Articles Tagged with “sacramento start up lawyer”

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Several months ago, we featured two articles about California’s ride-sharing startups. Ride-sharing companies, such as uberX, Lyft, and FlightCar, are in the business of providing vehicles-for-hire. Using apps and other online programs, the companies connect those in need of rides with non-professional drivers driving their own cars. Beginning in late 2010, the California Public Utilities Company (CPUC) issued cease and desist orders against all three ride-sharing companies for operating unlicensed charter party services, and the City of San Francisco followed up by suing FlightCar, alleging that it was undercutting rental car companies at the airport by acting like a rental car company, but ignoring the regulations that govern them. This past August, California became the first state to legalize ride-sharing companies when the CPUC issued a proposed set of rules that would grant state licenses to the ride-sharing companies and allow their vehicles to remain on California roads. The proposal creates a new category called the Transportation Network Companies and requires a ride-sharing company to apply for a license to operate in the state.

uberX Appeals Effort to Regulate It

Fast forward several months: This past Wednesday, attorneys for Uber Technologies, Inc., which runs uberX, filed an appeal — or an application for rehearing — challenging the CPUC’s power to regulate it, contending that uberX is a technology company, not a vehicle-for-hire services and that the CPUC does not have jurisdiction over technology companies that do not provide transportation services. uberX argues that it does not have to comply with the CPUC’s requirement to obtain a license because “it operates no vehicles and does not hold itself out or advertise itself as a transportation service provider.” Rather, it merely developed a software and mobile application service, which simply connects the transportation service provider with those persons seeking transportation. uberX does not own, lease, or charter any vehicles for the transportation of passengers and, therefore, should not be required to obtain a license to operate in the state of California.

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Last week, in a victory for startups and their investors, California Governor Jerry Brown signed into law Assembly Bill No. 1412. The new law temporarily quashes a move by the state’s tax board to levy up to $120 million in back taxes and penalties on entrepreneurs and small business owners.

History

In 2008, the California legislature passed a tax exemption that allowed small-business investors in the state to exclude from their taxable income, 50 percent of their gains from the sale of qualified small-business stock. The exemption was known as the Qualified Small Business Stock exemption. Last year, the California Court of Appeals ruled that the exemption was partially unconstitutional because it “[favored] domestic corporations” and thus was facially discriminatory, in violation of the U.S. Commerce Clause. The appeal’s court ruling gave California’s Franchise Tax Board the authority to collect retroactive taxes assessed on small business owners that took the exemption in tax years 2008-2012. Some estimate that the total amount levied would have been around $120 million. Knowing that investors would be upset about the retroactive tax, California Business Defense organized a coalition of entrepreneurs, attorneys, and lawmakers, in an effort to reverse the Board’s decision to reinstate the tax.

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Last month, we discussed why collaboration and sharing physical office space is particularly important to startups. See “The Essentials for Startups: High Speed Internet and a Collaborative Environment,” September 10, 2013. In that article, we noted that while many businesses have been started and run successfully from anywhere in the world, startups are more likely to succeed in an environment where employees and/or founders are able to meet and interact in person. Prime examples of this success include companies such as Google, Twitter, and Groupon. But, is it really necessary and feasible for startups to maintain all of their functions in-house? California-based oDesk, the world’s largest online workplace, is betting that startups will quickly see the financial advantages and growth possibilities of outsourcing many key business functions. On Monday, the company announced the launch of a startup accelerator partnership program called oDesk Upstarts. Startup or seed accelerators are for-profit startup incubators, that essentially take classes of startups made up of small teams and support them with funding, mentoring, and training for a specified period of time in exchange for equity in the startups. Accelerators are privately funded and tend to focus on mobile/internet startups. oDesk Upstarts is a “slate of partnerships with more than 20 global startup accelerators aimed at introducing even more high-growth, early stage companies to the prospect of on-demand labor.” The partners will offer free outsourced labor with the goal being training, coaching, and mentoring.

