There are very few written policies that are required by law to be provided to employees, but there are certain policies companies can adopt to protect themselves and reduce their liability exposures. This can either be done though a company handbook or by distributing individual policies to employees.

“Courts have said that by advising employees of certain information, the burden shifts from the employer proving something didn’t happen to the employee proving something did. That can be a significant difference in an employer’s ability to defend itself both in terms of success and cost,” says Jeffrey Dinkin, a shareholder at Stradling Yocca Carlson & Rauth.

Smart Business spoke with Dinkin about key policies that should be included in employee handbooks and what other options exist.

What are some required policies suitable for an employee handbook?

All employers are required to have sexual harassment policies that clearly state to whom employees should report complaints. More than one person should be designated, but if that’s not possible, there are outside resources to which you could direct them.

For companies with five or more employees, if the company has leave policies, policies regarding pregnancy disability leave must be included. As a note, under recently enacted legislation there must be continued employer health insurance contributions during the period of pregnancy disability leave for up to four months. The California Family Rights Act also allows 12 weeks of baby bonding leave, with continued employer health insurance contributions now also being required.

Employers with 50 or more employees are covered by the Family and Medical Leave Act, which must be honored when you learn an employee is eligible for family medical leave, and requires a related employer policy.

Also, a new law dictates that employees paid commissions need to be provided a clearly written commission agreement that describes how commission is calculated, earned and paid. It needs to be signed by, and a copy given to, the employee.

What else should an employer include in an employee handbook?

Employers should have a policy that requires employees to accurately record all time worked (the start and stop times), as well as the start and stop time for meal periods. The policy should clearly prohibit off-the-clock work. It is important to also address meals and rest periods provided by the company.

Technology and communications policies are increasingly necessary. It’s important that an employer indicate that the materials stored and communicated on devices owned by the employer belong to the employer, and it has the right to review and monitor those communications at its discretion.

There’s a lot of attention on bring-your-own-device workplaces. Employers need to communicate that work-related mobile activity is not private and information can be retrieved from a personal device including when the employee exits the company.

Is an employee handbook required?

Companies don’t need to have a handbook, but having one allows them to set forth some essential policies and employee rights and obligations that should be observed.  Handbooks enable everyone to have a reference to their rights and obligations.

What will suffice as notice in place of a handbook?

You can provide individual policies. Employers often provide new hires with the policy regarding sexual harassment, or there can be a separate meal and rest period policy. There is other information that must be provided to employees through permanent postings at the workplace or handouts.

Who should assemble the handbook?

An employment attorney is a good resource. He or she will typically have a model handbook that can provide a starting point that’s then customized to suit the employer’s needs. The chamber of commerce or an HR consultant have similar resources.

However, a big part of employers preparing a handbook is for them to become aware of their obligations and rights so they might better order their employment policies to protect themselves. It’s a good education tool and a chance for an employer to order its thoughts on how it wants to treat its workforce. ●

Jeffrey Dinkin is a shareholder at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4000 or jdinkin@sycr.com.

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth

 

Published in Orange County

Rules added through the Jumpstart Our Business Startups Act eliminate the prohibition on using advertising and general solicitation to court investors to buy securities in certain unregistered offerings. While this has created possibilities, it has also imposed conditions.

The Securities and Exchange Commission (SEC) requires companies that generally solicit investors to take “reasonable steps” to verify that all purchasers in the offering are accredited. But there’s no bright line test to verify accreditation, says Michael Lawhead, an attorney at Stradling Yocca Carlson & Rauth. “Reasonable steps” are objective determinations made by the company in the context of each offering and each buyer. The SEC has, however, provided vague, but important, guidelines.

Smart Business spoke with Lawhead about vetting investors.

How should companies conduct due diligence on potential private investors?

For an individual to be accredited, he or she must have an individual net worth, or joint net worth with spouse, of $1 million annually, excluding the value of the investor’s primary residence. The investor’s individual income must exceed $200,000 in each of the past two years, or $300,000 in the past two years with a spouse, and have a reasonable expectation of reaching that in the coming years. One way to verify income is to examine the two most recent years of IRS reported income, which can be obtained from the individual. Certification from the individual about future income is acceptable.

