Selecting the Right Entity for Your Tech Startup

Nebraska, and neighboring Midwest states, have developed a reputation as the “Silicon Prairie,” a prime location for technology startups. The recent tech startup boom in the Midwest can be attributed to the lower cost of living, knowledgeable tech labor force, and willingness of the community to embrace the startup. For many of these startups, besides the intense need to develop and protect the technology, a common issue is picking the right business entity structure.

 

In picking the right entity for the startup, several considerations should be weighed, including the need for liability protection, how the company will fund operations, and the most beneficial tax status. For example, if a tech startup is developing a product that will take a substantial period to produce, and likely need multiple rounds of equity financing involving institutional investors, with other funding coming through debt, the demand for classes of shares, preferences, and conversion rights, may require that the startup to form as a C-corporation, with corresponding tax status. On the other hand, if the startup only intends to have one round of equity financing, through a “friends and family” offering, a limited liability company may be appropriate, providing additional flexibility to select tax status.

 

Picking the right type of entity is important for the success of a tech startup, with many considerations to weigh. Ultimately, as facts change, it may be possible to change the structure of your company, but initial selection should not be taken lightly and can reduce problems as your company grows.

© 2017 Vandenack Weaver LLC
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Companies Accidentally Waiving Attorney-Client Privilege

In the digital age, most companies rely heavily on email to communicate, even with their attorney. Generally, attorney-client privilege will apply to these emails, but when the client forwards the email, questions about privilege can arise. As several cases in 2016 highlight, many employees will forward an attorney’s email without significant thought, but prior to forwarding the email, care should be taken to avoid inadvertently waiving privilege.

 

As highlighted by AU New Haven, LLC v. YKK Corp., No. 1:15­CV­3411­GHW, (S.D.N.Y. Sept. 28, 2016), when a company employee forwards an attorney communication to non-attorney employees, several rules will apply. As a default, generally, if the email is forwarded to employees of the company, the privilege will be retained. Similarly, if everyone receiving the email is deemed to have a common interest, even if not a direct employee, privilege is often retained. However, if one person doesn’t share the common interest, privilege is broken.  An example of broken privilege, in Newman v. Highland School District No. 203, 381 P.3d 1188 (Wash. 2016), the court refused to uphold privilege because the employee was no longer employed by the company. Thus, the court determined that privilege did not apply because the employee that received the communication was now a former employee.

 

Overall, these two cases highlight the fact specific nature of whether privilege is retained when an employee of a company forwards an email from the company’s attorney. Moreover, the determination of whether privilege was retained will be specific to the state. Thus, employees of a company receiving privileged communication should take steps to retain privilege, including having internal policies about forwarding emails from the company attorney.

© 2017 Vandenack Weaver LLC
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New Corporate Compliance Guidance Issued by the Department of Justice

Earlier this year, under the direction of the new Attorney General, the United States Department of Justice (“DOJ”) issued new guidance for corporate compliance programs. This guidance applies when the DOJ is investigating a business and determining how to prosecute a business for federal crimes, such as certain types of fraud. The DOJ notes that the recently issued “Evaluation of Corporate Compliance Programs” updates the prior guidance and does not replace or substantially alter the investigation process.

Currently, federal prosecution of a business will follow the United States Attorney Manual, which provides factors for determining whether to charge a business, negotiate a plea, or come to some agreement. When making these determinations, the government will, among other items, evaluate the compliance program instituted by the business entity. The new guidance specifically pertains to the business compliance program pertaining to fraud prevention. The new fraud compliance guidance lists 11 topics to be evaluated by the DOJ, including Analysis and Remediation of Underlying Misconduct, Risk Assessment, Senior and Middle Management, and other topic areas.

