A client, majority shareholder in a California corporation, asked whether there was any way to make a minority shareholder pay part of the corporation’s losses to date. In this particular case, the answer was “no” – but the question got me thinking about when a corporate shareholder or LLC member might be have personal liability beyond the amount payable for the ownership interest.
A century ago, corporations routinely issued assessable shares, i.e., shares that carried an obligation for the shareholder to pay additional amounts to the corporation under certain circumstances, such as to cover losses or to buy property. Today, however, almost all shares are non-assessable.
Read more…
The following question was posed recently on LinkedIn: Let’s say that I want to scrape amazon’s and ebay’s product reviews and use on another site? I want to understand the legal fall-out that may happen in doing so.
Here, slightly edited, is the answer that I provided:
- You would be committing copyright infringement.
- You would be breaching Amazon’s Conditions of Use, which expressly prohibit “any use of data mining, robots, or similar data gathering and extraction tools”.
- Similarly, you would be breaching ebay’s User Agreement, which says that “You agree that you will not use any robot, spider, scraper, or other automated means to access the sites for any purpose without our express handwritten permission.”
- Other companies’ sites with well-thought-out terms of use have similar prohibitions.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Korean War Veterans Memorial
As I wrote several months ago, the “fair use” defense to copyright infringement often is poorly understood. A recent court case shows that we can add the U.S. Postal Service to the list of those who mistakenly believed that their infringing activities were protected as fair use.
Frank Gaylord created, and registered the copyrights for, soldier sculptures in formation constituting part of the Korean War Veterans Memorial.
John Alli took a photo of the Memorial. The Postal Service paid Alli $1,500 for the right to use that photo for a 37-cent stamp commemorating the 50th anniversary of the armistice of the Korean War. Alli told the Postal Service that it would need permission from the owner of the copyright in the sculptures; the Postal Service did not seek such permission.
Read more…
A federal court of appeals held in 2008 that an open source developer case sue for copyright infringement despite the breadth of the open source license. The closely-watched case recently settled, meaning that the opinion may well be cited for many years to come.
Plaintiff Robert Jacobsen holds a copyright to certain computer programming code that he makes available for public download for free pursuant to the Artistic License, an open source license.
Defendants Matthew Katzer and Kamind Associates, Inc. develop commercial software products for the model train industry and hobbyists. Defendants copied certain materials from Jacobsen’s website and incorporated them into one of their software packages without following the terms of the Artistic License. Jacobsen sued for copyright infringement and moved for a preliminary injunction.
Read more…
Several weeks ago, a first-time entrepreneur called. He had read that venture capitalists prefer investing in Delaware corporations, and he sought my input on the subject.
I replied that, in my experience, incorporation either here in California or in Delaware is fine. Then I started wondering why what the entrepreneur read differed from what I had experienced.
I did some research and conducted an informal survey of a few VCs. Here are my tentative conclusions:
- California-based VCs are comfortable investing in corporations that are formed in either CA or DE (thus my experience, because the vast majority of the VCs whom I know are here in the Bay Area).
- VCs outside California have a preference for investing in Delaware-based corporations, though that preference can be weak or strong, depending on the VC. Even with a strong preference, however, a Delaware-preferring VC will invest in a corporation in another state if it is the right deal
Related posts:
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
SVASE (the Silicon Valley Association of Startup Entrepreneurs) provides a database of venture capital firms and angel groups for use by SVASE members that are seeking funding.
Here is SVASE’s description of the database’s search capabilities:
As an additional benefit, SVASE members can search the bios of over 450 partners and the mission statements of over 140 VC firms and Angel organizations, representing early stage Venture Capital in Silicon Valley, to find the firms and partners that will be interested in taking a look at your business plan. To help with your search for Investors and Funding, we have highlighted several specific search terms below, but just like Google, you can search on any word, or group of words, you like. The search will return the names of firms and partners related to the search words, plus contact information of the firms, and the partners, where available.
SVASE membership costs $99 per year and offers many benefits in addition to the VC / angel group database.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Let’s assume that you are one of the founders of a new corporation. Should the corporation provide stock certificates to shareholders when their shares are issued?
The answer is “yes” – and not merely because the founders will feel good having tangible evidence of their ownership interests.
Although California Corporations Code Section 416(b) allows the issuance of shares without certificates under certain circumstances, as a practical matter certificates usually are necessary for a closely held corporation (one that is owned by a small number of shareholders).
Corporations Code Section 418 specifies a variety of circumstances under which share certificates must include written statements providing notice of the existence of those circumstances. These include, for example, restrictions on share transfers or voting rights – both of which are common in multi-founder corporations.
Furthermore, that section states that if a required statement is not included on the certificate, the corresponding restriction will not be enforceable against a transferee who is unaware of the restriction!
This brings us to the major reason why stock certificates should be provided: So that, with the proper statements included, shareholder buy-sell, voting rights, and other agreements can be enforced as the parties intended.
Related post: Should My LLC Issue Membership Certificates?
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Almost a year ago, I wrote about why independent contractors (as contrasted to employees) own the copyrights in works that they create, so a prudent customer will ensure that the contractor assigns its copyrights to the customer (Why “Work Made for Hire” is a Term Made for Confusion). This post discusses the implied copyright license that is granted in the absence of an assignment.
If there is no assignment provision, a court will determine that there is an implied license under the copyright, because it would be unfair to deprive the customer of all rights in a work for which the customer has paid. The issue, then, will be the terms of the implied license.
The one certain characteristic of the implied license is that it will be non-exclusive rather than exclusive. The reason: Under 17 U.S.C. Section 101, an exclusive license is considered a transfer of copyright ownership, and under 17 U.S.C. Section 204(a), a transfer of copyright ownership must be in writing and must be signed.
Read more…
I recently had a Q-and-A dialogue on Avvo with an LLC member-manager who had a falling out with the other (50%) member and wanted to know whether he could form a separate business that would compete with the existing LLC. An edited version of our exchange appears below.
Q. I have an LLC with a partner. We each own 50% of the business (its an e-commerce store) and we’re member-managers. I’d like to buy him out, but his price is higher than I’m willing to pay. I have been pondering starting another e-commerce store selling kind of the same thing. Question is a) Would an e-commerce business out there competing for new customers constitute a breach of fiduciary duty? b) Would it be possible to rescind title as manager in the LLC which would eliminate that non compete fiduciary duty of a manager?
Read more…
The evening of Wednesday, March 10, the Silicon Valley Association of Startup Entrepreneurs will present “Demystifying VCs: How to Make the Right Impression” at the beautiful Crow Canyon Country Club. Tasty buffet dinner included!
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.