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Do I have to pay taxes on kickstarter.com funding?

Posted by on May 11, 2012 in Quora Answers | 0 comments

Chris Barsness, startup, finance, law, and tech nerdThe question is more of timing of revenue recognition.  In the new JOBS act type funding, it will be investment in equity, so there isn't really a tax issue for the issuer (there are some t…

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How can I reveal my ideas to VC's while protecting them from being stolen?

Posted by on May 10, 2012 in Quora Answers | 0 comments

Chris Barsness, startup, finance, law, and tech nerdAs an attorney, I would answer that a good NDA is invaluable; however, in the world of business, finance, and VCs, asking any potential investor or business partner to sign an NDA right off the bat m…

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Can a crowd-funding investment be used for an issuing company to purchase property (that would only be offered for sale to them) for conversion to a business use?

Posted by on May 10, 2012 in Quora Answers | 0 comments

Chris Barsness, startup, finance, law, and tech nerdWith the caveat that the SEC hasn't implemented its rules based upon the JOBS act yet, I will answer your question generally, but crowdfunding is not yet able to be used in many contexts until t…

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Credit Report Use Limited In California Employment Decisions per AB 22

Posted by on May 8, 2012 in Startup 101 | 0 comments

Credit Report Use Limited In California Employment Decisions per AB 22

A common question asked by start-ups or even just average average businesses is what information they can ask or use in vetting their potential employees.  Some common forms used may be background checks, drug screening, and reference checks.  Due to the economy creating many credit problems for average citizens (even more so with entrepreneurs who often use their own personal credit to bootstrap their company), I will take a look at the use of credit reports in making employment related decisions. Existing federal law provides that, subject to certain exceptions, an employer may not get a credit report without prior disclosure of that the employer wants to obtain one and the employee consents. Existing federal law further requires, subject to certain exceptions, an employer, before taking any adverse action based on the report, to provide the consumer with a copy of the report and a written description of certain rights of the consumer. California enacted AB 22 which amended California Civil Code Section 1785.20.5 to provide additional protections in this state to protect the potential employee when dealing with similar uses of credit reports.  This law went into effect January 1, 2012.  In addition the California Labor Code added Chapter 3.6 to include additional requirements.  The law provides that the employer needs to follow the same federal requirements of disclosure that they want to obtain a credit report, but also requires the employer to state why they want it.  The law goes on to further indicate that credit reports can only be requested for the following certain categories of types of positions (except by certain financial institutions): (1) a position in the state Department of Justice, (2) a managerial position, (3) that of a sworn peace officer or other law enforcement position, (4) a position for which the information contained in the report is required by law to be disclosed or obtained, (5) a position that involves regular access to specified personal information for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, (6) a position in which the person is or would be a named signatory on the employer’s bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer’s behalf, (7) a position that involves access to confidential or proprietary information, as specified, or (8) a position that involves regular access to $10,000 or more of cash, as specified. When dealing with a tech or start-up company, number 7 could be pretty broad to cover almost all employees.  The full text of that category is: “A position that involves access to confidential or proprietary information, including a formula, pattern, compilation, program, device, method, technique, process or trade secret that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who may obtain economic value from the disclosure or use of the information, and (ii) is the subject of an effort that is reasonable under the circumstances to maintain secrecy of the information.” You can see how that category could be pretty broadly applied; however, employers should take caution to be clear that if they request a credit report, it is for the reason that they feel could...

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What standard terms and typical startup costs should an entrepreneur expect in an engagement offer from a startup lawyer/lawfirm?

Posted by on May 4, 2012 in Quora Answers | 0 comments

Chris Barsness, Lead experience getting startups off the ground…It really depends upon the extent of work you need done.  You may not known until you meet with them to explain your business and where you are at in development.  There will …

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What can my friend do if the startup he has stock options in fires everyone, and then rehires them for a different company that does the same thing?

Posted by on May 3, 2012 in Quora Answers | 0 comments

Chris Barsness, startup, finance, law, and tech nerdThere are a number of factors, but he is probably out of luck in all reality.  That's just one of the risks you take when you work for a startup and agree to stock or options.  If he w…

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Entrepreneurs Suffer Credit Problems In Economic Hard Times

Posted by on May 3, 2012 in Bankruptcy, General Startup Advice, Lean Start-up - How to Save Money, Startup 101 | 0 comments

Many small business owners or other entrepreneurs start out with a great idea for a new product or service.  They start a business and focus on doing whatever it takes to make the company successful.  Many don’t take the steps necessary to properly protect the business from creditors or don’t really pay much attention to what they sign when they are making deals.  The ones who do read the fine print may just have the attitude that they are so confident in the business’ success, who cares if they use their own personal credit to get some working capital.  With the economic downturn over the last few years, many business owners have had to close their doors because they couldn’t get the funds they needed to even cover the simple things like payroll or rent. Use of Personal Credit Many entrepreneurs feel that they should put some ‘skin in the game’ by contributing some of their own money into the business.  In fact, the Small Business Administration backed loans often require the founders to contribute at least a certain percent of their own assets or some other major contribution in order to qualify for a business loan.  When the owner doesn’t have available cash, they look to other sources to get the money to contribute.  That can lead to things like taking out a home equity line of credit or using personal credit cards to help fund the business.  Obviously that is pretty risky, but often necessary to get early access to this seed money to start and grow.  The banks that issued the credit did so based upon the owner’s personal credit rating.  Just because the credit card may have the business’ name on it doesn’t mean the bank hasn’t covered their bases by making sure they can sue the owner personally if the business defaults in payment. The other area where founders often don’t take the time to understand the agreements they are making is in the area of personal guarantees.  In the majority of start-up or new business loans or other forms of credit, the bank or whoever is granting credit will require a personal guarantee.  Within the stack of forms the founder signs, it will clearly state that the founder is responsible for payment if the company cannot pay.  Forming a corporation or LLC does not protect you from a personal guarantee.  The contract or agreement for the personal guarantee is between the bank and the founder, not the company.  If the founder signed and the agreement is enforceable, they are stuck with paying it.  Also, the one signing the personal guarantee or using their own personal credit cards will be the one with negative credit being reported on their credit report. Limiting Liability Problems Many founders come to me asking about filing bankruptcy for their small business or themselves.  If the company filed bankruptcy (won’t get into discussion of Chapter 11 reorganization), any assets of the company are liquidated to pay off existing creditors.  Any remaining debts are discharged.  The business can probably get out of paying, but the company will no longer cease to exist.  If you file bankruptcy, in most cases, you can’t take some of its assets (even if you contributed them) and go start another business.  That would be defrauding...

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Is it normal for a startup law firm to ask for a nominal amount of stock in exchange for deferring fees?

Posted by on May 1, 2012 in Quora Answers | 0 comments

Chris Barsness, startup, finance, law, and tech nerdWhen dealing with startup businesses, some lawyers realize that they can make more from equity in the company that the actual fees in cash (not to mention the fact that many startups start out cash p…

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How do I design a dynamic equity split agreement with my Co-Founders?

Posted by on May 1, 2012 in Quora Answers | 0 comments

Chris Barsness, startup, finance, law, and tech nerdEach person in a founding team brings some value which normally the company needs to succeed and without one spoke in the wheel, it may fail.  Realize that early on the person with the cash may …

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How do you negotiate a better price with a lawyer without sounding cheap or unprofessional?

Posted by on May 1, 2012 in Quora Answers | 0 comments

Chris Barsness, startup, finance, law, and tech nerdIf you know what you need, tell them exactly what you need and if they are experienced in that, they can usually give you a flat fixed fee.  If you don't know what you need, ask them what t…

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