From the Warren Wilson College Employment Manual:

When available, full-time employees will be eligible to receive up to one-half cord of firewood each year for use in their own homes. The Forestry Crew, as convenient to their other duties, will produce firewood as a normal product of forest management and clean up on campus. Long-term objectives of College Forest management will not be sacrificed for the production of firewood.   Useable waste wood produced on other college lands may also go into the community firewood supply, for distribution by the Forestry Crew.   

Each fall the Forestry Crew will announce a firewood pickup day three weeks in advance by campus mail to full-time employees. Those replying by the deadline on the form will be able to pick up their firewood allotment on the designated day. Those residing on campus will have the option of having their firewood delivered to their homes if they choose.  

CDs Saved: Sonic Youth Two-Pack! A Thousand Leaves and Murray Street

CD Recipient: Kyle Anderson

The recent passage of crowdfunding provisions in the JOBS Act has been hailed in the press as a game changer for startups seeking to raise funds.  These provisions are not yet effective as the SEC has yet to promulgate definitive rules related to the legislations.  But even a quick look at the Act itself shows that crowdfunding’s potential benefits are accompanied with a heavy burden.  

Startups generally raise money through what’s known as a Rule 506 Regulation D offering.  Under US securities laws, companies are required to register an offering of securities, an expensive and lengthy process.  Rule 506 of Regulation D exempts companies from the registration requirements if they offer securities in a private offering exclusively to “accredited investors,” that is, investors of a high net worth.

There is relatively little paperwork in a Rule 506 offering.  The securities purchase agreement will be signed and a Form D will be filed with the SEC.  The downside is that the offering cannot be a “general solicitation”: startup founders would need to know a sufficient number of “accredited investors.”

Crowdfunding seeks to remedy these hardships.  Startups using the crowdfunding exemption from registration are permitted to offer securities to non-accredited investors.  These offerings can be made public using an online “intermediary.”  (Those interested in setting up an intermediary can read the SEC’s recent FAQ on the subject.)   

On the downside, crowdfunded offerings impose requirements on startups not present in the typical Reg D offering.  The press widely reported about the monetary limitations of the amounts raised in crowdfunded offerings and limitations on the amounts invested by individual investors in such offerings.  Rule 506 Regulation D offerings have no such limitations.  (For the rest of this post, “Regulation D” will be shorthand for “Rule 506 Regulation D offering.”)

Perhaps more onerous are the lesser known burdens described below: 

Disclosure documents:

…And these are only some the requirements set forth in the Act itself: the SEC rules which will be released in a few months will likely contain more hoops to jump through.

Such obligations may very well be necessary to protect mom and pop investors.  But it is clear that despite the promise of greater availability of capital, startups contemplating crowdfunding need to seriously assess whether it is worth the monetary and administrative costs.

Bonus fact!:  CROWDFUND is an acronym for “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012.”

Congrats Kyle Anderson!  Sweet two-pack tune-age heading your way!  

[After recently marrying and moving into a tiny apt with the wife, I’ve been tasked with reducing my personal possessions.  Rather than relegate my carefully curated CD collection to neglect on the shelves of a thrift shop, I’ve decided to give it away, one by one.  Listen with care.]  

CDs Saved: Pixeltan, Pixeltan EP; Squarepusher, My Red Hot Car EP.  

CD Recipients: Constance E. Bagley & Crag E. Dauchy

Entrepreneurs seeking legal advice on startup issues tend to gravitate to a number of truly excellent VC blogs.  But as high quality as these sources are, with only slight exception they exclusively deal with topics related to financings—an out of the ordinary transaction in a company’s life.

For founders looking for smart legal advice on day-to-day legal issues, there is Constance E. Bagley and Craig E. Dauchy’s The Entrepreneur’s Guide to Business Law (2012).  The authors, a professor at the Yale School of Management and a partner at Cooley LLP, bring an imposing pedigree to the entreprise.

