If you are running a business, it is only a matter of time until you will encounter a breach of contract matter. As a business owner, you will need contracts with vendors, contractors, employees, buyers, and countless other people and businesses. To keep your operations flowing smoothly, it is critical to have clear and well-written contracts with predetermined stipulations for all possible issues and outcomes. Often, businesses–especially small businesses–think that due to the trust they have for the other party from their past history and work relationship, they can work well together as needed in goodwill; or that they are doing what they are supposed to by printing out a generic contract found online and having all parties sign on the dotted line. However, this often means that there’s no protection against the worst-case scenario when something doesn’t go as planned. While having entered into a generic contract may serve as a motivator for the other party to try and adhere to the terms of your agreement, it may not articulate the terms of the agreement clearly enough to actually bind the other party to them. Additionally, it is just as important to make sure that the contract spells out exactly what the remedy will be in the event that a breach of contract occurs. 

Breach of Contract 

It is fairly inevitable that a breach of contract will occur, whether or not it was intentional or not. For instance, in the event of a miscommunication that resulted in 800 oranges being sent instead of 800 lb of oranges, or if produce rots while in transit, it is important that the existing contract spells out what will happen in these situations. Because it is not possible to anticipate every possible kind of issue that could arise with a contract, many contracts will stipulate that in the event of a breach of contract, the issue will be remedied through arbitration. This means that if a breach of contract occurred and if your contract stipulated arbitration, an arbitrator will review the terms of the contract, determine whether it was breached, and settle on an appropriate solution to remedy the breach. It will be relevant in these sessions what the exact terms of the contract were. Regardless of whether you go to court or to arbitration, the four corners of the agreement will dictate. This means that it is invaluable to have an experienced business and contract attorney draft and review your contracts from the start, to ensure that even if something goes wrong, you will still be in a good position. 

The essential elements of a claim of breach of contract, whether express or implied, are the contract, plaintiff’s performance or excuse for nonperformance, defendant’s breach, and the resulting damages to the plaintiff.” San Mateo Union High School Dist. v. County of San Mateo (2013) 213 CA4th 418, 439, 152 CR3d 530, 548. Remedies are awarded to a non-breaching party as compensation for losses resulting from a breach of contract. Remedies for a breach of contract are intended to protect three interests of the non-breaching party, including:

  1. Expectation Interest. The interest in the prospective gain resulting from the performance of the contract (also referred to in California as compensatory damages);
  2. Reliance Interest. The detriment that results from a change in position because of the contract;
  3. Restitution Interest. The interest in the benefit conferred on the other party as a result of the contract.

Talk to the Business Lawyers at the Carbon Law Group

If you are ready to take your business to the next level with expert contract drafting and review, the experienced business attorneys at the Carbon Law Group are ready to help. Contact the Carbon Law Group today to schedule a consultation. 

 

Okay, the crypto market has recently plunged and is struggling to regain upward momentum, but the technology that it is based on is not going anywhere. That is because the distributed ledger technology is incredibly useful for ensuring the crypto currency cannot be counterfeited. Today, distributed ledger technology has broad applications across several industries. It is becoming more commonplace for start-ups and businesses to establish funding by using an initial coin offering (“ICO”). These are both similar and dissimilar to common securities. In some cases, ICOs actually count as securities. In other cases, they do not. This can create legal snarls for those who choose to use ICOs to fund projects. In this article, we will discuss ICOs and how they work under U.S. law.

What is an ICO?

An ICO is an IPO that uses cryptocurrency and technology. Typically during an ICO, a company can raise money by creating a website and publishing a white paper (a document that describes the project). Investors exchange cash or cryptocurrency (e.g. Bitcoin or Ethereum) for digital tokens that the startup has created. However, not all ICOs are the same and this is where it gets tricky for some businesses that accidentally find themselves facing a securities fraud lawsuit because they mismanaged their ICO.

The laws and regulations that apply to an ICO depend in part on whether the token offering is a financial product like shares in the company. Only some ICOs are considered securities, for example, equity token that provides an ownership stake in the company. Investors of equity tokens are buying an ownership interest in the venture. Other ICOs offer special options or rights or access to products. The latter are not considered securities and are not currently regulated. While the former is regulated by the SEC. This has created confusion among investors.

The terminology employed by the experts is Equity Tokens and Utility Tokens. Equity tokens offer shares of the venture while utility tokens offer special access to the company, the right to purchase company products at a discount, or the right to purchase stocks at a discounted rate at a later time.