To verify net worth, look at bank statements, brokerage statements or similar documents that would show net worth for the past three months. Companies should also acquire written representation from the individual that discloses his or her liabilities.

A company could also obtain written confirmation from a registered broker/dealer or other service provider who can verify the purchaser is accredited.

A certification of accredited investor status can be obtained from an individual who invested in the company’s 506(b) offerings prior to this new rule being enacted.

What constitutes reasonable steps?

The SEC has laid out three factors companies should explore to qualify investors. One factor is the nature of the investor. Public information can be used to qualify investment companies, such as venture capital funds. Qualifying individual investors can be done by attaching a high minimum investment amount to the offering. A company could conclude that the buyer is accredited if he or she can pay it.

Another factor is the type of information available. Public filings and information from reliable third parties can be used.

The last factor is the nature of the offering. Investors gathered by third parties, such as placement agents, are likely to be accredited since the third party has screened them.

What’s a ‘bad actor’?

Essentially, a company will not be able to rely on Rule 506 if certain covered persons purchasing securities have been subject to disqualifying events.

Covered persons include the company making the offering, its predecessors, affiliates, shareholders invested at 20 percent or greater, directors and officers, and any person who has or will receive compensation in connection with the offering.

The list of disqualifying events includes criminal convictions, court injunctions and restraining orders in connection with securities offerings.

Companies are looking to law firms to develop questionnaires to investigate individuals. If using a placement agent, verify the agency has done due diligence.

What happens if there’s an oversight in the verification process?

A company won’t lose the benefit of the 506 safe harbor as long as it can demonstrate that it attempted a thorough investigation of potential investors. Not following the steps results in the loss of the safe harbor, but not the ability to conduct a private offering.

General solicitation is not as easy as placing ads and waiting for money to roll in. The burden of complying with these rules is the responsibility of the company making the offering. An improperly conducted private offering could, among other things, give investors a right of rescission, which means they could take their money back.

Michael Lawhead is an attorney at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4277 or mlawhead@sycr.com.

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth

Published in Orange County

The Jumpstart Our Business Startups Act (JOBS), passed in early 2012, mandates that the Securities and Exchange Commission (SEC) adopt rules to help start-ups and small businesses raise capital. Because of this, companies can advertise, market and publicly disclose that they are fundraising. The change also allows companies to raise up to $1 million from a large number of “nonaccredited,” or non-high net worth investors.

Smart Business spoke with Mark L. Skaist, shareholder and co-chair, Corporate and Securities Practice, at Stradling Yocca Carlson & Rauth about what this could mean for businesses.

Why does it matter that companies can advertise that they’re fundraising?

Companies need to either register their securities offering with the SEC or find an exemption from registration. Registration is often prohibitively expensive for start-ups, so most emerging companies rely on an exemption from registration, the most common of which is Rule 506 under Regulation D. This permits sales of an unlimited dollar amount of securities to an unlimited number of accredited investors and up to 35 nonaccredited investors.

However, in order to rely on this exemption, companies had been prohibited from offering or selling securities through any form of general solicitation or general advertisements.
By allowing companies to advertise their securities offerings to the general public, companies should have a bigger pool from which to solicit investments.

There are, however, two conditions companies must meet in order to use general solicitation and advertisement and sell securities under Rule 506. Namely, all purchasers in the offering must be accredited, which for natural persons generally means net worth in excess of $1 million, or annual income of at least $200,000. Also, the company must take ‘reasonable steps’ to verify that the purchasers are accredited.

How are companies supposed to verify that a purchaser is accredited?

The SEC has said that companies need to make an objective determination in the context of the given facts and circumstances. It has come out with a nonexclusive list of verification methods that can be considered ‘reasonable steps.’ The specific methods and types of information the SEC considers sufficient include written representations of investors combined with two years of federal tax returns; bank statements combined with credit reports; and written confirmation from a broker, attorney, investment adviser or accountant.