Starting with helpful pointers for founders seeking to leave their jobs, the book ends with basic overviews on the m&a and IPO process.  In between is the meat and potatoes: employment law, intellectual property, operational liabilities and contract law, among others.  The e-commerce chapter deals with legal issues rarely dealt with by founders until it is too late.

Real world anecdotes illustrate the challenges and successes of businesses tackling the issues discussed.  The comprehensive charts are also extremely useful.

But in the end, The Entrepreneur’s Guide to Business Law makes for a comprehensive, trustworthy and easy-to-read reference book.  It does not seek to make lawyers out of founders, as much as educate founders on when to call one.  Put it on your shelf!

Congrats Constance & Craig!  Sweet, electro tune-age heading your way!

[After recently marrying and moving into a tiny apt with the wife, I’ve been tasked with reducing my personal possessions.  Rather than relegate my carefully curated CD collection to neglect on the shelves of a thrift shop, I’ve decided to give it away, one by one.  Listen with care.] 

CD’s Saved: Spiritualized Four-Pack!  Ladies and Gentlemen, We Are Floating In Space, Lazer Guided Melodies, Let It Come Down, and Amazing Grace

CD Recipient: Eric Tarn

In February 2012, New York became the latest in a small number of states to authorize the formation of “benefit corporations.”  A benefit corporation is a corporation which generally creates “a material positive impact on society and the environment.”

To qualify as a benefit corporation, its general or specific public benefit must be stated in its certificate of incorporation and the entity must annually evaluate its activities against an independent and transparent third party standard (a cottage industry has sprung up wrt to these).  

In addition, the b-corp must deliver a benefits report to its shareholders on an annual basis containing a narrative description of:

• the process and rationale for selecting the third party standard;
• the ways in which the benefit corporation pursued the general public benefit during the year and the extent to which general public benefit was created;
• the ways in which the benefit corporation pursued any specific public benefit included in its certificate of incorporation and the extent to which that specific public benefit was created; 
• any circumstances that hindered the creation of its general or specific public benefit;
• an assessment of its performance relative to its public benefit assessed against the third party standard; 
• report the compensation of directors; and
• disclose the beneficial owners of 5% or more of its shares.

An obvious question might be why is a b-corp necessary?  Can’t a company do what it wants with its money without going through the hassle of an annual report, &c.?  A corporation’s directors and officers owe certain fiduciary duties to its shareholders.  Typically, they are required to maximize shareholder value.  In the event officers and directors use corporate resources to act charitably, they are exposing themselves to a shareholder suit.  Benefits corporations better insulate these corporate managers from such challenges. 

Closely held corporations typically won’t have the same concerns, but may be willing to form benefits corporations for marketing purposes.  To be clear, there is no direct economic benefit to forming a benefits corporation, as there is with a nonprofit.

For a full copy of NY’s benefit corporations statute, see Section 17 of the NYS Business Corporations Law.

Congrats Eric Tarn!  Four-pack tune-age heading your way!

[After recently marrying and moving into a tiny apt with the wife, I’ve been tasked with reducing my personal possessions.  Rather than relegate my carefully curated CD collection to neglect on the shelves of a thrift shop, I’ve decided to give it away, one by one.  Listen with care.] 

CD Saved: The Barmitzvah Brothers, The Night of the Party

CD Recipient: Fred Wilson, Principal at Union Square Ventures

A privately-held business is under no obligation to publicize its financial results.  It has no requirement to disclose the closing of a material transaction.  On the contrary, it is often strategically important to keep this information under wraps.  

Why then are privately-held startups required to publicly disclose when they raise money from investors in a completely private offering?

A startup’s typical vc or angel round offering entails filing with the SEC a Form D.  In the Form D, an issuer reports general information about the investment round, including the amount of cash raised.  Filed Form D’s are available for viewing on the SEC’s website.  Third party aggregators, like FormDs, make the process of Form D discovery even easier.  

