august 27, 2009 using the law to create opportunity and reduce risk © thomas h. makeig 2009. all...

August 27, 2009 www.makeiglaw.com 1

Using the law tocreate opportunity

and reduce risk

© Thomas H. Makeig 2009. All rights reserved.


What does an entrepreneur need from the law?

• Civil authority

• Independent judiciary

• Civil service free from corruption


“A man needs a good doctor, a forgiving priest and a clever accountant.”

- Oskar Schindler Schindler’s List


An entrepreneur needs

• mentors & supporters

• accountant & book-keeper

• business lawyer & specialists (e.g., tax, patents)


Create opportunity:

What is your edge?• Intellectual property• Exclusivity• Relationship(s) >> contract(s)• New market• Legal no-man’s land – e.g.,

“callback”


If your “edge” is legal

Then the law has created your opportunity.

Use your lawyer to develop and guard it.


Minimize risk: Use your lawyer to

• Structure your company• Give strategic input to business plan• Review material contracts• Establish employment policies• Structure financing rounds


Structure your brand & IP

• Choose a name• Branding, marks, trade dress• Nail down licenses• Proprietary info: patent- trade secret-copyright


Protect confidential information

• Trade secret• Patent• Copyright (software)


Structure your company

• “S” corporation• “C” corporation• LLC• Partnership/Joint venture


Plan for failure, too

Always put an entity between you and the

creditors of the business.

Do this EARLY, not when the business is in trouble!


Bus. obligations you can’t avoid

• Payroll taxes• Sales & use taxes• Misc. taxes• Personal guaranties• Business torts• Investors if you lack an exemption from registration


Think carefully before you incur these obligations

AND

Talk to your lawyer!


Strategic input to bus. plan

• Does the law create or shape your market?• IP issues• Regulatory environment• Financing your business• Exit planning


Material contracts

• Organizational documents• IP registrations & licenses• Partner/shareholder agreements• Key supplier/customer agreements• Key employee agreements• Employment manual & policies• Real estate leases & purchases• All financing documents


Financing your business

• Personal & family resources• Get a lucrative contract• Bank finance/SBA• Investor loans• Investor equity subscriptions


Investors

• Friends & family• Government, e.g. DARPA• Angels• Venture capital• PIPEs and reverse mergers


Investment vehicles

• Simple loan• Mixed debt/equity• Equity capital


Raising $ through private offerings

• Regulation D• ‘33 Act §4(2)• Reverse mergers/PIPEs • SCOR & Regulation A


Regulation D

• 504: ≤ $1 million• 505: ≤ $5 million, PPM• 506: Unlimited


505

• Accredited’s and ≤ 35 non-accredited’s

• All non-accredited’s require a PPM


506

Same as 505 but

• No $ limit• Non-accredited’s must be sophisticated


“Accredited investor”

• Officers & directors of issuer OR

• Net worth ≥ $1 million OR

• Income ≥$200k/$300k


Private Placement Memorandum

• Audited financial statements• Registration statement info• Do the prep work even if a PPM is not required


Why a 505 or 506 is best

Federal pre-emption of state

securities regulation:

Securities compliance = One-stop shopping


#1 RULE for raising $

•Don’t go half-way.

•Get all the $ you need to reach break-even & beyond

•Otherwise, revise your plan


Aristotle Onassis version:

•Wear the best clothes•Be seen in the best places•Live at the best address, even if it’s in the basement

•When you borrow, BORROW BIG!


How to use your lawyer

• Understand the fees• Keep lawyer informed• Make your lawyer your “general counsel”


When not to call your lawyer

• Organizing a single-owner company• Doing your market research• Trolling for mentors-customers- suppliers• Routine transactions (use forms blessed by your lawyer)• When your lawyer says it isn’t necessary


When to get your lawyer involved

• At start-up• Writing your bus. plan• Establishing key relationships: material contracts & ltrs of intent• Establishing your brand & making IP applications• Hiring employees • Preparing to raise $

When in doubt, check


How to tell the difference

• “What’s my upside/downside? Is it critical to my success?”• Educate yourself• Ask a mentor• Ask your lawyer

It comes with experience.


Legal-fee sticker shock comes from

• Poor communication• Poor planning• Doing business with bad people• Litigation• Breaking new legal ground• Transnational business/tax• World-wide patents


Your legal fees will be reasonable if you

• educate yourself and

• communicate well with your lawyer and if

• your lawyer understands your business & goals and

• you both look for the beaten path to your goal


Documents your lawyershould write or review:

• Governance documents • Standard P.O. and T&C for sales• Employment manual• Internet privacy policy/disclaimers• Product labels, promo materials• All financing documents

Will you be introducing me?


Educate yourself

• NOLO• DUMMIES• IDIOTS• IN A NUTSHELL• CHICKEN SOUP


Educate yourself

• Nolo.com• NY Times Small Business• Inc. Magazine• Recent articles: websites of reputable law/acc’ting firms• makeiglaw.com - blog


Useful links

• US Trademark d/b:http://tess2.uspto.gov/bin/gate.exe?

f=searchss&state=4004:3hvb3g.1.1

• SEC Small Business:http://www.sec.gov/info/smallbus/

qasbsec.htm#eod6

• Wikipedia: USE WITH CAUTION

> Confirm all research with a professional <

august 27, 2009 using the law to create opportunity and reduce risk © thomas h. makeig 2009. all...

Documents

corruption slide

registration slide

callback slide

business exit planning

financing documents

com10 structure

com8 structure

payroll taxes sales