How are the proposed rules regarding crowdfunding supposed to work?

These proposed rules provide that companies may sell up to $1 million of securities during any 12-month period to accredited and unaccredited investors. They also limit annual crowdfunding investments by investors with annual income or net worth below $100,000 to the greater of $2,000 or 5 percent of the investor’s annual income or net worth. For investors with annual income or net worth in excess of $100,000, annual crowdfunding investments cannot exceed 10 percent of their annual income or net worth.

There are also proposed initial and annual filing requirements by the company doing crowdfunding financing, which may include financial statements, a business plan and tax returns. Companies can use intermediaries, such as brokers and funding portals, and may not advertise the offering other than to provide a notice directing potential investors to the intermediary.

Based on the proposed rules, which require that companies raising between $100,000 and $500,000 through crowdfunding provide reviewed financials, and companies raising more than $500,000 provide audited financials, it’s likely that the accounting fees alone are going to be a significant roadblock to many small companies relying on this exemption.

While it seems steps have been taken toward making it easier for start-ups and emerging companies to raise money, time will tell whether they have any real impact. In the meantime, businesses are popping up that are looking to get involved with these types of offerings, either by verifying that investors are accredited or by setting up funding portals for crowdfunding.

Mark L. Skaist is a shareholder and co-chair of the Corporate and Securities Practice at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4117 or mskaist@sycr.com.

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth

Published in Los Angeles

The Jumpstart Our Business Startups Act (JOBS), passed in early 2012, mandates that the Securities and Exchange Commission (SEC) adopt rules to help start-ups and small businesses raise capital. Because of this, companies can advertise, market and publicly disclose that they are fundraising. The change also allows companies to raise up to $1 million from a large number of “nonaccredited,” or non-high net worth investors.

Smart Business spoke with Mark L. Skaist, shareholder and co-chair, Corporate and Securities Practice, at Stradling Yocca Carlson & Rauth about what this could mean for businesses.

Why does it matter that companies can advertise that they’re fundraising?

Companies need to either register their securities offering with the SEC or find an exemption from registration. Registration is often prohibitively expensive for start-ups, so most emerging companies rely on an exemption from registration, the most common of which is Rule 506 under Regulation D. This permits sales of an unlimited dollar amount of securities to an unlimited number of accredited investors and up to 35 nonaccredited investors. However, in order to rely on this exemption, companies had been prohibited from offering or selling securities through any form of general solicitation or general advertisements.

By allowing companies to advertise their securities offerings to the general public, companies should have a bigger pool from which to solicit investments.

There are, however, two conditions companies must meet in order to use general solicitation and advertisement and sell securities under Rule 506. Namely, all purchasers in the offering must be accredited, which for natural persons generally means net worth in excess of $1 million, or annual income of at least $200,000. Also, the company must take ‘reasonable steps’ to verify that the purchasers are accredited.

How are companies supposed to verify that a purchaser is accredited?

The SEC has said that companies need to make an objective determination in the context of the given facts and circumstances. It has come out with a nonexclusive list of verification methods that can be considered ‘reasonable steps.’ The specific methods and types of information the SEC considers sufficient include written representations of investors combined with two years of federal tax returns; bank statements combined with credit reports; and written confirmation from a broker, attorney, investment adviser or accountant.

How are the proposed rules regarding crowdfunding supposed to work?

These proposed rules provide that companies may sell up to $1 million of securities during any 12-month period to accredited and unaccredited investors. They also limit annual crowdfunding investments by investors with annual income or net worth below $100,000 to the greater of $2,000 or 5 percent of the investor’s annual income or net worth. For investors with annual income or net worth in excess of $100,000, annual crowdfunding investments cannot exceed 10 percent of their annual income or net worth.

There are also proposed initial and annual filing requirements by the company doing crowdfunding financing, which may include financial statements, a business plan and tax returns. Companies can use intermediaries, such as brokers and funding portals, and may not advertise the offering other than to provide a notice directing potential investors to the intermediary.