For those running a startup, the adverse consequences of announcing these details are clear.  As young companies, startups must use every negotiating chip to their advantage.  But it is much more difficult for a startup to negotiate the best deals when its counter-parties are aware that it is flush with cash.  Also, as noted by Fred Wilson, among others, Form D public disclosure introduces timing complexities into messaging of what is typically a significant corporate event.  

To deal with these consequence, some startups seriously weigh noncompliance as a realistic option—an alternative with its own drastic effects.  Other startups may deliberately use a vague corporate name in an effort to skirt public notice.  But why should this be necessary?

The sole stated purpose of the Form D is to help the SEC and state regulators collect data about private offerings [see beginning section of SEC Release 33-8891].  But if that’s the rationale, there is no reason the Form D needs to be public; it ought to be made confidentially to the SEC and state regulators.  

Beyond general prurience, there is simply little compelling justification for requiring a private company to publicly announce raising money in a private offering of securities.  I’m generally a big fan of transparency, but the cost-benefit analysis favors Form D opacity.

CD Saved: The Barmitzvah Brothers, The Night of the Party.  The Night of the Party is the first release of this Canadian band and showcases their self-professed “electronic-polka” phase.  Mind the dreamy, laconic delivery of Hebrew.  Standout tracks: “Sfog” and ”Pump #4.”

Congrats Fred Wilson, Principal at Union Square Ventures!  Sweet indie tuneage is heading your way!

[After recently marrying and moving into a tiny NYC apt with the wife, I’ve been tasked with reducing my personal possessions.  Rather than relegate my carefully curated CD collection to neglect on the shelves of a thrift shop or a dumpsterian fate, I’ve decided to give it away, one by one.  Listen with care.]

CD Saved: The Moles, On the Street/Rare and Weird (2xCD)

CD Recipients: Brad Feld and Jason Mendelson

In 2011, Brad Feld and Jason Mendelson dropped Venture Deals, a primer on tech startup financing.  The authors, managing directors the Foundry Group, are well-known in the industry from their posts on Ask the VC, a blog from which the bulk of the book’s text stems.  

Venture Deals unpacks the concepts negotiated in the term sheet, the primary document governing the deal terms of a vc financing.  Dispensing advice in plain English and with a wry touch, the authors have a gift for breaking down complex concepts in an accessible, friendly manner.  Pragmatism rules the presentation; not much is spent rustling in the weeds (other than to diss on attorneys and other like-minded weed rustlers).  Explanations come most to life when accompanied by often amusing real world examples.  

While the term sheet lies at the heart of the book, the authors helpfully expand their presentation to other topics of interest to an early stage CEO.  Chapters on negotiation style and vc fund structure survey two concepts directly impacting the vc/startup negotiation.  

Littered throughout the book are comments from Matt Blumberg, CEO of ReturnPath, showing the entrepreneur’s perspective.  These comments mostly supplement the authors’ discussion with real world application of the concepts.  To the authors’ credit, Blumberg has been granted the freedom to present points of view contrary to the best interests of investors.  For instance, the comments about limiting the vc’s co-sale rights or no shop clause (pp. 87 and 92, respectively).

The book does lightly pass over a couple of topics where greater detail could be useful.  The use of convertible notes in an early round has only truly taken root over the last few years, but in light of how widespread the practice has become, it is difficult to excuse the omission of a detailed discussion.   Also, it would be helpful to include a review of some of the pre-vc-financing legalities of organizing a startup, especially since many of these decisions are dictated entirely by vc concerns.  Last, while there are obvious challenges in presenting a clear discussion about capitalization tables and specifically how they change from one financing round to the next, I think the authors are up to the task at giving more detail than the three pages included in the book.  

But these shortcomings are easy to forgive; the writing style is just so plainly friendly and wry that I found myself chuckling on more than a few occasions.  Not often that that happens when reading informative business books.