The idea is an interesting one, but will startups outsource their labor? While investors tend to shy away from startups that outsource core business functions, outsourcing labor may be the solution to two of the biggest problems facing startups: (1) shortage of talent, and (2) limited financial resources. oDesk contends that investors should not fear outsourcing, but rather embrace it. According to the company, outsourcing labor is an excellent bridge over the early growth phase of startups, and is not “a replacement for a company building its core team[, but] a solution for reaching scalability more quickly and doing so in a flexible manner.” oDesk hopes that startups will outsource more than just accounting and HR functions. The company hopes that startups will outsource development and content creation as well. We will have to wait and see if the idea takes hold.

Immigration Reform

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Last week, we reported about an important event for startups: Title II of the Jumpstart Our Business Startups Act or JOBS Act took effect last Monday and it lifted the ban on general solicitation, allowing startups to publicly advertise that they are seeking investments. General solicitation means “to publicly advertise the opening of an investment round in a private company by utilizing mass communication.” As reported by Forbes magazine, “under Title II of the JOBS Act, entrepreneurs will be permitted to publicly advertise that they are fundraising for their businesses, something that was previously illegal for the past 80 years under Rule 506 of Regulation D and Rule 144A of the Securities Act of 1933.” As promised, this week, we will discuss several important steps startups must take to comply with the regulations of Title II if and when they choose to generally solicit their fundraising efforts.

Under Regulation D Rule 506(c), the rule allowing for general solicitation, the first thing you must do if you are a startup choosing to engage in public fundraising or general solicitation is ensure that only accredited investors are permitted to enter the funding round. This requirement differs from private fundraising, which is regulated by Regulation D Rule 506(b), and which allows you to have in your funding round up to 35 non-accredited investors with whom you have had a pre-existing relationship.

So what is an “accredited investor?” According to Regulation D Rule 506(c), an “accredited investor” is one generally having earned $200,000 for the past two years, or $300,000 if married, or having a net worth of $1 million not including a personal residence. Of course, it is not as easy as simply asking a potential investor if they meet this threshold. The JOBS Act requires startups to verify the status of investors and provide official documentation to confirm that each investor meets the “accredited investor” threshold. Because some investors may not feel comfortable providing such personal information (including tax returns, relevant bank statements, brokerage account statements, credit reports etc.) directly to startups, the SEC has allowed third-party services to undertake this necessary due diligence. This service protects a potential investor’s proprietary information and also relieves the startup of the burden of verification. A third-party service can be a registered investment advisor, a broker-dealer, an attorney, or a certified public accountant.

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Starting tomorrow, August 29, 2013, Engine, a non-profit connecting startups and government (according to its website, “the voice of startups in government”), is kicking off Startup Across America Day. Forty-four members of Congress will meet with technology startups in their home states and districts in order to discuss policy issues that impact their businesses. Events will take place in Atlanta, Austin, Baltimore, Boulder, Cambridge, Chicago, Cincinnati, Dallas, Grand Rapids, Jeffersonville, Kansas City, Long Island, Memphis, Phoenix, and Seattle. The goal of this event is to establish “the first step in creating a lasting dialogue between Members and their startup communities; [to] allow Members to meet with job creators in their district; [to] discuss the importance of entrepreneurship and innovation to the American economy; and [to] embark on conversations about the policy issues that matter to these dynamic businesses.” One subject that is certain to be discussed by both parties is “patent trolling,” and it is an important issue in California because many startup companies, particularly those in the technology industry, rely heavily on patents. The issue has also become a hot topic in Washington.