Based on the proposed rules, which require that companies raising between $100,000 and $500,000 through crowdfunding provide reviewed financials, and companies raising more than $500,000 provide audited financials, it’s likely that the accounting fees alone are going to be a significant roadblock to many small companies relying on this exemption.

While it seems steps have been taken toward making it easier for start-ups and emerging companies to raise money, time will tell whether they have any real impact. In the meantime, businesses are popping up that are looking to get involved with these types of offerings, either by verifying that investors are accredited or by setting up funding portals for crowdfunding.

Mark L. Skaist is a shareholder and co-chair of the Corporate and Securities Practice at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4117 or mskaist@sycr.com.

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth

Published in Orange County

While California has adopted the Uniform Trade Secrets Act, there is no state or federal registration process for trade secrets like there is for safeguarding other intellectual property.  However, companies can and should protect themselves by identifying, valuing and guarding their trade secrets. This allows them to seek remedies under the act if a closely held secret is misappropriated.

Smart Business spoke with Tom Speiss, shareholder and intellectual property attorney at Stradling Yocca Carlson & Rauth, about establishing a trade secret team and conducting an intellectual property audit to determine and protect valuable proprietary information.

What protection does the act offer?

Trade secrets garner special protection based on that state’s adaptation of the Uniform Trade Secrets Act. In California, to qualify as a trade secret, a secret has to derive independent economic value, whether actual or potential; must not be generally known to the public or to other persons who can obtain economic value from its disclosure or use; and must be the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Companies should not file patent or copyright applications for subject matter it considers to be secret because, for patents, the subject matter of the patent application is made public 18 months after filing and, for copyrights, the subject matter is immediately made public. The law offers remedies if subject matter that qualifies as a trade secret is misappropriated.

Who is responsible if a trade secret is misappropriated?

The individual and, potentially, his or her new employer are both potentially liable for trade secret misappropriation. A company has a responsibility to ensure it’s not using another entity’s trade secrets, and can be liable for doing so whether it actually knows it has taken a trade secret or not — because the standard is lower: it is ‘reasonably should have known’ rather than ‘actually knew.’ Companies should conduct entrance interviews to determine the nature of the person they’re hiring. For instance, if the new hire brings with him or her a recipe or construction blueprints from a prior employer, it’s up to the hiring company to ask if that’s a trade secret.

Similarly, an exit interview can protect a company when an employee leaves. An exiting employee can be asked to sign an affidavit saying he or she is not taking anything. That puts the former employee on the hook whether they sign or refuse to sign, because they have either attested to their honesty, or, by refusing to sign, appear dishonest, raising suspicion.

In a recent case, an individual took a cookie recipe that was subject to reasonable efforts of protection to a rival company, which replicated it. In another instance, a group took construction blueprints it developed while working for a former employer. In both instances, suits were filed against the individuals as well as against the companies that were the recipients of the trade secrets.

Who should be part of a company’s trade secret team and what should they do?

While implementation varies by company and circumstance, the team should comprise a key person from each department within the company. That team member should pull together things they consider important to that department. Trade secrets aren’t always obvious, so you need to mine for them. The key questions in the search are:  Why are we successful? What information, if in the hands of a competitor, would harm the business?

Next, determine the economic value of each item identified and rank them. The higher the value the more important it is.

Then develop a protection scheme for each level of value. For those items that have the highest economic value, set up protections adequate for their importance.

Lastly, once the list is created, review and update it on a regular basis.

How can a company know whether its trade secrets are trade secrets within its industry?

If you think your company has developed something unique, research your industry. You’ll have a good sense of what could be a trade secret based on your knowledge of your industry, and your evaluation of what makes your company a market leader.

Then, seek to protect your ‘special sauce’ — that is, your trade secrets.

Tom Speiss is a shareholder at Stradling Yocca Carlson & Rauth. Reach him at (424) 214-7042 or tspeiss@sycr.com.

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth

Published in Los Angeles

It is a little known fact that there’s a strong connection between the success of a deal and the team assembled to get it done.

