The Canal Street Blog

Business-focused legal discussion


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Today's post highlights some important distinctions between corporations and LLCs to help you choose the right entity structure for your company.

It’s important to understand the significant (and sometimes subtle) differences between the various choices when determining the right entity structure for your new venture. Today’s post details some important distinctions between corporations and LLCs.

The Distinction Between State Entities vs. Federal Tax Elections 

For state law purposes, there are two primary entities that the choice of entity generally comes down to: corporations and LLCs. Corporations and LLCs both offer limited liability to owners of the company. This means that (absent extraordinary circumstances) if the business is sued, only business assets are at risk and the ownerss personal assets will be shielded from the company’s liabilities.

For federal tax purposes, there are three primary tax classifications that most companies are organized under: C corporations, S corporations, and…

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Liability shield

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Today’s post highlights three simple questions buyers should consider to protect intellectual property rights when purchasing a business .

When purchasing a business, buyers often overlook one important part of the purchase: formally transferring the seller’s intellectual property rights to the buyer. The most common IP rights include copyrights, trademarks, patents, and trade secrets. Today’s post highlights three simple questions buyers should ask before purchasing a business.

Can you and do you want to transfer the business’ trademarks?

In most purchases, trademarks will be easily assignable from the seller to the buyer. However, in some situations even if the trademarks are assignable, you may not want to acquire them. For example, if the business’ logo infringes on trademark rights of another business, then you wouldn’t want to transfer ownership of the logo and risk being held liable for trademark infringement once…

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Non-disclosure agreement

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We discuss the recent California Labor Commission ruling that an Uber driver is an employee, not an independent contractor, and the effect on business.

The California Labor Commission recently ruled that a San Francisco Uber driver is an employee, not an independent contractor. This ruling, which came to light last Tuesday when Uber filed an appeal, could have major ramifications. The debate over whether on-demand laborers should be classified as employees or independent contractors has been going on for a few years now fueled by the explosive growth of companies such as Uber and Lyft. And regulators in different states are sure to look at this ruling when they have to make a decision on the issue.

The case that was before the California Labor Commission involves a San Francisco driver, Barbara Ann Berwick, who worked for Uber from July to September 2014. She had…

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independent contractor

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Today’s post highlights some of the key considerations to have in mind when finding startup advisors for your company.

Startup advisors can be an extremely valuable resource for early-stage companies. Typically advisors bring startup experience, a large network of entrepreneurs, investors and other types of advisors, and sound business advice for growing your company. In today’s post, we’ve highlighted some of the key considerations to have in mind when considering hiring advisors for your startup:

Are They the Right Fit?

Perhaps the most important consideration is finding a person that understands your business and goals and finding someone that has industry experience and contacts that you can leverage strategically for the benefit of your business. They should also be someone you trust and that you know will give you reliable advice. It also helps if you get along with and enjoy…

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Startup advisors

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Startup founders will often wonder how much employee equity they should give and there are a number of factors to consider to craft the appropriate plan.

Startup founders will often wonder how much employee equity they should give.  While there is no bright line rule for this situation, there are a number of factors to consider to craft the appropriate equity compensation plan for your startup.

Types of equity to grant

Equity can be broken up into common stock and preferred stock. It’s unusual for a startup to issue preferred stock to anyone but an investor in the company, so we’ll focus on common stock. Common stock is a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure. In the…

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Employee Equity

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Today’s post highlights some of the reasons why you may want to consider incorporating in Washington versus Delaware.

One of the first steps when forming a company is to decide which state is best to “register” your company. Today’s post highlights some of the reasons why you may want to form your company in Washington state versus Delaware.

I heard Delaware was the best state to incorporate my company, is that true?

It is true that Delaware has a specialized court that handles corporate disputes (the “Court of Chancery”) and is recognized as the nation’s preeminent forum for determining internal corporate and other business disputes. Delaware also has friendly corporate statutes and a well-developed, widely understood, and closely followed body of corporate law. But Washington state also offers advantages unmatched by Delaware (and many other states).

Two of these advantages are…

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Investing locally

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To streamline the filing of security's notices, the North American Securities Administrators Association, Inc. created the Electronic Filing Depository.

The most common method companies use to raise private capital requires filing notices with each state in which you have an investor. To streamline the process of filing these notices, the North American Securities Administrators Association, Inc. (“NASAA”) created the Electronic Filing Depository (“EFD”).

Who does the EFD help?

The general rule in the United States is that, unless you have an exemption, in order to sell stock in your company, you need to register your stock offering with the SEC. Stock registrations are so expensive and time-intensive that they’re not feasible for most all small companies. As we’ve discussed before, Rule 506 of Regulation D is a “safe harbor” for the private offering exemption of Section 4(a)(2) of the Securities Act….

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Electronic Filing Depository

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In this blog post, we'll discuss how to convert a traditional corporation into a social purpose corporation.

Yes, an existing Washington business entity can convert into a social purpose corporation (“SPC”). In this blog post, we’ll discuss how an existing traditional corporation can become a social purpose corporation.

To convert a corporation into an SPC, the company needs to take a few steps. First, the board of directors has to recommend the corporate action to the shareholders. The action must pass by at least two-thirds of the votes of the voting group entitled to vote on the corporate action. Further, the action must pass by two-thirds of all other shares voting as separate voting groups. Essentially, the SPC conversion statute controls over any existing arrangement in the corporation’s governing documents. So the corporate action to convert to an…

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social purpose corporation

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Today’s post highlights what licensing agreements are and some of the common terms included in every licensing agreement.

An important tool for monetizing your IP is a licensing agreement. When exploring entering into a licensing agreement, it is important to understand how licensing agreements work and the common terms of a licensing agreement. Today’s post highlights what licensing agreements are and some of the common terms included in every licensing agreement.

How do Licensing Agreements work?

A license gives a person or company the ability to use another person or company’s intellectual property rights for commercial purposes. The licensing agreement lays out the terms and conditions under which the licensee (the one receiving the right to use the IP) can use the IP for its benefit. The agreement also lays out the compensation the licensee agrees to pay to the…

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Scope of Licensing Agreement

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It is common for startups to raise early rounds of financing through convertible debt. Today’s post highlights valuation caps and discounts in convertible notes.

It is common for startups to raise early rounds of financing through convertible debt. Convertible debt, generally called a “convertible note,” typically converts into equity when the company raises another round of financing. In anticipation of the conversion, many investors will negotiate for valuation caps and discounts. In today’s post, I’ve highlighted the basics of valuation caps and discounts in convertible notes.

What is a Valuation Cap?

A valuation cap provides that the convertible note holders will convert their debt into equity at the lower of the valuation cap or the price in the subsequent round of financing. Without a valuation cap, the note holders would generally convert their debt into equity at the same price as the shares issued in the…

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Negotiating valuation cap