What Type of Entity Should Your Startup Be?
In counseling entrepreneurs, one of the first questions that arises is about choice of entity type – in other words, should the entrepreneur’s business be contained in a C corp, S corp, LLC, limited partnership or general partnership, or be structured in some other way? While there are obviously a number of factors that must be considered when answering this question, my answer is – with few exceptions – that an LLC is the best form. This is not yet the universal view, and some excellent attorneys have a different predisposition. So, I’ll lay out my basic reasons here, and I’ll be curious for comments – especially from people with a different viewpoint.
To keep it simple, my reason is that an LLC provides the benefit of limited liability for the owners, pass-through tax treatment (that is, no double tax), and ultimate flexibility in structuring the equity ownership and management rights of owners. No other entity form has this combination of features. Read more
10 Legal Lessons from our ‘Unimaginable Journey’
In Aviad Meitar’s book, An Unimaginable Journey: How Pepsi Beat the Odds in Romania, he recounts his incredible experience in launching, building and selling the Pepsi business in Romania. His focus is on the business lessons and personal highs and lows (mostly highs) of that experience. Although he is also a lawyer (non-practicing), the book does not delve into the legal lessons of our journey.
As the General Counsel of Pepsi Romania from 1991-2006, here are the top 10 legal lessons that I learned, which I regularly have the chance to apply in current representations. Many of these lessons can be gleaned from the stories presented in Aviad’s book. Read more
Dorsey Announces Establishment of Educational Publishing, Technology and Services Industry Group
I’ve been working on this for a year and am excited about my firm’s commitment to this innovative, rapidly growing and essential industry. We have 35 attorneys who have joined the group so far. Please contact me if you’d like to learn more about our ability to add value to your educational publishing, technology or services business.
A copy of the firm’s press release is reprinted below. You can also find it here: http://www.dorsey.com/educ_pub_industry_group_pr/
Jeff Read more
Favorite Quoted Quotes from ‘An Unimaginable Journey’
My friend, business partner and client, Aviad Meitar, just published a very interesting book about our experience in building the exclusive Pepsi-Cola bottler in the country of Romania. We made the first trip to Romania together in January 1991, just 13 months after the revolution that overthrew Ceausescu. Since that incredible first encounter, Aviad always said one day he would write a book about it. Now the book, An Unimaginable Journey: How Pepsi Beat the Odds in Romania, is out, published by Amazon’s subsidiary, BookSurge.
Here’s the independent review from ForeWord Clarion Reviews:
“The journey described by Aviad Meitar is nothing if not intriguing. This well-written and concise eyewitness account of building an American brand in an Eastern European country offers rare insight into how a business can succeed even in the face of the most daunting challenges.”
At the beginning of each chapter, Aviad presents a voyage-themed quote that relates to the story in that chapter. Most of these quotes were new to me, and many seemed both insightful and of general applicability to emerging companies and entrepreneurs. In this first post about this book, I present my favorite quoted quotes: Read more
Know the No’s
‘No’ is a powerful word in business negotiations. If used wisely, it can help you (or the other party) achieve the target objectives. If misused or misinterpreted, it can crater (or at least hamper) a deal for the wrong reasons. ‘No’ is such a problem in business negotiations that the seminal book on the topic is called Getting to Yes.
One of the most effective ways to use the word is what I call “early and often”. If there is a critical issue of fundamental importance, it is generally best to put that on the table right up front, so there is no misunderstanding later on. Think of “no personal guarantees”. If you don’t make that ‘no’ an unequivocal condition of the deal at the beginning, two things may happen: first, you will probably face even more friction in the deal when the issue arises later; and second, you will probably need to trade something extra of value in order to prevail on the issue. In this instance, there is no word better than ‘no’. Read more
The Taxman Always Rings Twice
In the past few years, I’ve worked on an unusually large number of matters requiring complex tax analysis in high-stakes situations. While I’ve always had a healthy respect for the importance of tax issues, these more recent engagements have left me in absolute awe of the risks associated with the tax code. Seemingly harmless transactions consummated years before can dramatically alter your tax position years after.
