Category Archives: Publications

SAM Wire – November 2015

 

 

November 10, 2015
SAM Wire

You’re Invited! Startup Superhero Series with James Citron and Networking Under the Stars – Nov 12, 2015

Please join Stubbs Alderton & Markiles, LLP and CohnReznick LLP for a special invitation-only speaker session followed by an opportunity to network under the stars.
What is a startup superhero? Join us as James Citron, CEO of Pledgeling, is interviewed by Matt Swider, US Mobile Editor for TechRadar, on the highs and lows of entrepreneurship and what it feels like to create a brand used by thousands of people.
When:
Thursday, November 12, 2015
5:30-7:00pm – Startup Superhero Series with James Citron
7:00pm-9:30pm – Networking Under the Stars (2nd Floor Patio)
Location:
Stubbs Alderton & Markiles, LLP
1453 3rd Street Promenade, Suite 300
Santa Monica, CA 90401
RSVP:
Katie Garcia, 310-843-8218

For more information, click here.

 Preccelerator Program Spotlight

 

Rally provides location-based marketing services for mobile companies. We convert foot traffic at our partner locations into mobile engagement and users through the use of digital technology, including free wifismart phone charging, proximity beacons and digital displays.
We engage customers with contextual messaging at points of influence. Our sponsorship campaigns offer methods of exclusive, high-impact interactions for your brand to maximize your reach and attract valuable users within key demographics.

Partner locations include bars, restaurants, coffee shops, malls, stadiums and hotels. For more information, check out  www.rallypwr.com 

Stubbs Alderton & Markiles, LLP Featured as One of the 25 Top Boutique Law Firms in California by the Daily Journal

Stubbs Alderton & Markiles, LLP is proud to announce that we have been selected as one of the top 25 boutique law firms in California by the Daily Journal in their October 2015 “Top Boutiques” supplement. Only two firms were selected whose practice is primarily business and technology law.  The term “boutique” is assigned to a law firm of any size where at least 90 percent of the firm’s attorneys devote 100 percent of their practice to one specialty.
Stubbs Alderton is a business law firm with a niche in emerging growth and technology. We handle public securities, mergers and acquisitions, entertainment, intellectual property and brand protection while representing Southern California businesses from venture-backed emerging growth companies to midsize and large companies involved in technology, entertainment, video games, apparel and medical devices.

Stubbs Alderton & Markiles, LLP also sets itself apart with our innovative business model which includes SAM Venture Partners, SAM Development Company, Preccelerator Program, and its joint venture FlashFunders.
We take great pride in fostering growth in the Los Angeles startup eco-system.

 

To read the full article, click here.

 

SAM Joint Venture Online Equity Funding Platform FlashFunders Surpasses Twelve Million In Investments for Startups

 

SAM joint venture, FlashFunders, the online equity funding platform accelerating innovation within the capital raising landscape, today announced on its one-year anniversary that it has successfully funded over twelve million dollars in startup seed rounds. In addition to this investments milestone, FlashFunders will partner with Raven Ventures to further ensure that featured offerings are provided access to an extensive global network of accredited investors. Raven Ventures, a leading global seed and early stage venture capital firm, has committed to investing five million dollars in startups listing on the FlashFunders platform effective immediately.
 
To read the full article, click here. 

 Preccelerator Program Pizza and Pitch Day

Big shout out to our Preccelerator companies that participated in this month’s Pizza and Pitch day!  A mock pitch session was organized for each company to present to their peers and mentors and receive constructive critiques.  A great success!  Prizes were given for pitching the closest to the alotted time frame, best PowerPoint presentation, and the People’s Choice award.   A big “thank you” to Preccelerator mentor Mark Wald of Supporting Strategies for sitting in as a guest judge today.  For more information about the Preccelerator Program, contact Heidi Hubbeling, Director of Operations, at hhubbeling@stubbsalderton.com or (310) 746-9803.
To view Pizza and Pitch day!, click  here.

