Archive for February, 2008

Mark Cuban’s Rules for Startups

Thursday, February 28th, 2008

Mark Cuban founded broadcast.com, which was acquired by Yahoo! during the dot.com boom. He has some generally good rules for startups here.

Federal Securities Laws and SEC Filings and Forms

Friday, February 22nd, 2008

Domestic U.S. and foreign companies that list their securities on U.S. securities exchanges must file registration statements, periodic reports, and other forms with the U.S. Securities and Exchange Commission. They must be filed electronically via the SEC’s EDGAR database.

Here’s a link to the major Federal Acts that govern the securities industry: Federal Securities Laws. This is a good overview of each law and what it covers.

Three of the major Federal Acts are:

*The Securities Act of 1933 (the “33 Act”) regulates the offer and sale of securities (unless an exemption exists). The purposes of the 33 Act are two-fold: to provide disclosure to investors for the offer and sale of securities being sold to the public, and to prevent misrepresentation and fraud in connection therewith.

*The Securities Exchange Act of 1934 (the “34 Act”) primarily deals with the secondary trading of securities after they have been issued or sold. The 34 Act covers corporate reporting, proxy solicitation, tenders orders, insider trading, and the registration of exchanges, associations and others.

*The Investment Company Act of 1940 (the “40 Act”) “regulates the organization of companies, including mutual funds, that engage primarily in investing, reinvesting, and trading in securities, and whose owns securities are offered to the investing public.”

Here’s another excellent resource at the SEC. A list of SEC forms required under each Act and many of the rules, regulations and schedules associated with them are available at the SEC Forms List page.

Ask the VC

Thursday, February 14th, 2008

I get asked a loteven by experienced executiveshow much equity they should expect when negotiating to work for private companies. That’s all over the map and really depends on the company, the position, etc., but here’s a blog that tackles that subject and more: Ask the VC. It’s written by Brad Feld and Jason Mendelson, who are with Mobius Venture Capital and The Foundry Group.

This blog is worth checking out if you’re a small company planning to seek venture investment or even an entrepreneur trying to build a better private company. I like blogs with a lot of meat and little fat…and this is one of them.

Here’s one of those odd little twists that happen in life. Brad was the CTO of a company called AmeriData Technologies that was later acquired by General Electric. When I practiced law, I represented a venture firm that invested in AmeriData. I met the two founders of that company, but don’t recall meeting Brad.

Directors and Officers Liability Insurance

Wednesday, February 6th, 2008

Directors and Officers Liability Insurance, commonly referred to as “D&O insurance,” covers damages and defense costs if a company’s officers and/or directors are sued for wrongful acts that may have occurred while they were performing their corporate duties. It is payable to the corporation or the directors or officers themselves.

Wrongful acts may include errors, omissions, misstatements or misleading statements, breach of duty to the corporation or neglect. Plaintiffs may include just about anyone: shareholders, vendors, creditors, regulators, competitors, and employees.

D&O insurance used to only be available to larger, established corporations. In recent years, however, even small, private companies have been able to purchase D&O insurance. CarpenterMoore, a Nasdaq company, provides D&O liability insurance among its products.

Voting Trust Agreements and Effecting Corporate Action

Saturday, February 2nd, 2008

If you want to cause a corporation do something on the corporate level if a particular event occurs, there are a variety of avenues you can pursue. Here are some options:

* Put a provision in the corporation’s charter (AKA Article of Organization or Articles of Incorporation). However, this is inflexible and costs money. If you want to change the provision, it’s a hassle. Plus, it’s a public document, so all the world knows what you’re doing.

* Create a Shareholders’ Agreement. The agreement among shareholders would recite all the reasons for the behavior, but there’s no guarantee that the behavior will occur, so it’s much riskier. A shareholder agreement gives the right to demand action, but can’t force the action. Only a lawsuit can do that.

* Change the corporation’s Bylaws to require the change. This doesn’t cost anything and it’s not public. That said, it ties the hands of the directors. If the event is conditional, then you also would have a side agreement among the shareholders to require the event to occur if the condition occurred. However, there’s an argument that this restricts the directors’ ability to manage the corporation unless all the directors are parties to the side agreement.

* Create a Voting Trust Agreement. A voting trust transfers the legal title to the stock and its voting rights to a trustee for a certain period of time. It affects only those shareholders who are party to the agreement. It provides flexibility and privacy and is fairly inexpensive.

Like any legal document, a voting trust agreement is a creature of the particular jurisdiction to which it is subject. The voting trust must be acknowledged by the corporation and its shareholders. Further, it’s a good idea for the trustee and alternate trustee to acknowledge it also.

A Conditional Voting Trust Agreement is a voting trust agreement that has no affect unless a particular event occurs. In that case, the trustee will step in with control of all shares to guarantee the results. Essentially, the trustee is an enforcer. It’s a good idea to avoid requiring the trustee to have physical possession of the shares in any voting trust agreement, as that could delay the trustee’s actions.