Thursday, January 30, 2014

Startup-NY - an Amazing New York Initiative for Tech Startups

I have been following the development of this exciting new program in New York State that, if successful, can really turn New York into the next Silicon Valley. The program became effective on January 1, 2014.

All of the details are at www.startupny.com. The program aims to provide major incentives for businesses to relocate, startup or expand in New York State through affiliations with academic institutions (both private and public). Qualifying businesses will be able to operate without paying state or local taxes on or near academic campuses in so-called "tax-free" zones. What's more, the employees of these businesses will be exempt from paying state and local taxes.

Hard to believe! But it is true. It is, in fact, the reality, for already one whole month. So, here is how it should work.

According to startupny.com, in addition to the benefits that come with being affiliated with an academic institution, the participating businesses will get 10 years (!) of tax elimination credit for their state and local tax liabilities (to be pro rated for businesses that operate only partly out of NY tax-free areas). Additionally, the participating businesses will be exempt from paying certain other state and local taxes. The employees pay no NY state or local income tax on their wages for the first five years of enrollment in the program (it is pro rated among businesses and then gradually phases out after five years).

This sounds great. So, who is eligible? The eligible companies include those who are somehow align (or are affiliates with) academic institutions. This affiliation or alignment can take on different forms, such as offering internships, jobs, teaching, offering seminars or other company resources.

The businesses must also create "net new jobs" within their first year of operation. The business cannot be relocating or transferring jobs from another state.

Importantly, at the time of application, the business must be a new business in New York, an out-of-state business moving into NYS, an existing NYS business that is expanding and creating net new jobs, or an existing NYS business that has attended and graduated from a NYS incubator program. A new business is one that has not been operating or located in the state at the time of application, is not moving existing New York jobs into the tax-free NY area, and is not substantially similar in operation or ownership to a taxable or previously taxable business entity within the previous five years. Certain types of businesses are all together excluded from participation.

A company may still be granted permission to participate even if it does not meet all the eligibility requirements, at the discretion of the Commissioner of Economic Development and the NYS Department of Economic Development.

One of the conditions of participating in this program is that the business occupies property or land in NYS affiliated with public and private academic institutions or certain State-owned property, designated for use in the program as the tax-free NY area. There are currently three facilities that are in the process of being designated as tax-free NY areas in New York City: the Downstate Biotechnology Incubator, for startup and early-stage biotech companies, BioBAT at the Brooklyn Army Terminal, for second-stage and growth stage tech and biotech companies, and the Downstate Synthetic Chemistry Facility for mature companies.

Business that want to participate should apply with the specific academic institution. Their contact information is on the website. Once the institution has been accepted in the Start-Up NY program, it can begin accepting applications from different businesses. There is really no need to rush, - the program will go on until December 31, 2020. However, wouldn't you agree that first comers hold the advantage?



This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

Wednesday, January 29, 2014

New York employers - don't forget to give yearly wage notice to your employees

I received a helpful reminder today from my friends employment attorneys Joseph Harris and Evan White at White Harris PLLC that all New York private sector employers must give an annual written notice of wage rates to their employees. The deadline is February 1st.

The New York Department of Labor has wage notice templates available on its website here. The wage notices must include:
  • an employee's rate of pay, including the overtime rate, if applicable;
  • how the employee is paid (salary, hour, commission, etc.);
  • the regular payday;
  • the official name of the business as well as any DBAs;
  • the address and telephone number of the main office; and
  • any allowances taken as part of the minimum wage.
Wage notices must be in English and in the employee's primary language. The notice must also include an affirmation by the employee that s/he identified his or her primary language, and that a wage notice in the correct primary language was provided. Employees must sign and date the notice and they must receive a copy for their records. The company must keep a copy for six years.

Employers must provide new employees with wage notices at the time of hire. During the year, when there is an increase in an employee's wage rate and the new rate is shown on the next wage statement, employers do not need to provide an additional wage notice. However, employees must be notified in writing seven days before any reduction in their wage rate takes effect. (Wage notices must be given to all employees, even those who are exempt from overtime or who have previously received notice.)

For more information about the wage notice requirement, here is a FAQ and a fact sheet from the Department of Labor: http://www.labor.ny.gov/workerprotection/laborstandards/PDFs/wage-theft-prevention-act-faq.pdf; http://www.labor.ny.gov/formsdocs/wp/P715.pdf.

Monday, January 27, 2014

Are You a Broker or a Finder? Does It Really Matter?

I previously covered regulations relating to those who broker securities transactions and get compensated a "success" fee (a recurring question that comes up periodically in my practice).  Such persons have to register with the SEC as broker-dealers prior to conducting any such activities.  Here is my earlier blog about it.  Today I decided to bring it up again because I came across a comprehensive and well-written blog post "Finders Are Not Always Keepers"(found here) and wanted to share it with you.

Individuals who make introductions, identify potential investors, help structure the deal, and who get compensated a fee that is based on the amount of capital raised are considered to be "brokers" and are required to register as broker-dealers with the SEC.  The SEC has consistently viewed the presence of transaction-based compensation as one of the key attributes of a broker's activity.  According to the blog post, there is really no "finder" exemption to the rule.  Using unregistered broker-dealers presents risks to the companies as well as to the unregistered broker-dealers themselves.  If a sale of securities of a company was done through such unregistered "finders," investors may get the right to rescind the entire transaction, which can have disastrous consequences for the company.