 

Startup Formation – 4 Points to Consider When Deciding to Form Your Startup as a California or Delaware Corporation

A preliminary (legal) question that startup companies typically want answered is where they should form their startup entity.  With the rise of “Silicon Beach” in the LA market, this question often arises in the context of whether a company that has set up shop in LA should form a California or Delaware corporation.[1]  There are several items to consider in answering this question and while there is often no “right” or “wrong” answer, here are four common discussion points.
To register, click  here.

 

Issue: 16

In This Issue

Upcoming Events 
November 12, 2015 

 

 
 
 
 
 
 
 
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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 

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Stubbs Alderton & Markiles, LLP Featured as One of the 25 Top Boutique Law Firms in California by the Daily Journal

Supplement 10-14-15 LDJ TBFURN101415Stubbs Alderton & Markiles, LLP is proud to announce that we have been selected as one of the top 25 boutique law firms in California by the Daily Journal in their October 2015 “Top Boutiques” supplement. Only two firms were selected whose practice is primarily business and technology law.  The term “boutique” is assigned to a law firm of any size where at least 90 percent of the firm’s attorneys devote 100 percent of their practice to one specialty.

Stubbs Alderton is a business law firm with a niche in emerging growth and technology. We handle public securities, mergers and acquisitions, entertainment, intellectual property and brand protection while representing Southern California businesses from venture-backed emerging growth companies to midsize and large companies involved in technology, entertainment, video games, apparel and medical devices.

Stubbs Alderton & Markiles, LLP also sets itself apart with our innovative business model which includes SAM Venture Partners, SAM Development Company, Preccelerator Program, and its joint venture FlashFunders.

We take great pride in fostering growth in the Los Angeles startup eco-system.

To read the full article, click Stubbs Alderton DJ2015 Top Boutiques.

For more information, contact:

Heidi Hubbeling
Director of Marketing
Director of Operations, Preccelerator Program
(310) 746-9803
hhubbeling@stubbsalderton.com

SAM Joint Venture Online Equity Funding Platform FlashFunders Surpasses Twelve Million In Investments for Startups

flashfunders2SAM joint venture, FlashFunders, the online equity funding platform accelerating innovation within the capital raising landscape, today announced on its one-year anniversary that it has successfully funded over twelve million dollars in startup seed rounds. In addition to this investments milestone, FlashFunders will partner with Raven Ventures to further ensure that featured offerings are provided access to an extensive global network of accredited investors. Raven Ventures, a leading global seed and early stage venture capital firm, has committed to investing five million dollars in startups listing on the FlashFunders platform effective immediately.

To read the full press release, click here.

About FlashFunders

FlashFunders, the online equity funding platform, provides equal investing and funding opportunities for all. FlashFunders empowers startups to raise capital for free and democratizes investor access. Startups are able to manage their whole offerings online while investors can discover new companies and invest as little as $1,000. FlashFunders is a broker-dealer, securities law firm and technology platform rolled into one ecosystem–a powerful combination providing efficiencies that save investors time and startups money. Launched in 2014, FlashFunders is headquartered in Santa Monica, California. For more information, visit www.flashfunders.com and follow FlashFunders on Twitter at https://twitter.com/flashfunders.

Startup Formation – 4 Points to Consider When Deciding to Form Your Startup as a California or Delaware Corporation

Tim PoydenisTim G. Poydenis is an associate of the Firm and was formerly an associate of Stradling Yocca Carlson & Rauth, P.C. in Santa Monica.  Prior to Stradling, Tim was an associate and baseball sports agent at Beverly Hills Sports Council. Tim’s practice focuses on corporate matters, including venture capital financings, mergers and acquisitions, private equity transactions and general corporate and business matters.  Tim also advises emerging growth and development stage companies on entity formation, corporate governance and day-to-day corporate matters.

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A preliminary (legal) question that startup companies typically want answered is where they should form their startup entity.  With the rise of “Silicon Beach” in the LA market, this question often arises in the context of whether a company that has set up shop in LA should form a California or Delaware corporation.[1]  There are several items to consider in answering this question and while there is often no “right” or “wrong” answer, here are four common discussion points.