CD Saved: The Moles, On the Street/Rare and Weird.  Didn’t know that much about The Moles until I heard them on Ken’s show on FMU.  They have an innocent, but complex sound.  Fun fact: Lead singer Richard Davies is an attorney!  Standout Tracks: “Surf’s Up” and “Europe By Car.”

Congrats Brad Feld and Jason Mendelson, Managing Directors of the Foundry Group!  Sweet indie tuneage is heading your way!

[After recently marrying and moving into a tiny NYC apt with the wife, I’ve been tasked with reducing my personal possessions.  Rather than relegate my carefully curated CD collection to neglect on the shelves of a thrift shop or a dumpsterian fate, I’ve decided to give it away, one by one.  Listen with care.]

CD Saved: Godspeed You! Black Emperor, Lift Yr Skinny Fists Like Antennas to Heaven

CD Recipient: Mary L. Shapiro, Chairwoman of the Securities and Exchange Commission

Whenever any company offers securities for sale, the offering is required to be registered with the SEC and state authorities, unless an exemption from registration can be found. The typical exemption used by startups is Rule 506 of Regulation D, which permits a company to offer and sell securities without registration with federal or state authorities provided that all the offerees meet the definition of an accredited investor.

In December 2011, the SEC put into effect a modification of the definition of an accredited investor. Yesterday, the SEC published guidance about the calculation.

In order for an individual (as opposed to an entity) to qualify as an “accredited investor,” he or she must:

• have had income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; OR
• have an individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person.

The SEC’s December modification in December 2011 was to exclude the value of the primary residence. The guidance explains in plain English the calculation with respect to mortgages related to the primary residence.

CD Saved: Godspeed You! Black Emperor, Lift Yr Skinny Fists Like Antennas to Heaven. GY!BE has an epic, biblical sound. Be prepared to be moved. Lift Yr Skinny Fists is from 2000. Outstanding Track: the whole thing.

Congrats Mary L. Shapiro, Chairwoman of the Securities and Exchange Commission! Sweet tuneage heading your way!

For each blog post, I will send a deserving recipient one (1) CD from my collection that I was going to trash since getting married and moving in with the wife.

CD Saved: The Breeders, Mountain Battles.

CD Recipient: Jeffrey W. Bullock, Secretary of State of Delaware.  

For all those Delaware corporations, the state’s franchise tax and annual report are due today.  A nifty calculator can be found on the Secretary of State’s website.  Startups with loads of authorized stock, but that much in the way of assets will want to review carefully the assumed par value calc.  Companies can submit the report and pay online. 

For each blog post, I will send a deserving recipient one (1) CD from my collection that I was going to trash since moving in with the wife.  

CD Saved: The Breeders, Mountain Battles.  I had always liked The Breeders since Cannonball, but when I heard them open for Nirvana, I realized just how good they were.  Mountain Battles is their most recent release.  Standout track: “We’re Gonna Rise.”  

Congrats Jeffrey W. Bullock, Secretary of State of Delaware!  Sweet tuneage is heading your way!

Question: What’s the best way to bootstrap without losing out down the road?  Asked by @evilldave

CD Saved: RJD2, “Since We Last Spoke.”

If you’re bootstrapping a tech startup, you want to save money, but not at the cost of making any fatal mistakes that would jeopardize your ability to raise funds and otherwise run a successful business.  It’s always best to have an attorney looking over your shoulder, but if you simply don’t have the money to hire an attorney, the incorporation process is relatively straightforward and is ripe for bootstrappery.  

Bootstrapping will take longer than if you just hired someone to do it.  I’d only advise bootstrapping in the context where you are not rushing.  For purposes of this discussion, we’re talking about a tech startup which will be seeking vc financing.