ICOs are controversial only because some have fraudulently sold utility tokens as equity tokens. While some have turned an enormous profit on ICOs and many businesses have established themselves through ICO funding, it is still a bit of a Wild West and there is a lot of confusion over the tokens themselves and what rights investors have when purchasing these tokens.

The future of crypto may not be currency

The reason why crypto is wildly unstable is that it is not useful as an actual currency. Transaction speeds are quite slow and would only become slower once they are scaled to a modern economy. The costs related to the transactions are also exorbitant as they require “mining.” Anyone who provides the hardware to mine the currency gets a share of the transaction.

Nonetheless, the sky’s the limit. In the future, you may be able to place valuable commodities in your wallet and purchase gasoline with them. Imagine using your Mickey Mantle rookie card to purchase groceries. Crypto allows fractional trading on commodities that allow you to borrow against valuable assets.

Talk to a Los Angeles Corporate and Securities Attorney Today

Want to launch an ICO? Carbon Law Group can help. Call today to learn more about how we can help you establish funding for your project and avoid legal pitfalls that derail ventures.

When you are starting a business, it can be overwhelming trying to keep track of everything that you have to do to protect your business and operate legally. From incorporating and getting a business license to make the best tax election and properly protect your intellectual property, it can be hard to determine what is really necessary and prioritize your business’s most urgent needs. One thing that you have likely heard about is trademark protection. And you may wonder when is the best time to get a trademark? Do you need a trademark? Or do you really need copyrights? Do venture capital (VC) firms care about trademarks?  

In this post, we will explore what a trademark is and whether you may benefit from having one. If you have specific questions about your brand or business it is always a good idea to consult with an attorney directly. 

What is a Trademark?

A Trademark provides legal protection for anything that identifies your brand. This may be a word, name, or design, such as a logo. Anything that can be used to identify your brand to consumers can be protected by a trademark. Trademark law recognizes the importance of brand loyalty and the hard work that goes into building a brand. Many people and other companies can take advantage of the goodwill and brand recognition that you have built by copying or closely replicating their products, services, or advertising materials to look like yours, in hopes of tricking consumers. Trademark law exists to keep that from happening. It is important to note that trademarks do not apply to words, art, images, designs, or names that are not connected with a commercial brand. If you are looking to protect a visual or written work, you will benefit from copyright protection as opposed to trademark protection. 

Do I Need a Trademark?

If you have a brand, it is generally advisable to have Trademark protection for it. This protection can apply to products, services, or even your logo. A great amount of time, money, and effort goes into building a brand, so it is fiscally responsible to invest in Trademark protection to ensure that your investment is secure and that other people cannot profit off of your hard work without consequence. If you have plans to start a business or launch a product but have not yet released it into the stream of commerce, you can file an Intent-to-Use Trademark Application which will give you a year from the date of the application to begin selling it. If you have no plans to build a brand or business you will not likely benefit from a trademark, however, there may be other forms of legal protection available that would benefit your venture. The best way to determine what legal protection you need to support your business is to consult with an attorney who can get a sense of what you are trying to accomplish overall and how intellectual property law can support your goals. 

Contact the Carbon Law Group

If you have a small business, brand, or are launching a new product or service, it is important to protect your new venture. Intellectual property is the backbone of most businesses, and few people know where to start when it comes to protecting it. The experienced intellectual property attorneys at the Carbon Law Group are ready to help. Contact the Carbon Law Group today to schedule a free consultation and find out how we can support you and your business. 

With tax deadlines quickly approaching, your corporation has likely received a notice about filing its annual Delaware Franchise Tax. However, before filing, it is important to know that there are two methods of calculating this tax, one of which can potentially save your company thousands.

 

The two different methods that your business can use are the Authorized Shares Method and the Assumed Par Value Capital Method. The State of Delaware, by default, selects the Authorized Shares Method, which typically results in a much higher tax. Therefore, if your corporation’s franchise tax is higher than expected, it is recommended to recalculate the taxes using the Assumed Par Value Method. Since this method does have a higher likelihood of saving your corporation thousands in tax, the Assumed Par Value Method is the ideal choice for many businesses and startups.

 

Assumed Par Value Method:

 

The Assumed Par Value Method, while being the more complicated method of the two, will likely result in tax savings for your corporation. This method calculates the tax your company owes based on the following factors: (1) how many shares are authorized, (2) how many shares are issued, and (3) the amount of your company’s gross assets.

 

Delaware has adopted its own assumed par value, which is a company’s gross assets divided by all of its issued and outstanding shares. You can find your company’s gross assets by referencing the U.S. Form 1120, Schedule L tax form for the year that you are filing.  However, if your company has not yet filed its taxes for that year, your company can utilize the gross asset value from the most recent balance sheet. It is important to note that this can later be amended when your company files its taxes.