  1. Certainty in Law:

The Delaware General Corporation Law (“DGCL”) is a current and internationally recognized corporation statute that is frequently updated to account for new legal and business developments.  In addition, Delaware has well-developed case law that has been authored by top judges in the field.  Aside from the readily apparent benefits of the foregoing (e.g., a corporation being able to guide its formation and activities consistent with the DGCL and developed case law), litigation related to a Delaware corporation’s corporate activities is often less likely to occur than with a California corporation as the DGCL and past Delaware case law likely already address a substantially similar dispute or issue that may arise (and thus litigation may be unnecessary).  Accordingly, Delaware edges out California with regard to this point.

  1. Investor and Buyer Preference:

Whether it is early in a startup’s evolutionary path with raising money from friends and family, late round financings, or an eventual exit, potential investors and buyers typically prefer that a company be formed as a Delaware corporation. Delaware is preferred for many reasons that include, but are not limited to: the DGCL is an internationally recognized business corporation statute that is updated regularly; there is well-developed case law analyzing various provisions of the DGCL; the Delaware Court of Chancery is considered by many to be the leading business court; and, simply put, most investors and buyers are more comfortable with a Delaware corporation since they are likely accustomed to seeing Delaware corporations in transactions rather than California corporations.  As a result, potential investors and/or buyers may require that a California corporation convert to a Delaware corporation as a condition precedent to the funding of an investment or a closing of an acquisition.  Although the conversion mechanics are not overly burdensome, it is often better to have a Delaware corporation from the outset to avoid additional hurdles and/or action items to process that may later delay the closing of a needed financing or pending acquisition.

  1. Efficiency of the Secretary of State:

The Secretary of State of the State of Delaware is generally thought of as the most efficient secretary of state in the US.  From same-day filings, to expedited one-hour or two-hour filings, to a customer friendly and knowledgeable support staff, the Secretary of State of the State of Delaware takes away many of the (potential) miscues or headaches associated with transactions that may result from requests directed at the applicable secretary of state.  This is not to say the Secretary of State of the State of California does not offer similar services and expertise (which it does), but the general consensus is that the reliability and speed of the Secretary of State of the State of Delaware is preferred.

  1. “Quasi California Corporation

Notwithstanding the fact that a corporation may be formed in Delaware, a Delaware corporation may be subject to certain provisions of the California Corporations Code (the “CCC”).  Section 2115 of the CCC provides that certain provisions of the CCC may apply to a foreign corporation (e.g., a Delaware corporation) if certain factors are met.  One of the factors set forth in the CCC is an assessment of whether more than one-half of the outstanding voting securities of a corporation are held of record by persons having addresses in California, which is often the case with Silicon Beach startups.  This is not to say that a California-based company should incorporate in California if the factors of Section 2115 of the CCC will be met, but this is just another item to consider when determining the appropriate state of formation.

                As highlighted above, there is often no “right or “wrong” answer when it comes to picking the appropriate state of incorporation, but there are many items to discuss (well beyond the 4 highlighted above) with your business, legal and/or tax advisors.

[1]               Please note that the discussion points in this article are limited to Delaware and California corporations.  Information regarding additional jurisdictions and/or entity types available upon request.

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This article is intended for informational purposes only and does not constitute legal advice.   For more information regarding your legal needs, contact Tim Poydenis at tpoydenis@stubbsalderton.com or (818) 444-4547.

Business Law Breakdown – FCC Issues Guidance for Companies Promoting Apps via Text Message

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.

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Text message promotions have long been touted as a marketing jackpot for mobile applications due to their high open rates and short click-path to download—look no further than companies like Lyft for success stories. However, refer-a-friend invitations have also come under fire for violating the Telephone Consumer Protection Act (the “TCPA”), a law originally implemented to crack down on invasive telemarketing. Class action lawsuits that successfully establish that individuals received unsolicited text messages could result in penalties of up to $1,500 per text message.