The new guidance provides granularity and clarity regarding the DOJ evaluation of corporate compliance programs, when facing corporate criminal investigations. Although designed for corporate criminal investigations, this should guide companies implementing a compliance program, especially those in highly regulated industries, such as healthcare, pharmaceuticals, and securities. The updated factors issued by the DOJ can be found at the following link: https://www.justice.gov/criminal-fraud/page/file/937501/download

© 2017 Vandenack Weaver LLC
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As Small Business Week Ends, A Reminder of a Few Resources Available to Entrepreneurs

As small business week comes to a close, including special resources and webinars available at various federal government entities only during the week, a variety of different resources remain available for the entrepreneur from the federal government. For example, the resources at the Internal Revenue Service (IRS) include instructional publications, tax calculators, and informational videos on the varied tax requirements for small business. Further information can be found at the following link: https://www.irs.gov/uac/IRS-Marks-Small-Business-Week-2016-with-Four-Webinars

The Small Business Administration (SBA) also offers a variety of resources for a small business, including information ranging from securing a SBA loan to creating a business plan. During small business week, the SBA hosts informational webinars about issues facing entrepreneurs, most notably securing capital to operate and grow. Further information from the SBA can be found at the following link: https://www.sba.gov/nsbw/

For those entrepreneurs in Nebraska, the state offers resources through the Department of Economic Development. Information about local taxes, lenders, and business registration in Nebraska can be found at the following link: http://www.neded.org/business/start-a-business

© 2016 Vandenack Williams LLC
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Understanding and Preventing Unintentional Copyright Infringement on Websites

Federal copyright law protects a copyright owner from a wide range of intentional and unintentional infringement. For example, an entity that runs a blog or a website could be liable for copyright infringement if a third party posts copyrighted material onto the webpage. In fact, the federal copyright law is broad and states: “[a]nyone who violates any of the exclusive rights of the copyright owner . . .  is an infringer of the copyright or right of the author, as the case may be.” 17 U.S.C. § 501. In conjunction with the strict liability standard used in copyright infringement cases, violating federal copyright law becomes frequent and difficult to prevent in the digital age.

In light of modern technology, new copyright challenges have emerged, such as one found in Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146 (9th Cir. 2007), which involved two large technology companies, Google and Amazon. The issue, in essence, was Google and Amazon infringing upon copyrighted photographs because Google’s automated website indexing propagated the photographs in image searches, and subsequently on Amazon for other related services. Although this complex litigation involved a multitude of factors within copyright law, the issue in the case highlights the propensity for unintended copyright infringement with technology.

Fortunately, Congress recognized this issue in 1998 and passed the Digital Millennium Copyright Act, creating safe harbors for unintentional copyright infringement in specific situations. Although the safe harbors are somewhat limited, the law is intended to “balance the interests of copyright owners and online service providers by promoting cooperation, minimizing copyright infringement, and providing a higher degree of certainty to service providers on the question of copyright infringement.” Capitol Records, Inc. v. MP3tunes, LLC, 821 F.Supp.2d 627 (S.D.N.Y. 2011). Ultimately, this means every entity that has a website, blog, or online community of some sort, should take measures to ensure that their online presence fits within a safe harbor or does not violate copyright law.

© 2015 Houghton Vandenack Williams
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What Law Governs When a Customer in Another State Buys My Product Over the Internet?

A Business FAQ with Mary E. Vandenack.

If you sell products over the internet, it is important to be aware that you are going to be subject to the laws and regulations of the state that you are located in, the states that you are selling in, and certain federal laws. There are going to be laws that govern your relationship with the persons who are buying your product, and there will be laws impacting you from a tax perspective so you are going to want to become familiar with each. It’s extremely important to give a lot of attention to your website terms and conditions. There are certain things that you can cover in those terms and conditions. You cannot get out of the application of different federal and state laws in those terms and conditions, but you can engage in certain aspects of control.

© 2014 Parsonage Vandenack Williams LLC

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Nebraska Secretary of State’s Office Will Now Accept Amended Biennial Reports at Any Time

Effective July 18, the Nebraska Secretary of State’s office will allow Nebraska LLCs to correct or amend their biennial reports at any time. As a result, LLCs will be able to update public records containing their business addresses more easily. The fee to amend or correct the LLC’s biennial report is $10.00. If your business has changed locations since your last biennial report was filed, you may wish to take advantage of the new amendment rules.

© 2014 Parsonage Vandenack Williams LLC

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