 

Below is an example from Delaware’s website that demonstrates how to calculate the Assumed Par Value Method:

 

A corporation has 1,000,000 shares of stock with a par value of $1.00 and 250,000 shares of stock with a par value of $5.00, gross assets of $1,000,000.00, and issued shares totaling 485,000.

  1. Assumed par value =  $1,000,000 assets divided by 485,000 issued shares = $2.061856 assumed par.
  2. There are 1,000,000 shares authorized with a par value of less than the assumed par value ($1 is less than $2.061856).  So, $2.061856 assumed par value multiplied by 1,000,000 authorized shares = $2,061,856.
  3. There are 250,000 shares authorized with a par value greater than the assumed par value ($5.00 is greater than $2.061856).  So, multiply $5.00 par value by 250,000 authorized shares = $1,250,000.
  4. Assumed par value capital = $2,061,856 plus $1,250,000 = $3,311 956 assumed par value capital.
  5. Round up to the next million = $4,000,000 assumed par value capital.
  6. Tax bill = $4,000,000 divided by 1,000,000 = 4 x $400 = $1,600.

 

It is crucial to note that this method will reduce your tax bill only if your company has issued at least 30% – 50% of the total authorized shares.

 

Another example that can be used for early-stage companies and startups is the following. Assume the corporation has 10,000,000 authorized shares of stock with a par value of $0.001. In this scenario, assume that the company has gross assets of $1,000,000 and has issued 6,000,000 shares

  1. Assumed par value = $1,000,000 assets divided by 6,000,000 issued shares = $0.166667 assumed par
  2. There are 10,000,000 shares authorized with a par value of less than the assumed par value ($0.001 is less than $0.166667).  So, $0.166667 assumed par value multiplied by 10,000,000 authorized shares = $1,666,666.67.
  3. Round up to the next million = $2,000,000 assumed par value capital
  4. Tax bill = $2,000,000 divided by 1,000,000 = 2 x $400 = $800

However, if you are a smaller business whose tax bill is less than $400, the state of Delaware does require a minimum franchise tax payment of $400.

 

Next Steps:

 

Your corporation’s Delaware Franchise Tax is due every year by March 1st. When your company is ready to file, you can go to the Delaware Division of Corporations website. Some critical pieces of information that you will need for your filing are: 

  1. Your corporation’s business entity file number; 
  2. Your corporation’s EIN/FEIN, and 
  3. Information about your corporation’s officers and board members such as their name, title, street address, etc.

 

Lastly, after selecting the year you would like to file, the next page will initially show your corporation’s taxes owed using the more expensive authorized share method. To calculate your taxes using the assumed par value method, enter the following information under Stock Information:

  1. Number of issued shares
  2. Gross assets
  3. The last day of the year for which you are filing taxes under Asset Date

If you’re interested in forming your own corporation or have questions regarding your corporation, contact us today! Schedule an appointment with us to have a free consultation. 

There comes a time in the life of many entrepreneurs when they have to make the difficult decision of either forging on or throwing in the towel. More than half of new businesses don’t make it past the first two years. It is nothing to be ashamed of to say a venture just cannot go on. No matter what, you’ll always be a winner to us :) 

If you do, in fact, come to the decision to close your corporation, please don’t just pull a Michael Scott…

The decision to close your corporation necessitates a few important legal steps to ensure you don’t have liabilities follow you. 

Considerations When Shutting Down Your Corporation

Each state has different rules on what is needed to close down a corporation. Below are a few important considerations to pay attention to when closing down your corporation. 

Dissolution refers to the termination of a corporation’s existence under California state law. In California, a corporation may dissolve voluntarily or involuntarily, through administrative or judicial means. Dissolving a California corporation is a multi-step, multi-state-agency process that has requirements with both the Franchise Tax Board (FTB) and the California Secretary of State (SOS).

There are many benefits of formally dissolving a corporation. Including:

  • Ensuring that taxes, fees, and penalties do not continue to accrue against the corporation. A corporation is subject to:
    • a $250 penalty if it fails to file its annual statement of information; 
    • a minimum $800 annual franchise tax
  • Ensuring that shareholders are protected against personal liability for known and unknown liabilities.
  • The corporation is not considered a sham corporation for piercing the corporate veil.

To avoid legal challenges to the dissolution, the corporation should carefully follow all requirements and procedures set out in California law, the articles of incorporation, and the bylaws and keep detailed records of the dissolution decision and process, particularly any notice provisions and votes on a resolution.