On July 10, 2015, the Federal Communications Commission released a Declaratory Ruling and Order clarifying portions of the TCPA. In response to petitions from app-based service providers TextMe and Glide, the FCC set out best practices for companies utilizing text message promotions. In doing so, it established that the app user, not the company, may be responsible for initiating the text message in certain scenarios, opening the door for wider use of refer-a-friend text message promotions.

In order to comply with the TCPA, the FCC determined that companies must satisfy a balancing test which requires some direct connection between a person or entity and the sending of the text message. Specifically, the test examines who took the steps necessary to physically send the text message and whether another person or entity was so involved in sending the text message as to be deemed to have initiated it.

Pursuant to the FCC’s 2013 DISH Declaratory Ruling, persons or entities that merely have some minor role in the causal chain that results in the sending of a text message generally do not take the steps necessary to physically send such a text message, and thus are not deemed to “initiate” the text message.

In the case of TextMe, the app’s users invited friends to use the service via text message by engaging in a multi-step process in which the users had to make a number of affirmative choices.  First, they were required to tap a button that read “invite your friends.” They were then able to choose whether to invite all their friends or individually select contacts, and finally they were prompted to send the invitational text message by tapping another button.

The FCC determined that, to the extent that TextMe controlled the content of the advertising message, the company might be liable under the TCPA. Despite that cause for concern, however, the TextMe app users’ choices and actions caused the user to be so involved in sending the text message as to be deemed its initiator. For that reason, TextMe’s invite flow was deemed not to violate the TCPA.

TextMe’s practices contrasted with those of Glide, which sent text message solicitations automatically to all of its app users’ contacts unless a user affirmatively opted out. In that scenario, the FCC determined that Glide initiated the text messages because the app user played no role in deciding whether to send the invitational text messages, to whom to send them, or what to say in them.

Ultimately, not all app providers are exempt from liability under the TCPA. In light of the FCC’s guidance, a company that desires for its users to send text message invitations to their contacts should require the user’s affirmative consent with respect to (1) whether to send a message, (2) who the message is sent to, and (3) when the message is sent. To further limit potential liability, the company should allow the user to determine or modify the language of the invitation message.

It is also worth noting that FCC’s declaratory rulings are not binding on trial courts, but are instead interpreted as persuasive authority. However, due to the limited amount of case law interpreting the TCPA, FCC opinions like this one are the primary source of guidance as to how companies should comply with the law.

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

SAM Wire – August 2015

August 6, 2015

SAM Wire

Why Your Exit Strategy Matters 

By: Michael Shaff

Exit strategy, the plan for monetizing or disposing of a business, may seem remote and speculative when organizing a new business.  But it is important to know what exit strategies are available and how those strategies are likely to be taxed depending on the form of entity through which the start up does business.  

 To view the full article, click  here.

 SAM Preccelerator Program Spotlight

 

 

Verde Circle develops cloud-based Software as a Service solutions that help you optimize and manage your business operations.  www.verdecircle.com

Verde Circle
Verde Circle

Stubbs Alderton & Markiles, LLP Continues to Expand First Class Business Litigation Practice Group

Stubbs Alderton & Markiles, LLP, Southern California’s leading business law firm, has announced that litigator Joshua Stambaugh has joined the firm as a Business Litigation partner in its Sherman Oaks office. The addition of Mr. Stambaugh continues to bolster the growth of the Business Litigation practice, bringing the group to 8 seasoned attorneys.

To read the full press release, click here.

SAM Managing Partner Scott Alderton Honored with Heart Centered Tech Award

 

Stubbs Alderton & Markiles’ Managing Partner Scott Alderton was presented with the Heart Centered Tech LA Award at the Annual LA Venture Association (LAVA) Meeting on Thursday, July 15th. The award was handed off to Scott from Rich Abronson, last month’s HCTLA Award recipient.  SAM’s involvement in the LA Tech community led by Scott, along with his personal efforts to foster the growth of Silicon Beach and dedication to startups was the basis for this award recognition.

To read the full article, click  here. 