“Management needs to be very diligent about selecting members of its internal and external deal team; it’s critical that the teams have the right fit, experience and industry expertise,” says Goody Agahi, a shareholder at Stradling Yocca Carlson & Rauth.

Smart Business spoke with Agahi about what it takes to assemble a strong mergers and acquisitions (M&A) deal team.

What is a deal team and how is it composed?

A deal team generally consists of key employees at the company, M&A attorneys, accountants and, in certain circumstances, other outside advisers such as investment bankers. The first step in assembling a deal team is to identify the key employees at the company who are intimately familiar with the company’s operations and financial matters. The next step is for the company to identify, interview and ultimately select its M&A attorney and other outside advisers.

In selecting an M&A attorney, the company should be focused on an attorney’s M&A experience, industry expertise, reputation and fit. An experienced M&A attorney will be able to assist the company with identifying other service providers. For example, if the company is considering an auction process to effect a liquidity event, an M&A attorney can refer the company to multiple investment bankers that, based on the attorney’s experience, he or she believes has the right experience and will be a good fit for the company. Investment bankers can assist the company by performing an analysis of the M&A landscape and identifying prospective buyers. The auction process provides the company an opportunity to see how the market values the company and, depending on the level of interest by prospective buyers, gives the company leverage in negotiating definitive transaction documents. An auction process, however, may not always be appropriate.

What qualifications are important to have in each team member?

Extensive deal experience is critical when considering whether or not to hire a particular service provider. An experienced M&A attorney will be able to advise the company on substantive issues, potential exposure and acceptable compromises. An experienced investment banker can help prospective buyers appreciate the investment opportunity, and an experienced accountant or CFO can give a prospective buyer comfort with respect to the company’s accounting methods, policies and procedures, as well as quality of earnings.

Unfortunately, too often we see companies using legal counsel that is ill-equipped to handle an M&A transaction. This is normally the case when management doesn’t fully appreciate the value the right M&A lawyer can bring and, conversely, how costly it can be to use a lawyer with little or no M&A experience.

When should a company begin assembling the deal team?

Once management begins considering strategic alternatives, the company should start the process of assembling a deal team. Even if a sale transaction is years away, it is prudent for a company to engage advisers to position the company for a liquidity event. For example, a company’s M&A lawyer can perform a review of the company’s organizational documents, equity incentive plans, compensation arrangements and third-party contracts in order to identify and address any potential issues. By addressing such issues in advance of a liquidity event, the company can potentially avoid unnecessary delays, valuation adjustments and special indemnities in connection with negotiating a liquidity event. The better organized a company is, the more desirable the company will be to prospective buyers.

Why is a strong deal team important to an acquisition?

An experienced deal team will work closely with one another to showcase the investment opportunity, and identify and address potential diligence issues in advance of a transaction. Seasoned professionals have been through the process; they understand the issues and offer solutions that can bridge gaps between the company’s and a prospective buyer’s positions. As a result, the right deal team can maximize the purchase price, minimize the back-end exposure and facilitate a quick closing.

Goodarz “Goody” Agahi is a shareholder at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4088 or gagahi@sycr.com.

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth

 

Published in Orange County

Corporate governance has become a popular topic. While it primarily pertains to the governance of public companies, it can be a useful set of policies and procedures to help guide a private company by fostering discipline and informed decision-making. 

“Historically, private company boards have been more casual in how they’re organized and how they act, but more recently private company boards and their stockholders are looking for more accountability,” says Christopher Ivey, shareholder and co-chair of the corporate and securities practice at Stradling Yocca Carlson & Rauth.

Smart Business spoke with Ivey about corporate governance for private companies and best practices for its implementation. 

How does corporate governance operate in a private company setting?

The primary roles of a company’s board are supervising management, providing strategic direction and approving material actions. These roles are enabled through good corporate governance. A fully functioning, independent board that’s not controlled by the founder is more likely to exercise authority to make difficult decisions, including management changes. Beyond management changes, good corporate governance instills a level of discipline and accountability that the board may not otherwise be inclined to undertake. It also sends a good message to stockholders.

Should the board of a private company have legal or contractual obligations?