Here’s a step by step guide to voluntarily dissolve a corporation that has commenced business and issued shares: 

  • Obtain Shareholder’s approval of the dissolution. The corporation must give written notice of the shareholders’ meeting to vote on dissolution to all shareholders entitled to vote. The shareholders must then approve the dissolution by the required voting percentage. You will also need to prepare a separate board resolution approving the dissolution and a plan of dissolution to define and document the dissolution and winding-up process.
  • Winding up your corporation. This means to settle the corporation’s affairs by liquidating assets, collecting accounts receivables, and using these proceeds to pay off your corporation’s tax liabilities and corporate debt, such as outstanding rent, bank charges, payments owed to contractors, utility bills…etc. You must give notice to shareholders and creditors on the commencement of winding up. Carefully review all active agreements to resolve assignment of rights and delegation of duty issues.
  • Fulfill Franchise Tax Board (FTB) requirements.
    • File all delinquent tax returns and pay all tax balances, including any penalties, fees, and interest.
    • File the final/current year tax return. Check the applicable Final Return box on the first page of the return, and write “final” at the top of the first page. All tax returns remain subject to audit until the statute of limitations expires.
    • Cease doing or transacting business in California after the final taxable year.
  • Make sure an annual statement of information was filed with the California SOS. Before the dissolution of your California corporation will be approved, any outstanding Statement of Information must be filed.
  • Filing a certificate of election to wind up and dissolve. This document must be filed with the California SOS after the corporation has elected to dissolve. There are no filing fees for this document. Note that you won’t need to file the certificate of election to wind up and dissolve if all outstanding shareholders voted to approve the dissolution.
  • Filing a certificate of dissolution. This document must be filed with the SOS after the corporation has completed the winding-up process. There are no filing fees for this document. This must be filed within 12 months of the filing date of the corporation’s final tax return.

Consult with an Experienced California Business Lawyer Today!

It is a common tendency to take shortcuts when closing down a business. However, this can be extremely risky due to all the personal liability and tax issues that can result from not handling the related requirements appropriately. To avoid legal challenges and liabilities arising from the dissolution, the corporation should carefully follow all requirements and procedures set out in the Cal. Corp. Code, the articles of incorporation, and the bylaws and keep detailed records of the dissolution decision and process, particularly any notice provisions and votes on a resolution. Carbon Law Group has business lawyers who specialize in business and corporate law in California. Schedule an appointment to find out what we can do for you and your business!

It is the new year and a lot of us resolved to work out more and get stronger. But don’t limit your strength training to just your muscles–your trademarks deserve a little boost as well!?

Why is trademark strength important?

U.S. trademark law recognizes a spectrum of distinctiveness that provides a sliding scale of trademark protectability. Judge Pierre Leval defined trademark strength as the amount of “legal muscle” possessed by a given mark.

The stronger the mark, the more uses the trademark owner may exclude from the marketplace through a trademark infringement or dilution action. Stronger marks are able to exclude more similar marks from the marketplace. Such increases can happen along two fronts: “appearance” of the trademark and the “goods or services” the trademark protects. The stronger a registered trademark is on the “appearance” dimension, the less similar the look, sound, and spelling a third-party’s mark must be in order to risk being excluded by the registered trademark. The stronger a registered trademark is on the “goods or services” dimension, the less similar the goods or services offered by a competitor using the same or similar marks must be in order to risk being excluded by the registered trademark.

A trademark’s relative strength or weakness will also have a direct bearing on its performance in the market. A mark that is highly distinctive functions as a strong mark, identifying the owner as the source of the covered products or services. When a mark is not distinctive or it may already be used by others on or in connection with different products or services, the mark is considered weak.

Therefore, trademark strength is extremely important for trademark owners as it has a strong impact on the value of the trademarks to their owners. It is generally easier and less costly for a trademark owner to acquire and enforce exclusive rights in a strong trademark that is distinctive and unique than one that is descriptive or highly diluted, i.e., widely used.

How is a mark’s strength or weakness gauged?

The relative strength or weakness of a trademark may be gauged by placing the trademark on a spectrum. The types of trademarks discussed below range from the strongest to the weakest.