In this session, Len Lanzi will focus on techniques and ways to network in the VC and Angel Community.  We will interact and share best practices on business development and promoting your start-up.

To register, click here.
Issue: 13

In This Issue

Upcoming Events 

Preccelerator Program Presents: “Networking For Capital”
August 20th, 2015
5:30-8:00pm

 
 
 
 
 
 
 
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Apply Now!

Join Our Mailing List

 

Corporate & Business Matters Trademark and Copyright Practice

 

Business LitigationPublic Security Practice 

 
Mergers  & Acquisitions
Venture Capital & Emerging Growth 

Intellectual Property

Internet, New Media & Entertainment

Interactive Entertainment
& Video Games

Tax & Estate Planning 

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Why Your Exit Strategy Matters

Michael_ShaffMichael Shaff joined the firm in 2011 as Of Counsel. He is the chairperson of the Tax Practice Group.  Michael specializes in all aspects of federal income taxation. He has served as a trial attorney with the office of the Chief Counsel of the Internal Revenue Service for three years. Mr. Shaff is certified by the Board of Legal Specialization of the State Bar of California as a specialist in tax law. Mr. Shaff is a past chairof the Tax Section of the Orange County Bar Association. He is co-author of the “Real Estate Investment Trusts Handbook” published annually by West Group.

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Exit strategy, the plan for monetizing or disposing of a business, may seem remote and speculative when organizing a new business.  But it is important to know what exit strategies are available and how those strategies are likely to be taxed depending on the form of entity through which the start up does business.

