Category Archives: Publications

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

 
 
 
 
 
 
 
Interested in joining our Preccelerator Program?  

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.

 

To read the full article, click here

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.

 

To read the full article, click here.
Issue: 12

In This Issue

Upcoming Events 
Preccelerator Program Social Media Marketing – July 28th, 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+

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

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.

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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.

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

Preccelerator Program Event: Accelerators, Incubators & Co-Working Spaces: Which One is Right For You?

This panel, hosted by the SAM Preccelerator Program, discusses  the differences and benefits of accelerator, incubator and co-working spaces from the accelerator, legal and entrepreneur viewpoints.

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

BRAND PROTECTION:  SAM ON THE GROUND IN CHINA

Earlier this month, Brand Development & Content Protection co-chairs Tony Keats and Konrad Gatien attended the annual meetings of the International AntiCounterfeiting Coalition and the International Trademark Association in Hong Kong.  In addition, Tony Keats traveled to Shanghai, Xi’an and Beijing.  During their trip to China, they witnessed several issues that blatantly affect brand protection efforts of high-fashion design and consumer product companies.

DESPITE PRIOR LEGAL SANCTIONS, BEIJING’S SILK MARKET CONTINUES TO OPENLY FLAUNT ITS HIGH VOLUME OF COUNTERFEIT PRODUCT SALES.

Tony Keats  reports on visiting Beijing’s notorious Silk Market Building  with some 1,700 vendors, over 3,000 salespeople, 10 sales floors, and located on seven floors  at Yonganli, in the Chaoyang District. Here, the sales personnel openly flaunt the availability of enormous volumes of counterfeit apparel and luxury goods.  In the prior decade, famous brand owners from Burberry, Louis Vuitton, Chanel  and Gucci, to The North Face and LaCoste had achieved ground-breaking legal successes  obtaining relief against the owner/landlord of Beijing’s Silk Market complex, including obtaining injunctive relief, signage requirements, and even small amounts of damages. However, less than a decade later, this litigation has had little impact as Tony Keats was shown back-rooms of various stores with floor to ceiling inventories of counterfeit luxury products. On the first floor, vendors selling unlicensed apparel were not even hiding the merchandise in backrooms but were openly displaying enormous quantities without any effort to cover up their sales. Tony also reports that dozens of tour buses unloaded anxious buyers at the Silk Market while he was at the market. It is reported that there are approximately 20,000 visitors on the weekdays and between 50,000 to 60,000 shoppers on weekends.

 

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CHINA TRADEMARK OWNER’S BRANDS THE SUBJECT OF COUNTERFEITERS.

It has been suggested that as China develops more of its own famous brands which are counterfeited, that the IP community will see greater enforcement efforts by the authorities in that country.  For example, on May 14, the state paper The China Daily reported that customs officials in  Jiangmen City in  Guangdong Province recently seized nearly 3 million fake batteries with a value of US $90,000. The counterfeits, which were to be shipped to Dubai, have a graphic logo very similar to that of SUNWATT, a famous brand owned by Chinese manufacturer, Guangxi company.

SAM’s Brand Development and Content Protection group was able to assist client Stanley Black & Decker in shutting down a counterfeit battery manufacturer in Fushon City, which was producing counterfeit DeWalt brand batteries used with the companies power tools.

DESPITE NEW CHANGES IN CHINA’S IP LAW, THE ONLY PROOF WILL BE IN WHETHER IT IS VIGOROUSLY ENFORCED.

On May 1, 2014, revisions of the trademark law went into effect. One provision prohibits the use of “well-known trademarks” in advertising and on packaging. The state paper The China Daily reported that the new law was causing a number of companies to change their labels and even destroy products. One Chinese company, Jing Wu Agribusiness Group, a company specializing in food and feed processing, which won the title of most well-known trademark in China in January 2013, has now recalled and destroyed nearly 2 million packages at a cost of approximately US $500,000.

CHINA STATE AUTHORITIES CONTINUE TO TOUT THEIR ENFORCEMENT EFFORTS.

The state China Intellectual Property News proclaimed that agencies nationwide investigated more than 4,700 intellectual property infringements in the first quarter of 2014 that had a combined potential retail value of US $43.25 million. Enforcement officials claimed to have checked a wide range of sectors including garments, electric appliances, toys, shoes and furniture. They claim in March alone, 183 shipments of food and six shipments of cosmetics were proven counterfeit, then destroyed or returned to exporters. These efforts are at best a step in the right direction but a paltry amount in light of the size of the Chinese counterfeiting problem.

It was reported by The China Daily on May 21st, that a district court in Beijing handed jail and monetary penalties against seven men convicted of illegally offering movies and TV downloads in what was described as China’s largest copyright piracy case.  The president of the company that operated the website siluhd.com was sentenced to five years in jail and fined US $160,200. The other six defendants were given jail sentences ranging from one to three years.  Siluhd.com, founded in 2008, had seven managers and 140 website administrators, becoming the largest portal of pirated movies, TV shows, and music in China. The parent company also had two brick and mortar stores in Beijing. The website had more than 20 million downloads.

For more information about Stubbs Alderton & Markiles’ Brand Development & Content Protection Practice, contact Tony Keats at akeats@stubbsalderton.com or (310) 746-9802, or Konrad Gatien at kgatein@stubbsalderton.com or (310) 746-9810.

SAM Partner Scott Alderton Featured in Entrepreneur.com Article “Find an Attorney Who Will Be in Your Corner With These 3 Tips”

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SAM Co-Founder and Managing Partner, Scott Alderton was featured in today’s Entrepreneur.com article “Find an Attorney Who Will Be in Your Corner With These 3 Tips.”  Author Adam Callinan of Beachwood VC outlines some of the early questions you should be asking and warning signs you should be recognizing when searching for new legal counsel.

Scott Alderton states that you need “a lawyer with a deep contextual understanding of both the substantive nature of your evolutionary path (i.e. they understand and do the exact type of transactions you are going to be engaging in) and a broad understanding of your industry.” 

To read the full article, click here.

For more information on our Emerging Growth practice, and for information about our Start-up Fixed Fee Legal Package, contact Scott Alderton at (818) 444-4501 or salderton@stubbsalderton.com

 

Stubbs Alderton & Markiles Featured in LA Business Journal Article Regarding Tech Growth in the Legal Industry

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The Los Angeles Business Journal featured the recent expansion of Stubbs Alderton & Markiles’ Business Litigation practice in its March 31 edition regarding tech growth in the Los Angeles legal market. To view the full article, click here.

For more information about our Business Ligitation practice, contact SAM Partner Michael Sherman, at masherman@stubbsalderton.com or 818-444-4528.