The notion I wanted to get across with this post’s hopefully catchy title is that there are always at least two occasions on which tax advice is critical for any transaction or business arrangement: first, at the time of entering into the transaction or arrangement; and second, at the time of exiting the transaction or arrangement. Read more
Welcome Back
It’s been a while since my last post. Since then, I became a Partner in the Corporate and Transactions Group at Dorsey & Whitney LLP, a Minneapolis-headquartered firm that has 650 lawyers in 19 offices throughout the U.S., Canada, England, China and Australia. At Dorsey, I have an exceptional group of colleagues who greatly increase the depth and breadth of services I can offer clients. It’s also a firm that places a high value on professionalism and continuing legal education, which I really appreciate. Our internal training department, DorseyU, has several full-time employees who coordinate multiple educational programs for our lawyers each week — it’s already been a great resource for me.
In thinking about the “re-launch” of this blog, I decided to rename it from Business Law Insight to Business Law Strategy. The purpose of this blog, as always, is to facilitate an understanding of legal principles in order to help companies achieve their business strategies. While this blog strives to provide insights, of course, the real emphasis is on strategy. I hope you’ll find that the posts meet that goal.
I am also happy to announce that Dorsey became a new member of the Software and Information Industry Association, and I am in the process of forming a Publishing, Education and Training Sector Group within Dorsey. Among other things, I anticipate that this Sector Group will engage in the re-launch of the Surveys of Education Venture Capital & Private Equity that I’ve conducted on several occasions since 1998. We also intend to develop various webinars, presentation and seminars on legal topics of interest and importance to companies in this sector.
Please feel free to comment on any of the posts on this blog, and/or to reach out to me either through the blog or directly to fromm.jeff@dorsey.com.
All the best for 2009.
Executive Termination – Planning for the End
There are some phrases that show up in contracts and simultaneously amuse me and remind me of the importance of careful legal drafting. One such phrase refers to the right of a company to “terminate the Executive” on certain grounds. After conjuring up images of Arnold Schwarzenegger in one of his most famous roles, I correct the language to say “terminate the employment of the Executive” or something like that.
But that’s not what this post is about. This post is about the need to differentiate between types of terminations and, indeed, types of resignations. Whether I am representing the company or the executive, I believe it is important to think in a disciplined manner about each such type and the consequences that should follow a termination or resignation of that type. Read more
Intellectual Property Basics
I find that many clients can benefit from an explanation of the fundamental differences between the main types of intellectual property. There are four main types that come up regularly in my practice: copyrights, trademarks, patents and trade secrets. Here’s a very basic description of each type:
- Copyrights – provide ownership rights to original works of authorship; note that copyright protection covers the specific expression of ideas, but does not afford any protection to the ideas themselves.
- Trademarks - provide ownership rights to names, logos and taglines associated with specific products or services (technically, such rights with respect to services are called servicemarks, but the protection is roughly the same).
- Patents – provide exclusive exploitation rights to new inventions (e.g., technologies, business processes); note that the inventor must disclose the invention in detail in order to obtain patent protection, but is then given exclusive exploitation rights for a finite period of time.
- Trade Secrets - provide indefinite protection for inventions about which the inventor takes strict measures to protect secrecy. Read more
The Often-Signed, Rarely Read ‘Confidentiality Agreement’
A confidentiality agreement is seldom a strategically important agreement. But you can make a strategically important mistake in signing one. The risk of this is exacerbated if you are among the droves of managers who sign confidentiality agreements (sometimes called non-disclosure agreements, or NDAs) without really reading them.
Here’s the key risk: some confidentiality agreements, especially those offered up by potential business partners, will contain restrictions on your engaging in a competitive business (a ‘non-compete’) or on your soliciting or hiring employees, customers, suppliers, etc. (a ‘non-raid’). If you do nothing else before signing a confidentiality agreement, check to see if it contains one of these extraordinary restrictions. Read more