  1. Sole Proprietorship. If a single entrepreneur does nothing more, he will be doing business as a sole proprietorship.  This is true even when the entrepreneur has adopted a trade name through which he does business, often referred to as a “D/B/A”.   The advantages for doing business as a sole proprietorship include not having to pay taxes and file tax returns for a separate entity and being able to include the results of the sole proprietorship on the entrepreneur’s own tax return.  The only exit strategy, if nothing more is done to transfer the entrepreneur’s business to an entity, would be the sale of the business’s assets.  If the business has inventory and accounts receivable the amount of the purchase price allocated to the inventory and receivables would be ordinary income for the selling entrepreneur.  The purchase price allocated to the intellectual property, going concern value and goodwill would be taxed as long term capital gain for the selling entrepreneur—provided the entrepreneur has conducted the business being sold for at least a year.  The obvious down side to operating as a sole proprietorship is the principal’s personal liability for all of the debts and liabilities of the business.
  1. General Partnership. If two or more participants conduct a business together and they do not form an entity, the result is generally going to be a general partnership.  For example, Charlie agrees to back Delta’s start up business.  Delta does most of the work and agrees that when the business starts to make money, it will repay Charlie’s investment then split the business’s profits on an agreed percentage.  Charlie and Delta may not even realize it, but they have formed a general partnership.  Each partner is responsible personally for the debts and obligations of the general partnership[1].  While it is at least theoretically possible that a buyer would purchase Charlie and Delta’s general partnership interests, the realistic exit strategy, without their doing more, is the sale of the assets of the business.  As in the sole proprietorship, the purchase price of a business sold must be allocated among the business’s various assets.  Both buyer and the sellers are expected to agree on the allocation of the purchase price among those assets[2].
  1. Limited Partnership. A limited partnership is an entity that the participants must affirmatively elect to adopt[3].   Like a sole proprietorship and a general partnership, a limited partnership is a pass-through entity—it does not pay income tax but instead passes its income or losses through to its partners in accordance with the terms of its limited partnership agreement and the terms of federal income tax law.  The general partners of a limited partnership are subject to personal liability for the debts of the limited partnership as would the partners of a general partnership[4].  The limited partners are afforded limited liability.  Like the sole proprietorship and the general partnership, the likely exit strategy is the sale of the business’s assets.  Also, like the sole proprietorship and the general partnership, a limited partnership (or a limited liability company) may contribute its assets or its partners may contribute their limited partnership interests to a corporation generally on a tax-free basis. [5]
  1. Limited Liability Company. A limited liability company (LLC) also is taxed as a partnership, meaning that the deductions from starting up and operating the business may be passed through to the investors who funded them.  A limited liability company affords limited liability to all of its members (except for those who signed personal guaranties of loans, leases or other obligations of the limited liability company).  LLCs and limited partnerships have the flexibility to issue a variety of classes of equity, including series of preferred having convertibility features, put rights in sum, having as wide a variety of terms as an investor and the principals of the business may negotiate.  LLCs and limited partnerships also have the ability to issue profits interests.  Profits interests are a way to give service providers (both employees and consultants) a stake in the appreciation of the company with no tax due on grant, no exercise price and capital gains to the extent realized on exit.  A profits interest is defined as a partnership interest that would yield no distribution if the partnership’s assets were sold at their fair market value immediately after the grant of the partnership interest[6].  Any type of investor may invest in an LLC without adversely affecting the LLC’s status[7]  If a potential buyer of the business buys some or all of the LLC interests, the sellers at least in part must allocate a portion of the sales price to inventory and unrealized receivables taxable as ordinary income. As previously noted, an LLC may convert to a corporation on a tax-free basis (in most cases) if possible buyers would be likely to prefer to use stock as the acquisition consideration. [8]
  1. Summary of Partnership Entities. The general partnership, limited partnership and limited liability company are generally treated as partnerships for tax purposes, meaning that they pass through the taxable income or loss to their equity owners.  The tax benefits of net losses passed through to the partners are subject to (a) the partner having sufficient basis in the partner’s  interest in the partnership (or LLC), (b) the partner being “at risk” for his or her share of the entity’s liabilities and (c) the partner being actively involved in the partnership’s business in order to claim net deductions[9].  In many cases, conducting the business through an LLC is sufficient—it provides (i) a single level of tax, (ii) limited liability and (iii) the ability to grant key employees and consultants incentive compensation without incurring tax for the recipient or the partnership.
  1. Corporations. Corporations are taxed under a completely different set of rules from those affecting partnerships.  Corporations are eligible for tax-free acquisitions when properly structured as (a) a statutory merger, (b) an exchange of stock of the target corporation for voting stock of the acquiring corporation or (c) the acquisition of substantially all of the assets of the target corporation for voting stock of the acquiring corporation[10]  Being able to receive the acquiring corporation’s stock tax-free in an acquisition if the acquiring corporation’s payment in its own stock were taxable, is a very helpful feature, especially when a lockup agreement is in place or the acquiring corporation itself is not publicly traded or is thinly traded—if the acquiring corporation’s payment in its own stock were taxable, the target corporation’s shareholders would be taxed on the value of the acquiring corporation’s stock but would have no way to raise the funds to pay the tax.  When sold, corporate stock yields capital gain or loss unless the seller is a securities dealer[11]  Conversion of a partnership or LLC to a corporation is easy and generally can be accomplished tax free[12].  There are two relevant types of corporations from a tax standpoint, C corporations and S corporations.
  1. C Corporations. C corporations are separate legal and tax entities from their shareholders.  C corporations pay tax at the corporate level and do not pass through any taxable income or loss.  Shareholders are only taxed to the extent that the C corporation pays a dividend distributions out of current or accumulated net earnings.  With certain exceptions[13], the dividends of a C corporation are not taxable when received by a tax-exempt entity and are subject to reduced US income tax withholding when paid to a foreign investor from a country with an income tax treaty with the US[14].  The insulation of shareholders, especially foreign investors and retirement plans, from the tax liability of the C corporation and the C corporation’s ease in being able to issue various classes of preferred stock make C corporations most attractive for important types of investors.  As previously discussed, sales of corporate shares almost always give rise to capital gain or loss and the selling shareholder does not have to allocate the sales price between an ordinary and capital portion.   Corporations are eligible for the tax-free reorganizations described generally in paragraph 6 above.  However, if a C corporation sells its assets to the acquiring corporation, the tax cost can be quite high:  35% federal corporate income tax and 9.84% California state corporate income tax with the net amount subject to tax when distributed to individual shareholders at up to 23.8% at the federal level and up to 13.3% in California.  A shareholder in a C corporation that sells its assets may only net about 40% of the total sales proceeds.
  1. S Corporations. S corporations are in many ways a hybrid cross of C corporations and LLCs.  Net income and net loss of an S corporation is passed through to the shareholders, so in that sense S corporations resemble LLCs as pass-through entities.  S corporations, like any other corporation, offer limited liability for all shareholders.  But S corporations may have only one class of stock[15]   The inability to issue preferred stock or convertible debt is a significant disincentive on the use of an S corporation—the issuance of such a class of securities would result in the automatic conversion of the S corporation to a C corporation.  The hardest restriction on the use of an S corporation is the exclusion of all non-US individuals as eligible shareholders[16] and the limitation of no more than 100 US resident individual shareholders.   As a corporation, an S corporation is eligible for use of the corporate reorganization rules.  Like C corporation stock, the stock of an S corporation generates capital gain or loss when sold.

