protecting their trademarks and famous names need to review their positions with respect to “defensive” domain name registrations.  The new gTLD receiving a surprising amount of attention is “.sucks”. Owners of registered trademarks who register prior to June 19, 2015 ( end of ‘Sunrise Period) with the Trademark Clearing House of ICANN will have the first opportunity to purchase the “.sucks” gTLD domain names. Those trademark owners who do not register or are not registered may still have an opportunity to acquire this gTLD . Unfortunately they may also face having to buy the “.sucks” gTLD from cybersquatters or those who seek to criticize the business or activities of the trademark owner.

The Trademark Clearing House fee to acquire the “.sucks” domain name during the Sunrise Period is higher than after the window closes as no priority is guaranteed. So the rights holder must consider how far it needs to go in defensively protecting its reputation or famous marks. Is it important to stop all gTLD’s using your trademark or name? Do you want to have to manage a portfolio of non-productive domain names? While critics of a company or individual might use the new “.sucks” gTLD to launch a website that contains criticism, how much of a difference would such a website make to the business or career of the target?  Couldn’t the same critics more easily use social media such as TWITTER or FACEBOOK to communicate the same criticism and possibly with greater impact and less effort?  A rights holder must also consider how difficult it will be under the current law to be able to stop such websites based on trademark infringement as such websites have been found not to violate owners’ trademark rights. Although the content of the site may be the basis for other legal claims.

Nevertheless, there are certain businesses and personalities for whom the existence of a critical or seemingly defamatory web presence cannot be tolerated. In such instances, obtaining the “.sucks” gTLD as well as “.XXX, .porn, and .adult” gTLD’s makes sense and provides a comfort level knowing that someone cannot post on these websites or hold up the rightful name owner for large sums of  money to acquire these gTLD’s.

Please contact your principal attorney at SAM or SAM’s Intellectual Property Group to assist you in obtaining any of the new gTLD’s during the sunrise period or thereafter.

 

Please contact:

Tony Keats-akeats@stubbsalderton.com or (310) 746-9802

Konrad Gatien-kgatien@stubbsalderton.com or (310) 746-9810

Kevin DeBre-Kdebre@stubbsalderton.com or (818) -444-4521

SAM Wire – June 2015

June 8th, 2015
SAM Wire

Business Law Breakdown – Five Reasons to Hire a Lawyer for Your Startup, and Five Things to Look For When You Do

Nick Feldman’s practice focuses on corporate transactions, including mergers and acquisitions, dispositions, private equity transactions and general corporate matters for both public and private clients, focusing on middle-market and emerging growth companies. In addition, Nick counsels companies in connection with entity formation, corporate governance, federal and state securities laws and compliance, joint ventures, employee incentive plans, executive employment agreements and other executive compensation matters.  Nick also serves as an Adjunct Professor at Loyola Marymount University, where he lectures on media law topics.

To view the full article, click here.

 SAM Preccelerator Program Spotlight

Swggr, the fashion love child of Instagram and Pinterest, is the first app designed to empower Millennial’s by providing a platform to directly style and share purchasable looks with friends all while getting rewarded! When users share styles from their virtual closet, they rack up points redeemable for discounts and exclusives from their favorite brands and retailers. They’re a company made up of industry leading brand executives, developers, celebrity stylists, and dreamers who have come together to create a product that aims to make sure an entire generation can finally have a platform to fully express their style and get something in return. Swggr had a very successful public beta and is preparing for an exciting new release and the official launch of Swggr very soon. Visit www.swggr.net 

 

Congratulations to SAM Joint Venture FlashFunders for their being listed in Entrepreneur’s Brilliant 100 Companies to Watch list!


To read the full article, click here. 

SAM Client The Mighty Announces Closing of Their Seed Financing 

SAM Client, The Mighty, a content site based in Los Angeles designed for “a community of people who are thrown a curveball” has announced its $2.5 million seed round led by Upfront Ventures.
To read the full article, click here.

SAM Client HelloTech Launches In-home Tech Support and Tech Sales in LA

HelloTech, an on demand in-home tech support and technology sales service delivered by a vetted and trained college student workforce, has launched its service in Los Angeles
 
To read the full article, click here

SAM Preccelerator Program Company CardBlanc Featured as Finalist in IDEO and MasterCard Challenge

We are very proud to announce that our Preccelerator Program company CardBlanc is being featured as a finalist for the IDEO and MasterCard challenge: “How might we use the power of communities to financially empower those who need it most?”
To read the full article, clickhere.

