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 Stubbs Alderton DJ2015 Top Boutiques.
For more information, contact:
Director of Marketing
Director of Operations, Preccelerator Program
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 press release, click here.
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.
Tim 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.
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. 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.
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.
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.
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.
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.
 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.
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 email@example.com or (818) 444-4547.
Michael 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.
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.
For more information about exit strategies and their tax ramifications, please contact Michael Shaff at (818) 444-4522 or firstname.lastname@example.org.
 Cal. Corp. Code §16306(a).
 Internal Revenue Code (“IRC”) §1060(b).
 Cal. Corp. Code §15902.01(a).
 Cal. Corp. Code §15904.04(a).
 IRC §351.
 Rev. Proc. 93-27, 1993-2 C.B. 343.
 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.
 IRC §751(a).
 Generally, suspended losses may be claimed as the partnership generates net income or when it is ultimately disposed of.
 IRC §368(a)(1).
 E.g., Biefeldt v. Commissioner (7th Cir. 1998) 231 F.3d 1035.
 IRC §351. Care must be taken to convert to corporate form before undertaking acquisition negotiations.
 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).)
 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%.
 Differences in, or even a complete absence of, voting rights are permitted. (IRC §§1361(b)(1)(D) and (c)(4).)
 IRC §1361(a).
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.
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.
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 email@example.com or (818) 444-4541.
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. 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.
Tony Keatsfirstname.lastname@example.org or (310) 746-9802
Konrad Gatienemail@example.com or (310) 746-9810
Kevin DeBre-Kdebre@stubbsalderton.com or (818) -444-4521