For more information about exit strategies and their tax ramifications, please contact Michael Shaff at (818) 444-4522 or mshaff@stubbsalderton.com.

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[1]   Cal. Corp. Code §16306(a).

[2]   Internal Revenue Code (“IRC”) §1060(b).

[3]   Cal. Corp. Code §15902.01(a).

[4]   Cal. Corp. Code §15904.04(a).

[5]   IRC §351.

[6]    Rev. Proc. 93-27, 1993-2 C.B. 343.

[7]   Some entities like pension plans and IRAs may have to pay tax on the net income allocated to them from an LLC or other partnership that is engaged in an active business.  (IRC §512.)  LLCs and other partnership entities present similar issues for foreign investors.

[8]   IRC §751(a).

[9]   Generally, suspended losses may be claimed as the partnership generates net income or when it is ultimately disposed of.

[10]   IRC §368(a)(1).

[11]   E.g., Biefeldt v. Commissioner (7th Cir. 1998) 231 F.3d 1035.

[12]   IRC §351. Care must be taken to convert to corporate form before undertaking acquisition negotiations.

[13]   Voluntary employee benefit associations, supplemental unemployment compensations plans, social clubs and other exempt organizations that have borrowed to purchase the shares.  (IRC §512(a)(3).)

[14]   See, e.g., United States—Peoples Republic of China Income Tax Treaty (1984), Article 9, Section 2, reducing the withholding on dividends paid by a corporation from one country to a resident of the other from the general 30% withholding rate to 10%.

[15]   Differences in, or even a complete absence of, voting rights are permitted.  (IRC §§1361(b)(1)(D) and (c)(4).)

[16]   IRC §1361(a).

SAM Wire – July 2015

July 13th, 2015
SAM Wire
Business Law Breakdown – Amendments to the Delaware General Corporation Law Prohibit Fee-Shifting and Endorse Forum Selection Clauses

On 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.

 

To view the full article, click  here. 

 SAM Preccelerator Program Spotlight

 

Simplifeye enables doctors to see more patients, in less time. Patients will appreciate the increased attention from their doctor.

 

Office Productivity

Simplifeye puts office efficiency first with built in tools like office triaging and live patient flow views.

 

Quick Medical History View

Doctors are able to view the important parts of the medical history just by asking Simplifeye.

 

Cross-Platform Compatible
Simplifeye integrates with existing electronic health records so they no longer invade the patient doctor relationship and creates a standardized interface across multiple platforms. 

Apple Watch

Integration with the Apple Watch allows Simplifeye to be a completely hands free solution allowing doctors to make cross-contamination, when handling records, a thought of the past.

 

Previously featured in the LA Business Journal for their cutting-edge technology. To view the article click here. To view their full website and to learn more, visit www.simplifeye.co 

As 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.


To read the full article, click here.

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

SAM 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. 

 
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 RallyVerde CircleTeam(You), and SAM joint ventureFlashFunders.

 

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Alex 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.

 

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Issue: 12

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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.

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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.

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

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