To all companies out there raising capital:  beware of using the services of unregistered broker-dealers or finders.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

Friday, January 24, 2014

How Much Should a Startup Pay in Legal Fees?

A fair percentage of my legal practice consists of representing early stage companies (i.e., startups).  Many founders approach me because they want to form Delaware corporations and seek funding from VCs or angel investors.  The question of legal fees is often a painful one for these clients.  Many of them have already left their full-time jobs to dedicate themselves to their startups, others have switched to part-time work and make just enough to pay their bills.  Legal costs often come as a shock.

I fully understand the predicament of my clients, and yet here I am, trying to run a business (i.e., my legal practice).   So, this is what I think about the legal fees involved in representing startups.

First, I want to applaud those startups that understand that they should seek legal representation and not do it all themselves (for example, through Legal Zoom). Although many documents are standard, there are always modifications and special situations to account for.  Also, the value of a lawyer comes from advice rather than the preparation of documents that have already become pretty standardized.  A fair number of law firms and incubators have released their model startup and funding documents, so as I said, the value of legal representation is not in the documents, but in the legal advice that takes into account specific situations.

In case you are interested, here are several sources:

Startup documents - Docracy, Upcounsel, VentureDocs.
Financing documents - Y Combinator, NVCA, TechStars.      

Second, I believe that startup lawyers should offer fixed fee packages.  For example, I offer four.  There is a basic package that takes care of the incorporation and related matters, stock issuance, IP transfer agreements and invention assignment agreements, etc.  There is another package that includes the basic package plus employee incentive compensation plan and related documents (although not clear to me why a startup would need it right away).  The third package is the basic plus trademarks.  And the final, fourth package, includes all of the above. Offering fixed fee packages enables founders to control legal costs and takes away ambiguity.

Third, I agree with Fred Wilson here that basic incorporation and a seed financing round should not cost more than $5,000-$6,000 (unless of course the lawyer bills on an hourly basis at $600+/hour and/or there are complicated negotiations).  The $5K-$6K price is fair if the parties agree to use one of the sets of model documents I referred to above and if the investors do not have separate representation.  I was recently involved in a deal where the company had to pay a $20,000 fixed fee for a seed round of financing (below $1 million) that was done based on one of these model documents.  I think they overpaid.

Finally, I just want to say that not all deals and startups are cookie-cutters. Many companies face their specific issues (whether these are tensions among co-founders or something else) that do not fit into any fixed fee package.   I think of good business lawyers as "preventive care" specialists, who can anticipate and avert a problem and help ensure that your startup survives and succeeds.  In that case, legal costs are worth the expense.

 This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

How to Choose the Best Name for Your Company (Legal Perspective)

Marketing and other experts will undoubtedly have pages of advice for you on how to choose the best name for your business. Given my background, I’ll approach it from the legal perspective. My advice is essentially two-fold: choose a business name that (i) is available and (ii) you can use as a trademark (should you decide to). Below are some considerations:

1. Descriptive name vs unique name. A business owner may be attracted to a business name that describes the services or products that the company provides. For example, names such as “Joe’s Pizza” or “Murray Street Cleaners” let the others know immediately what that company does. However, beware: descriptive names are not protected as trademarks, so others can use the same or similar names to provide similar services or products.

2. Name availability in the state of incorporation. Check with the Department of State of your state of incorporation whether the name is available. Typically, the Division of Corporations (or a similar entity) of the Department of State keeps a list of all business names that are already in use, and will reject the filing if the name is not available. When checking name availability, typically disregard words such as “the,” “company,” or “corporation.” Different states may have different rules regarding name availability. For example, in California, disregard all geographic names and numerals. So, the business name “Clearview America, Inc.” would conflict with “Clearview, Inc.” because the word “America” is a geographic location and therefore is disregarded. Also, “First Web Solutions, Inc.” will be deemed to be conflicting with “Web Solutions, Inc.”

3. Name availability in other states. Next, check with the Departments of State of every other state where your company will be doing business regarding whether the name is available there.

4. Trademark report. Finally, determine if the name is available to be used as a trademark. This rule does not apply to every business. Building a brand calls for a unique name that is also available as a trademark (i.e., available to be used as an identifier of the source of goods or services). If another company already owns a trademark on the name you chose for your business, you may not be able to use it as a trademark (especially if your business is offering similar goods or services) although you may still be able to form your company under that name with the Department of State. Therefore, before committing to any name, check whether it is available as a trademark. The easiest way to do it is by searching for the name in the U.S. Patent and Trademark Office’s database.  However, this will only search federally registered or pending trademarks. A comprehensive search should also include a search of databases of state trademark offices as well as a “common law” search that includes the Internet and state business registrations. A comprehensive trademark search is typically ordered from trademark research companies, and then reviewed by a trademark attorney. Government Liaison Services, Inc. is one such company. Another one is Thomson Compumark.

Choosing a good business name takes time and effort, but is an important step in business formation. It is an exercise in balancing the creation of a unique brand identity, on one hand, and the need for the name to identify your business and carry a message about it, on the other hand.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.