  • Fanciful or Coined Marks. A fanciful or coined mark is at the strongest end of the spectrum because it is inherently distinctive. Such a mark consists of an invented word that is a combination of letters that has no meaning. For example: GOOGLE for online services, PEPSI for soft drinks, ROLEX for watches, and XEROX for copiers. Since a fanciful or coined mark has no inherent meaning, in the beginning, a bigger effort in terms of advertising is necessary in order to educate the public as to the relationship between the invented word and the owner’s product or service. However, these marks enjoy the broadest scope of protection against third-party use.
  • Arbitrary Marks. An arbitrary mark is composed of a word or words that have a common meaning in the language of the relevant jurisdiction; however, that meaning is unrelated to the goods or services for which the mark is used. Arbitrary marks, such as CAMEL for cigarettes and APPLE for computers, are considered highly distinctive in identifying and distinguishing products or services. As with fanciful or coined marks, the public must be educated as to the association of the arbitrary mark with the relevant product or service, but the scope of protection obtained is very broad.
  • Suggestive Marks. A suggestive mark gives consumers some sense of the nature of the products or services that a business will provide without actually describing the product or service. A suggestive mark is one that requires “a mental leap from the mark to the product”, or, “the consumer’s imagination, thought, and perception to reach a conclusion as to the nature of the goods or services.” Variety Stores, Inc. v. Wal-Mart Stores, Inc., 888 F.3d 651, 662 (4th Cir. 2018). Examples of suggestive marks are AIRBUS for airplanes and NETFLIX for streaming services. Suggestive marks can possess an inherent element of sales appeal and will require less education of the public than coined or arbitrary marks; for this reason, generally, suggestive marks are entitled to less-extensive protection.
  • Descriptive Marks. In general, a descriptive mark is a word (or words) that merely describes a product or that contains ingredients or attributes that are too weak to function as a trademark. An example of a merely descriptive mark would be COLD AND CREAMY for ice cream. Such a mark is very unlikely to be granted registration, as the phrase merely describes an attribute of the product. Words that merely describe an attribute, feature, end result, or use of the product, or the persons employed in its production, generally are not granted trademark protection. Merely laudatory terms such as “best” or “quality” also are generally not registrable. In some jurisdictions, surnames are treated as descriptive marks. What is initially a descriptive word may later become protectable as a trademark if it acquires secondary meaning. In other words, if a descriptive word is used and advertised exclusively as a trademark for a sufficient period of time, it may, in addition to having the primary meaning that is descriptive of the product, come to identify the mark as being associated with a single source of origin for that product. An example of a descriptive word that has acquired a secondary meaning and become protectable as a trademark is SHARP for televisions.
  • Generic Words. A generic word can be thought of as the common name of the product or service in question—for example, “clock” is a generic word for timepieces. Such words can never be appropriated by a single party as trademarks for the products or services they signify, since the public perceives and uses them solely as common nouns or terms. Generic words or phrases are not registrable or protectable in relation to the products or services they signify.

How to select a strong trademark?

As a trademark applicant, you should try your best to come up with a strong new trademark that is inherently distinctive. The strongest types of trademarks are (1) fanciful or coined marks, such as EXXON for petroleum products, KODAK for photography company; and (2) arbitrary marks, such as AMAZON for retail services, APPLE for computers, SHELL for gasoline, and BLACKBERRY for cell phones. 

There are many resources online that can help you with the naming process of your brand. For example, what we found on this website: https://guide.onym.co/ or the books like “Brand Thinking and Other Noble Pursuits.” Check out our other blog post on how to choose a business name here

If you need help with determining your proposed trademark’s strength, contact us today to discuss your trademark protection strategies with an experienced trademark attorney. Schedule an appointment with us to schedule a free initial consultation! 

CLG Founder Pankaj Raval shares some tips to consider when looking for a business attorney.

Transcript:

Hey guys, Pankaj Raval here, founder of Carbon Law Group back, talking about what to look for in a business lawyer.

Here are three things to consider when picking the right attorney. And don’t worry; this is not a shameless plug for Carbon Law Group.

First, do they understand your industry? Are they familiar with the nuance regulations of your industry? If not, are they willing to learn?

Second, are they interested in learning about your goals? You want to avoid a lawyer that has the answer to every question. Real issues are often complicated and require a thorough analysis. You want to make sure you have a lawyer willing to say they don’t know and look things up when necessary. Not all questions are easy to answer.

Third, are they responsive? You’re hiring a professional to act as an advisor. That means you want to make sure they’re communicating with you. Sure, lawyers are busy people, but so are you. Just make sure the expectations are clear at the outset of your relationship. Also, if you’re a text person over an email person, make that known.

Okay, I’ve got a confession. Of course this was a plug. Do you seriously think I was going to spend time and money recording a video not to plug Carbon Law Group? We sincerely believe we have the unique industry expertise, care about our clients’ objectives and are extremely responsive to our clients’ needs. So if you’re interested learning more about our services, call, text, DM, whatever it takes, let’s start that conversation.