1. Certificate of Incorporation.  This document is filed with the secretary of state that forms your entity.  You can find text of a certificate of incorporation at Orrick’s website.  I annotated another form here.  For the relevant terms contained in a certificate of incorporation, see Ryan Roberts’ post.  Delaware has a form of certificate of incorporation posted online; don’t use it, but you can use the cover letter.  Unless you have a friend who lives in Delaware, you will need to hire a service company to serve as agent for service of process in Delaware.  One of the cheaper outfits is Vcorp.

2. Bylaws.  In the pre-financing stage, you can put together your own bylaws.  A form can be found at Orrick’s site.  Again, I’ve annotated another form here.  

3. Action of Incorporator.  This is the paper trail selecting the initial board of the corporation.  A form can be found at Orrick’s site.  What’s that?  I’ve annotated another form here. 

4. Obtain an EIN.  Never pay someone to do this for you.  Go to the IRS’s site and do it yourself.  

There are other basic items a startup needs to do from its inception, such as issue restricted (vesting) stock to the founders, file 83(b) elections, sign intellectual property assignment/confidentiality/employment at will agreements.  Orrick’s site has forms for these things; as does Goodwin Procter’s.  However, my opinion is to get an attorney for these steps.

RJD2, “Since We Last Spoke.”  Discovered RJD2 flipping vinyl at Halcyon, the Brooklyn cafe/record shoppe on Smith Street during the heyday of turntablism. There’s nothing on this CD as magical as “Ghostwriter” from his previous release, but it will still make you want to wear a velvet jumpsuit.  Standout track: “1976.”  

@evilldave:  Sweet tunes are coming your way!  Wife Safdie says move to the groove!

For an explanation of the whole “CD’s for Questions,” see here.

Question: Any reason to incorporate as an S-Corp rather than LLC (in NY)?  Other than cost of publication?  Tweeted out by: @jasongelman.

CD Saved: Think About Life, “Family.”  For the whole “CD’s for Questions” explanation, see here.  

[First things first: if a startup will be seeking VC financing, they should know that prior to closing that financing, the startup will have to be a c-corporation.  VC’s will not invest in pass-through entities, like LLC’s and s-corps.  Delaware law makes it easy from a corporate perspective to convert these NY entities into a Delaware c-corp (the state preferred by VC’s).  Plenty of startups initially form their entity as a pass through, take the benefit of the losses on their personal income taxes and then convert prior to a VC financing.  However, depending on the business, there may be adverse accounting ramifications to a conversion.] 

I generally favor LLC’s because of their flexibility.  As products of the 90’s, LLC’s tend to have less corporate formalities than corporations: internal governance and economic understanding among the members tends to be more the result of contract law, set down in the entity’s operating agreement.  

As a result of its recent vintage, there are some uncertainties with respect to the LLC form.  For instance, how much in the way of fiduciary duties can a NY LLC contract away?  These issues are still being litigated; legal blogs are atwitter with recent Delaware case law on this issue.  

On NY’s LLC publication requirement, depending on the circumstances, I may advise startups not to comply.  More detail can be found here.   

S-Corps tend to be more rigid and limiting.  For instance, there can be only one class of shares in an s-corp.  An investor cannot be issued equity with any economic or control preferences as compared to another shareholder.  The number of shareholders in an s-corp is capped at 100.  No foreign shareholders are permitted.  And only individuals can own shares of an s-corp.    

The one advantage I’ve found with an s-corp is a potential savings in the self employment tax.  For a good description of how it works, see here.  But I know other accountants who are not comfortable with the trick.

Again, I generally favor LLC’s, but I’ve seen other skilled advisors go the s-corp route.

Think About Life, “Family.”  I discovered Think About Life on an online blog and since then have caught them live around half a dozen times.  Each time is a better dance party than the last.  You can cancel your gym membership.  “Family” is their sophomore release;  this CD is from the Canadian pressing on Alien8 from May 2009.  Standout track: “Havin’ My Baby.” 

@jasongelman: Sweet tunes are coming to you!  Wife Safdie sends her gratitude.