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A Brief Look at Liquidation Preference

In the world of venture capital, one of the common methods for minimizing investor risk is liquidation preference. But what is it, and how does it work? Liquidation preference, a common tool included in a venture financing deal sheet, assures that, should the company be liquidated or sold, preferred shareholders will always get something back for their preferred shares before common shareholders get anything.  The scope of liquidation preference varies …

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Mitchell Littman to Speak at Silicon Valley Event

Littman Krooks LLP founding partner Mitchell Littman will be among the experts speaking at Private Company Stock Conference 2010, to be held Sept. 27 at the Four Seasons – Silicon Valley in East Palo Alto, California. Mr. Littman will participate in a panel discussion concerning “Legal Considerations for Issuers: Protecting Private Company Exemptions,” scheduled to take place from 11:20-12:10 p.m. When a company’s stock is sold in the secondary market, …

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How to Design and Implement an Equity Incentive Plan

It is obviously important for companies to attract and retain top-level workers.  It is equally important to motivate and encourage them to strive for success. Offering equity incentive plans to high-level employees frequently accomplishes both tasks.  An equity incentive plan is a contract between the employee and the employer to provide an equity interest in the company. If the employee’s success is tied to the company’s success, it can create …

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Special Purpose Acquisition Companies (SPACs) can offer a number of advantages to benefit mergers–from creating more liquidity to attracting new investors. A Special Purpose Acquisition Company or Corporation (SPAC) is a publicly-traded buyout company that raises money for the purposes of pursuing the acquisition of an existing company. SPACs can be an excellent vehicle for raising blind pool money – most of which typically ends up in trusts. The money …

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The business judgment rule is a legal concept that gives the directors and officers of a corporation a measure of protection against liability while they are conducting business for their corporation.  Directors and officers are entrusted with the responsibility of managing the corporation’s affairs.  In this role, they often face difficult questions concerning whether to sell assets, acquire or merge with other businesses, expand to new areas of business, or …

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In our post dated July 19, we noted that as a result of the adoption of the Wall Street Reform Act, one of the definitions of “Accredited Investor” was amended to exclude from the calculation of an investor’s net worth the value of the his or her primary residence.  In late July, the SEC Staff offered interpretive guidance with this new provision.  The staff noted that Section 413 of the …

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Drafting a Buy-Sell Agreement

A buy-sell agreement is meant to protect the interests of the business and all the partners involved by establishing guidelines for selling the business shares. A company’s buy-sell agreement should dictate when shares can be sold, in what manner they can be sold, and the price at which they can be sold. The agreement will protect the business in the event that certain life changes occur, such as divorce, bankruptcy, …

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Negotiating Shareholder Agreements

Shareholder agreements are documents that provide businesses with a roadmap of how to act in certain situations.  A shareholder agreement is negotiated and executed so that common procedures will be established before any business problems develop.  Generally, the most important issues contained in shareholder agreements are those that address stock ownership.  A shareholder agreement can achieve two important purposes with regard to stock ownership: it can control when a stock …

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Conducting Follow-On Offerings

After completing  an initial public offering (IPO), a company may  decide to offer additional securities, either debt or equity, to the public. These offerings are referred to as “follow-on” offerings because they follow the IPO. There are two different types of follow-on offerings: A primary offering is a public offering of securities that is made directly by the company, usually  in an effort to raise additional capital. This kind of …

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Some people consider an investment in a Private Placement Offering (PPO) to be speculative and highly risky. While there is a certain amount of risk to investing in PPOs, there are regulations in place that are meant to protect those investors who choose to participate in these offerings. Generally, investors must meet the qualifications of accredited status in order to participate in a PPO. Investors must be capable of enduring …

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