The almighty dollar is a tool for creation and destruction. From concept to execution, how money comes in and how money goes out is at the forefront of every entrepreneur’s conscious. For both Fortune 500 companies and startups, understanding the key features of different sources of capital is critical to successfully funding a company.

Companies can raise capital in either of two ways: debt, or equity. Debt is when a company borrows money and has an obligation to pay money back over time with interest, e.g., a loan. Equity is when money is invested into the company in exchange for ownership rights, e.g., founders investing their own money in a startup. Early-stage companies rarely raise money by incurring debt because it is unclear whether or not the company will be able to pay back any borrowed money (the exception being convertible notes which will be discussed in a separate blog post). With this in mind, it is critical for owners of early-stage startups to know where they can find sources of equity funding, in addition to their own investment. Here are some of the most common sources of equity funding to get your company up and running.

Sources of Equity Capital

     1. Friends and Family 

Friends, family, and professional networks of founders are common grounds for early-stage sources of pre-seed and seed financing. When founders seek capital from these sources most or all of the investors in the business have some close personal connection to the founders for better or for worse. On one hand, close personal connections can allow for greater flexibility in negotiations, lower equity stakes and the potential for investors to become trusted advisors in the startup. On the other hand, close personal connections can bring about unnecessary conflicts due to personal matters, unwarranted requests for higher equity stakes from inexperienced investors and the untimely loss of personal connections as a result of unsuccessful ventures. Friends and family rounds can range from $1,000 to $150,000 – sometimes reaching $300,000 and more. However, don’t be tricked by the label of “Friends and Family” – you still need to treat these people as legitimate passive investors. These people are still entitled to certain rights depending on the type of the instrument used to raise funds (SAFE, Convertible Note, or Series Seed Preferred Stock) and they must still comply with federal and state securities laws. Hence, seeking the guidance of an experienced startup attorney is always a great idea when navigating these complex regulatory waters.

     2. Incubators and Accelerators

Incubators and Accelerators are a great way to transform ideas into businesses. Both programs provide capital, operating resources, help with management and valuable networks to help businesses grow. Some incubators look more like accelerators and some accelerators look more like incubators understand more of the difference between the two here. The goal of an accelerator program is to help a business do roughly two years of business building in just a few months. Accelerators are intense 3-6-month commitments which require startups to give up 4-6% equity in exchange for typically $10,000 to over $120,000 in seed money, in-depth training and access to a valuable network of investors, financial advisors, successful startup executives and industry experts. One of the most well-known accelerators in the industry, Techstars, accepts around 1-3% of startups for its program each year and contributes $20,000 in exchange for 6% equity of the company until the company raises a priced equity financing of $250,000 or more. Incubators rarely require equity but will grant you space and supportive services to help your startup grow. 

     3. Crowdfunding

Crowdfunding involves a type of social platform on the internet to attract a large number of people to each invest relatively small amounts to reach fundraising goals. Crowdfunding platforms are registered with the SEC and allow entrepreneurs to pitch their business ideas, generate public interest, and reach a specific community of investors or people willing to support their ideas with relatively little cost. With crowdfunding, entrepreneurs are not forced to use traditional methods of capital markets and venture capital fundraising. Entrepreneurs can focus on a specific community of people in the crowdfunding sphere and access the traditional methods of fundraising at a later time when their idea has gained more traction. But raising funds through crowdfunding is not easy. The crowdfunding market is competitive, and the funds raised through crowdfunding cannot exceed $1.07 million in any rolling 12-month period. And even if you succeed in raising the maximum $1.07 million, which is not an easy thing to do, it can result in a messy cap table with numerous minority stockholders and future VC’s might not like that. 

     4. Angel Investors or Angel Investor Groups

Angel investors are a rapidly growing part of startup private equity markets. Angel investors are a collective class of roughly 300,000 high-net-worth individuals in the United States who are willing to invest their own money into risky startup ventures. Their motives for investing may range from a passion for a specific industry, professional interest, or a more traditional return on investment. In any event, angel investors collectively inject over $1 billion dollars quarterly in US startups. The average size of contributions per investors may vary, but a successful seed round can reach up to  $1 million, especially if it is led by an angel investor group. Angel investor groups are collaborative angel networks that share information about potential investment opportunities for other angels. In addition to individual investors and groups, super angels are well known, full-time investors that often have their own investment funds. Here is a list of some of the top angels around Los Angeles: Talmadge O’Neill, Mihir Bhanot, Anthony Saleh, Clark Landry, Jim Brandt, Ashton Kutcher – Tech Coast Angels, 12 Angels, Angel Vision Investors. These investors are more sophisticated than friends and family investors and often have their own lawyers and accountants. So, it is critical to be prepared for their due diligence requests, conduct your own due diligence, and have your startup’s legal structure and financial statements in order. Not hiring an attorney to assist you with fundraising, risks the loss of potential capital and reputation, advice and other ancillary benefits to be gained from an angel investment.