Stubbs Alderton & Markiles Attorneys Represent Vitesse Semiconductor Corporation in its Sale to Microsemi Corporation

Stubbs Alderton & Markiles, LLP announces that it represented client Vitesse Semiconductor Corporation (Nasdaq: VTSS) in its successful sale to Microsemi Corporation (Nasdaq: MSCC).  Microsemi acquired Vitesse through a cash tender offer and follow-on merger at a price of $5.28 per share, for a total transaction value of approximately $389 million.  SAM Attorneys John McIlveryJonathan Friedman and Daniel Kim represented Vitesse in this transaction that closed at the end of April.

To read the full article, click here.

 

Equity Crowdfunding Platform FlashFunders Is Automating Securities Law For Seed-Stage Rounds

 

SAM joint venture FlashFunders, an equity crowdfunding platform, is announcing a new program that automates the process for entrepreneurs, making it entirely free to raise an or invest in a seed round.

To read the full Tech Crunch article, click here.

 

Issue: 11

In This Issue

Upcoming Events 
VC Roundtable-
June 9th, 2015

Silicon Beach Provisors-
June 12th, 2015
Silicon Beach Fest-
June 24th,2015- June 27th, 2015
 
 
Interested in joining our Preccelerator Program?  

Apply Now!

Join Our Mailing List

Corporate & Business Matters

Trademark and Copyright Practice

 

Business Litigation

Public Security Practice 
 
Mergers  & Acquisitions

Venture Capital & Emerging Growth 

Intellectual Property

Internet, New Media & Entertainment

Interactive Entertainment
& Video Games

Tax & Estate Planning 

Follow Us!

Visit our blog

Like us on Facebook

Follow us on Twitter

View our profile on LinkedIn

Find us on Google+

 

 

 

THIS IS A TEST EMAIL ONLY.
This email was sent by the author for the sole purpose of testing a draft message. If you believe you have received the message in error, please contact the author by replying to this message. Constant Contact takes reports of abuse very seriously. If you wish to report abuse, please forward this message to abuse@constantcontact.com.

Business Law Breakdown – Five Reasons to Hire a Lawyer for Your Startup, and Five Things to Look For When You Do

Nick-Feldman-smNick Feldman’s practice focuses on corporate transactions, including mergers and acquisitions, dispositions, private equity transactions and general corporate matters for both public and private clients, focusing on middle-market and emerging growth companies. In addition, Nick counsels companies in connection with entity formation, corporate governance, federal and state securities laws and compliance, joint ventures, employee incentive plans, executive employment agreements and other executive compensation matters.  Nick also serves as an Adjunct Professor at Loyola Marymount University, where he lectures on media law topics.

_____________________________

In a perfect world, a business lawyer isn’t the person you run to when things go sideways—it’s the trusted advisor you consult regularly to anticipate challenges and put you in the best position to succeed. While it may seem like a luxury for some startups, there are several important factors to consider that make hiring a lawyer earlier than later a smart decision.

 

 Five Reasons to Hire a Lawyer for Your Startup

Guidance

At the incorporation stage, the value of a lawyer has as much to do with helping you figure out what you need as it does with preparing documents. When it comes to what kind of entity to form, how to structure and distribute equity, or the best strategy to protect your intellectual property, a good lawyer will help guide you toward where you need to be—and then get you there.

 Ownership

 When people embark on a business venture together, it’s best to establish everyone’s rights and expectations at the outset in case there are disagreements down the road. It’s a lot easier to resolve a conflict before it arises, and you’d never imagine anything could break the bond between you and your co-founders… until it does.

 Intellectual Property

Intellectual property can be one of the biggest assets—and, if not protected, liabilities—of a startup company. Whether it means preparing nondisclosure agreements to protect trade secrets, drafting license agreements, defending trademarks, copyrights, or patents, or avoiding infringement of all of the above, a good lawyer will keep you protected.

 Taxes

It probably goes without saying that you don’t want to violate tax laws or incur unnecessary tax liability, and that you want pay the taxes you owe so as to avoid penalties. Tax laws can be complex, and a good lawyer will keep you ahead of the curve on tax issues and structure your business accordingly.