Patent trolls are shell companies that exist solely for the purpose of asserting that they should be reimbursed because they hold patents that are being infringed upon, mostly by an electronic process or software, hence the reason California’s technology industry is particularly concerned with the practice of patent trolling. Patent trolls essentially threaten to file lawsuits against alleged patent infringers, and their threats seem to be real: Between 2010 and 2001, the number of patent infringement lawsuits increased sharply, up by a third, compared to the previous decade. It is estimated that the practice of patent trolling has cost small and medium-sized companies an estimated $29 billion per year in litigation and/or settlement fees, and it is alleged that the practice has become more popular over the last few years because the Patent and Trademark Office (PTO) has been unable keep up with the demand for patents, issuing many that were too broad or poorly documented. For its part, the government is looking for ways to curb the practice. In June, President Obama issued five executive orders and seven legislative recommendations designed to protect innovators from frivolous litigation and to ensure the highest-quality patents in our system. In addition to the President’s actions, several members of Congress introduced legislation aimed at changing the way patents are considered, awarded, and litigated.

While the battle against patent trolls gained significant momentum over the summer, a report issued by the Government Accountability Office last week may “put a spoke in the wheel.” According to the report, the increased number of lawsuits in 2011 was most likely influenced by the anticipation of changes in the Leahy-Smith America Invents Act, which significantly changed our patent system, including limiting the number of defendants in a lawsuit, thus resulting in many plaintiffs breaking up one lawsuit against multiple defendants into several lawsuits. The report further concluded that companies that make products brought the majority of patent infringement lawsuits, while patent trolls only brought a fifth of lawsuits. However, as anti-troll groups point out, the GAO report also shows that patent trolls are very active in software cases, which accounted for 65 percent of defendants between 2007 and 2011.

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There is a growing trend in California and it is having a huge impact on startups: According to a recent article in The Recorder, a California business law publication, there has been a surge in bias claims against Silicon Valley technology companies. The figures show that employment suits against California technology companies doubled between 2000 and 2012, with discrimination suits making up the largest portion of those employment claims. Observers point out that there is a big problem among technology companies with age discrimination, sex or gender discrimination, and with African-Americans and Latinos being left out of hiring. The lack of diversity in the industry is particularly noticeable to plaintiffs lawyers, and young startup companies tend to be easy targets because they ignore employment laws in their rush to grow and succeed in the industry.

The issue of sex or gender discrimination in the industry made big news in 2012, when Ellen Pao, a former partner at the California venture capital firm of Kleiner, Perkins, Caufield and Byers, sued her former firm for gender discrimination, claiming that the firm pays and promotes men more than women, excludes women from key meetings, and fails to respond to reports of sexual harassment in the workplace. Since Pao filed her lawsuit, many more women have filed similar claims, and Pao’s attorney says he has seen an increase in gender discrimination claims based on violations of state and federal laws governing maternity and disability leave. Interestingly, Sheryl Sandberg’s book, Lean In: Women, Work, and the Will to Lead, has been credited with increasing demand letters from female employees of technology companies, who claim their employers unfairly denied them promotions. The figures seem to support the claims. According to the Institute for Women’s Policy Research, which analyzed data from the Bureau of Labor Statistics, in 2012, only 20 percent of software developers were female, earning 18 percent less than their male counterparts. On the other hand, the data also shows that the labor pool itself is male dominated, making it difficult to hire women in the industry: In 2010, women made up 57 percent of college graduates, but only 18 percent of computer and information science degrees.

Since 2010, technology companies have also been on heightened alert for age discrimination claims. That year, the California Supreme Court reversed a lower court’s grant of summary judgment to Google in a case filed by 54-year-old employee Brian Reid who alleged he was fired because of his age. Reid claimed his supervisor and other employees called him an “old man” and “old fuddy duddy.” The Supreme Court found that the remarks could be evidence of discrimination.