     5. Micro-Venture Capital Firms

Micro-venture capital firms (“Micro-VCs”) are institutional investors that specialize in early stage financing. Institutional investors like Micro-VCs invest using funds pooled together by LPs like pension funds, corporations, wealthy individuals, or governments looking to stimulate the startup ecosystem. Micro-VCs often have access to large funds but are very careful with where they choose to invest and so fewer deals are made each year. Here is a list of some of the top Micro-VC’s around Los Angeles: Arena Ventures, Canyon Creek Capital, Mucker Capital, Noname Ventures, Wavemaker Partners. The size of early seed rounds led by Micro-VCs may well be in the hundreds of thousands or even millions of dollars and are a sign of a rare success in early startups.  This said, founders should be careful not to give up more control and economic rights than necessary in exchange for a Micro-VC investment. Of course, dilution of the founders is inevitable in priced rounds, and you should be prepared to lose full control over your board of directors. But founders must fully understand the ramifications of dilution and that there are no hidden provisions in VC term sheets that can cost you your job as the CEO or a board member of your own startup. This is why it is critical for startups to work with an attorney that can bring both parties together and verify that both parties are on the same page regarding the terms of the investment and how to protect against future problems.   

     6. Strategic or Corporate VCs

Strategic or corporate VCs are typically subsidiaries of large corporations like Intel, Google, and SBI. Corporate VCs use corporate funds to invest in external private companies. The sole purpose of these strategic or corporate VCs is to invest within their core businesses to achieve financial or strategic returns, e.g., capture technologies that may be important to their business, or acquire critical in-house expertise. Here is a list of some of the most active strategic or corporate VC’s this past year: Google ventures, Salesforce Ventures, Intel Capital, Baidu Ventures, Legend Capital, SBI Investment, Alexandria Venture Investments.

     7. Investment Bankers and Mergers & Acquisitions

Investment bankers, brokers, or financial advisers can assist founders connect with financing sources. But, investment bankers are primarily concerned with providing growth capital to relatively mature companies looking to expand, restructure operations or enter new markets. Investment bankers also tend to be intermediaries for private placement of securities. In other words, investment bankers can help you sell securities to funds and other investors. But be warned, regulatory issues and banking fees are usually associated with intermediaries like investment bankers. Read more here. A merger or acquisition with a company rich in cash can be a viable source of capital. But any merger or acquisition triggers a myriad of legal, structural and tax issues that must be evaluated carefully before making any decisions. For early-stage startups, we recommend waiting a couple of years before selling the company to achieve a higher valuation rather than selling your potentially great idea at a much lower valuation.

Legal Considerations

Raising capital from any of the sources mentioned above is a great way to potentially grow your business. But with that growth comes a multitude of legal issues from proper due diligence and compliance with securities laws to tax considerations and corporate governance structures. The almighty dollar is a tool for creation but without proper legal counseling it can be a tool for destruction. 

If you need help with your questions about funding your business, feel free to schedule a consultation with an attorney using this link or calling our office at 323.543.4453.

 

By Ryan Urban, Loyola Law School

When it comes to building your brand, there is some confusion around what it takes to establish trademark rights. Clients ask, is filing a federal trademark application enough to protect me? What about posting on social media?

These are great questions often without clear answers.

To understand how to best protect your trademark rights, it is important to understand the purpose of trademark laws in the first place. Trademark law, codified under the Lanham Act, is fundamentally a consumer protection statute. It was created to protect consumers from companies that try to steal the goodwill of popular brands to sell their products or services (think of those guys selling purses in NYC with interchangeable brand names). Trademarks are used as a source identifier. They allow consumers to differentiate between certain types of goods and their sources.

When it comes to establishing your brand, trademark rights are fundamentally based on the first to use the mark. That means, filing an application alone generally isn’t sufficient to protect your rights to a mark against someone who may have used the name earlier than you. Establishing legitimate use is critical.

But, what is legitimate use, you ask? Great question.

Legitimate use of a trademark that amounts to commercial use that would cause the public to associate your mark with your goods or services. It could be social media posts, a website, products, or apparel. Legitimate use also varies based on what you are selling. If you are selling goods, generally, you need to show the use on the good in a way that shows your goods are in interstate commerce and can be purchased. For services, proper use amounts to advertising the services, among other types of use.