 Contracts

Finally, there’s the day-to-day legal that every startup encounters. Airtight vendor agreements, employment and contractor documents, and website terms of service and privacy policies are all invaluable for startups to get right—the first time.

 

Five Things to Look For When You Do

 Expertise

First and foremost, you want someone that is skilled and experienced with the types of legal issues you will face. This includes both the underlying business issues and the challenges specific to your industry—an attorney with knowledge relevant to your business is best positioned to become the advisor you need.

For many startups across the board, it’s extremely advantageous to hire an attorney (and law firm) with experience in both formation and financing. An attorney who regularly helps companies get “up and running” but is also frequently involved in seed-stage and venture capital financing will be able to give you better advice, and better facilitate accomplishing your goals.

 Fit

It’s also important that your lawyer (and his or her firm) is a good fit for your company. This means someone that you get along with and enjoy working with, but also someone who “gets” your business and industry and has the resources at their firm to serve all your potential needs. If a lawyer doesn’t speak the language of your business or understand the world in which you’re operating, it’s harder for him or her to adequately represent you.

 Responsiveness

It should go without saying that you want a lawyer who responds to your calls and emails in a timely manner. What’s equally important is how they respond. A good lawyer shouldn’t just tell you “no.” They respond to a problem with the right questions and a new suggestion of how to get what you want: “This is what you can do.”

 Connections

 You might be thinking about your lawyer in terms of connections or cache, and you wouldn’t be alone in that thought. While the expertise, fit, and responsiveness of an attorney should take precedence, the ability of your lawyer to introduce you to investors or potential partners—as well as their guidance in how to do so and the credibility they lend—is simply part of the value proposition.

 Fees

 Let’s be honest: one of the biggest considerations in hiring a lawyer is the bottom line. The lawyers most start-ups deal with typically bill by the hour, and the hourly billing rate may vary widely between junior and senior lawyers. Depending on the complexity of your issue, the lawyer may be able to offer a flat fee arrangement to offer you some predictability, or at least offer an estimate of the amount of time it will take to complete the task at hand.

 If you make the time and effort to find the right attorney and firm, you can get quality representation at a fair price. In the long run, hiring a lawyer for your startup is worth it—in time and money saved, and stress avoided, by starting down the best path in the beginning.

_______________________

For more information about services for your legal needs, contact Nick Feldman at nfeldman@stubbsalderton.com or (818) 444-4541.

SAM Joint Venture FlashFunders Makes Entrepreneur’s Brilliant 100 Companies to Watch List!

FlashFunders logoCongratulations to SAM Joint Venture FlashFunders for their being listed in Entrepreneur’s Brilliant 100 Companies to Watch list!

Flashfunders is a no-fee equity investment platform that streamlines the fundraising process by offering entrepreneurs SEC-compliant documents and FDIC-insured escrow accounts, saving them thousands in legal fees.

To view the full article on Entrepreneur.com, click here.

 

SAM Client The Mighty Announces Closing of Their Seed Financing

The Mighty PicSAM Client, The Mighty, a content site based in Los Angeles designed for “a community of people who are thrown a curveball” has announced its $2.5 million seed round led by Upfront Ventures.

SAM Partner, Ryan Azlein represented The Mighty in this transaction.

To read the full press about the funding and the inspiring story behind TheMighty, click here.

SAM Client HelloTech Launches In-home Tech Support and Tech Sales in LA

HelloTech PicHelloTech, an on demand in-home tech support and technology sales service delivered by a vetted and trained college student workforce, has launched its service in Los Angeles.

In addition, HelloTech announced that it has raised an additional $2 million from tier 1 investors that include Collaborative Fund, Baroda Ventures, Greycroft Partners, and Silicon Valley Bank. These backers join Accel Partners, Upfront, CrossCut ventures, Amplify.LA, among others.

“We are thrilled to announce today the availability of HelloTech in Los Angeles,” said Richard Wolpert, co-founder and CEO of HelloTech. “With the ‘Internet of Things’ more cool technology is available for the home than ever before. This is both a very exciting and potentially very confusing time for homeowners. HelloTech will take the confusion out of the equation.”

To read the full press release on the launch, click here.

For the Re/Code article featuring HelloTech, click here.