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With so many items on the “to do” list, new employees at start ups are often immediately thrown into the fire. Everything seems to move at a quicker pace for new companies, and it is common for employees to simply learn as they go and for problems to be ironed out as they arise. It is natural for new workers at these companies to operate differently than those in large, established companies. However, there may be some basic protocols that even brand new companies should take from their established rivals, like decent employee training. The cost in money and time at the outset often proves to be a lifesaver for new businesses down the road. justice.jpg

Lessons from the Mayor

One of the most high-profile California stories this month involved lawsuits filed against San Diego Mayor Bob Filner. As many know, several female staff members recently came forward, claiming that the Mayor engaged in egregious conduct and sxual harassment. The case took on unique legal arguments when Filner’s own attorney argued in a letter to the San Diego attorney, that the city lawyer should defend the suit with public funds, because the city failed to provide the Mayor with sexual harassment training.

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According to a recent article in P-V Tech, real-estate investment trusts (REITS) are growing across the country, and California is no exception. Earlier this month, a large land sale indicated that REITS are also beginning to have a hold in the solar industry. Near Fresno, the New York-based company Power REIT purchased approximately 100 acres of land that will support over 20MW of utility-scale projects in the area.strip mall.jpg

This recent land acquisition is likely to have implications for commercial solar energy solutions in California. If you have questions about commercial real estate and renewable energy, contact an experienced commercial lawyer today.

REITS and Commercial Real Estate

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A helpful post from Venture Beat recently touched on what all start-up owners should consider when choosing a business lawyer for their operation. Of course, choosing an attorney is a personal matter and at the very least you must be able to see yourself interacting with this person on a frequent basis. If you do not hit it off or simply cannot envision working well with the attorney, no matter what their background, you should look elsewhere.

business2.jpgBut so long as you can hold a conversation with the legal professional and can envision a working relationship, what else matters? The article asks some questions worth considering.

Who will actually be working on your legal matter?
You may have a great conversation with one person only to learn later that someone hidden in a cubicle is actually doing most of your legal work. There are a wide range of firms and organizational structures. From the outset, you should talk with the actual person who will be providing advice and handling the actual legal matter for your company. There are too many high-quality legal professionals to not have direct contact with your attorney.

How do fees work?
It is cliche to state that fees shouldn’t be the main concern. And it is well known that picking any service for the price alone can lead to bare bones quality. But at the same time, it is naive not to assume that price does not matter. Of course it matters, and as a startup it is critical to get good value for every dollar spent, including on legal fees.

There is no right or wrong answer to fee arrangements except to say that they should be transparent. Understand from the beginning how things will work and exactly what services will be provided. Clarifying at the outset may prevent significant complications down the road.

Has the attorney worked with other start ups before?
Legal experience matters. While the lowest fees can likely be secured by the youngest attorneys, there is a lot to say for paying for past success. Like any profession, there are incredibly diverse skill sets between attorneys working in different areas. That might even mean different skills between those working with early-stage startups as compared to more “mature” companies. A lawyer who has worked with those in a similar position to your business is a tremendous asset. As the VB article suggests: “Look for a lawyer that understands the inception-to-launch process.”

Do they understand your industry?
This one is a little more specific than others, but it is certainly helpful if the attorney actually understands the specific of your industry–or at least is familiar with the basics. Legal principles as they relate to businesses generally apply to all, no matter what the industry. But that does not mean that any business attorney is fine. If they can relate to the specifics of your needs, then the more tailored legal help you will receive.

For help on any of these issues in the Sacramento area, please consider contacting our start up attorney today.
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If you scour the web for information on “tips for start-ups” you will find an endless number of bullet points, lists, and helpful summaries. Interestingly, in the majority cases the items most often messed up, done poorly, or forgotten about relate to legal matters. For example, as a Venture Beat post discussed recently, many different legal matters are continually botched by those with great ideas and the best of intentions.

Perhaps it should not be surprising that many start-ups make legal mistakes, because most focus is on the product or service about which they are passionate. Many of the administrative and organizational details get short shrift. Add the fact that many startups seek to cut corners and avoid paying for professional help, and it is easy to see how so many legal errors are made. But it remains critical for all those hoping to make it in the long-term to get serious about avoiding the most common legal pitfalls. For example, some of the obvious ones discussed in the VB post include…

Lean About “Due Diligence”