When it comes to establishing priority over another company regarding a possibly infringing mark, the party that can show the earliest legitimate use of the name along with the strongest engagement with the consuming public will most likely win a dispute. A federal trademark application is important to protect your rights and establish your rights federally against later users in other locations. But to protect your rights locally and early, make legitimate use as early as possible.

Key Takeaway: when it comes to establishing priority, make sure you are gettings your goods or services in commerce early and effectively.

As any entrepreneur or business owner knows, building a website or online storefront to advertise, promote, or sell goods or services can be a detailed, time-consuming, and expensive process. The goal of attracting even the most discerning consumer on the internet makes those extra hours and expense worth it, especially when general marketing and branding goals include repeated visits, contact, and impressions to finally engage a customer or user. All successful businesses similarly understand that protecting the logos, content, design, functionality and, most importantly, the integrity of the website. An attorney-drafted “Terms of Use” or “User Terms and Conditions” page is extremely important because it provides, among other benefits, a mechanism 1) to prevent competitor copying or intellectual property infringement, 2) to legally bind users of the website, 3) to limit the business liability in certain contexts, and 4) to comply with federal law.

1. Prevent intellectual property infringement.

Valuable dollars and hours are spent building a website for goods or services, but the failure to secure or enforce proprietary intellectual property rules can nullify all of that value. A valid Terms of Use will enumerate the myriad of intellectual property present on the business website, and will make it clear to all users (guests or registrants) that the copying, stealing, scraping, or unauthorized use of proprietary information is grounds for termination of any user account, a claim for breach of contract, and claims of copyright, trademark, or trade secret infringement, and any other remedy available at law to the business. While the deterrent impact of a Terms of Use may be debatable, failing to have a Terms of Use removes any enforcement mechanism for a business owner against a rogue user.

2. Legally bind users of the website.

Having a Terms of Use section on the business website is not required by law in the United States, but consider that it has been (and may solely be) a binding agreement enforceable by a court between any user or abuser on the internet and the business (even if no transaction of money for goods or services occurs). Because the website is the property of the business, businesses may set user standards for use of the site as well as the penalties for failing to comply, including to terminate a user account or ban future use. Having this ability is extremely important for any online business to ensure smooth user engagement and process management.

3. Limit the business liability.

A legally binding contract may include disclaimers against liability – and in certain cases, even where liability would normally be imputed by law. This includes common issue situations like outdated or incorrect marketing materials (especially those quoting prices or fees), governing the interactions between users (especially in the context of harassers or trolls), and updating the features or functionality of applications or other products. Note that by failing to disclaim against liability in these scenarios, a business may become an easy target for traditional lawsuits over small errors.

4. Compliance with privacy laws and the “privacy policy.”

If the site collects personal data that may identify an individual (e.g., a user’s email address, first or last name, physical address, or social security information), legislation like the Americans with Disability Act (ADA), Children’s Online Protection Act (CIPA), and more mandate privacy policies according to these Federal Trade Commission guidelines.

From our experience, while every business and proposition is unique, businesses should consider the following broad issues when either self-drafting or having an attorney draft the Terms of Use:

  • Privacy policy (if collecting personally identifying information)
  • How the user accepts the Terms of Use
  • Account security
  • Intellectual property rights (trademarks, copyrights, licenses)
  • User-posted content and content standards
  • Infringement
  • Social media integration

For more information or guidance on your online business practices, or if you are ready to prepare a terms of use and privacy policy, please call our office at (323) 543-4453 to schedule a consultation and speak with our savvy attorneys.

We are located in.

Carbon Law Group, APLC

1001 Wilshire Blvd. Suite 100 #3200

Los Angeles, CA 90017

Carbon Law Group, P.C.

840 Apollo Street, Suite 100,

El Segundo, CA 90245

Carbon Law Group, P.C.

2500 Broadway Building F, Suite F-125,

Santa Monica, CA 90404

Carbon Law Group, P.C.

4195 Chino Hills Parkway #1135

Chino Hills CA 91709

(323) 543-4453

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Carbon Law Group PC| Attorneys of Law | 1001 Wilshire Boulevard PMB 2083

Phone: (323) 543-4453 | Fax: (323) 488-9784 | Email:[email protected]

Located in Los Angeles, California, the law firm of Carbon Law Group PC. represents clients throughout California, including, but not limited to the cities of Los Angeles, El Segundo, Torrance, Pasadena, Santa Monica, Culver City, Long Beach, Irvine, Costa Mesa, and Orange County, Los Angeles County, Riverside County, San Bernardino County and San Diego County.

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