Corporate governance is not required in a private context with the exception of some regulated industries. Board members do, however, have fiduciary and legal obligations to stockholders to fulfill their duties of care and loyalty. Good corporate governance facilitates board members adhering to their fiduciary duties.

Corporate governance should be principle-based as opposed to operating by a rigid set of rules. However, codes of conduct and good committee charters can act as a guide. 

Generally, what are some best practices for corporate governance?

Establish policies that help create an effective board of directors, such as director independence.  

Form an audit committee of independent board members to oversee audits — internal control systems, risk management, detecting and preventing fraud — and meet alone with auditors. Also, if practical, get audited financial statements, as banks and institutional investors may require them. But whether audits are required or not, having accurate financials leads to better-informed business decision-making.

Consider having a compensation committee of independent board members to recommend senior officer compensation and structure, and administer equity incentive plans. Officers on the board shouldn’t be making their own compensation decisions.

Additionally, you may want to have a corporate governance and nominations committee that can identify director candidates, evaluate board performance and establish a code of ethics/conduct. Similarly, other committees can be formed to handle special tasks as appropriate.

How insulated should the board be from the rest of the company?

It’s important to have transparency. At a minimum, transparency ensures clear disclosure of conflicts of interest so everyone understands each individual’s potential personal gain or interest in the matter being deliberated. Beyond that, clear communication among board members and management is important to make good, clear, strategic decisions with the best information available.

Should all private companies establish corporate governance policies?

Avoid having governance policies and committees solely for governance sake. Corporate governance should facilitate allowing the board and management to focus on running the business. You don’t want to consume all of your time just checking the corporate governance boxes.

Private companies should choose elements of corporate governance policies that work best for them. Don’t do it just because everyone else is doing it. Do it to the extent it’s appropriate for your context.

Christopher Ivey is a shareholder and co-chair of the corporate and securities practice at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4121 or civey@sycr.com.

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth

 

Published in Orange County

Cease and desist letters can be used for more than stopping trademark 

infringements — they can be invaluable marketing opportunities.

“There are a lot of ways to turn a possible negative into a real business positive,” says Tom Speiss, shareholder and trademark attorney at Stradling Yocca Carlson & Rauth. The letter could be used to initiate  a conversation about a potential acquisition or licensing opportunity. 

“You want all CEOs and key decision makers to read your letter and say, ‘This is a company we need to meet,’” says Speiss.

Smart Business spoke with Speiss about how to capitalize on cease and desist letters.

What is a trademark cease and desist letter?  

Simply put, if a company owns a trademark and sees another using it in the same space, the letter is intended to get your competitor to ‘cease’ using your mark. Rather than filing suit, which should be a last resort, a well-crafted letter with your position statement and a clear articulation of your rights to the mark may be all you need.   

Are certain elements necessary for the letter to hold legal significance? 

The best offense is a well-planned defense. First, you must be able to confirm receipt of the letter. If you later file suit, you will have proof that your competitor received the letter, giving you a better opportunity to claim damages, especially if willful infringement can be proven. 

Second, the message in the letter needs to be clear. It should state that you have superior rights to the mark, what those specific rights are, and it should include the trademark registration number. Specific is terrific here — there should be no doubt about what you are claiming and how you’d like to remedy the situation. 

How can you ensure the letter has the intended effect? 

Do your research. Make sure you are well within your rights before asserting a claim. Once the alleged infringer  

receives the letter they will likely conduct their own investigation about your company, so be prepared.

Then order a trademark search report. The report will give you a more complete picture including: a list of applications and registrations at the U.S. Patent and Trademark Office, a list of abandoned and pending marks, state registered marks, business and domain names, and Web use. You will want to have a solid case for your claims before you draft the letter. 

How could it be used as a marketing opportunity?

We all have one chance to make a first impression. This is a terrific opportunity to demonstrate your industry prowess and position your company as a viable suitor or partner. Perhaps you are a prime acquisition target. Or, maybe your strategy includes growth by strategic acquisition. Maybe there’s a licensing deal in your future. Whatever the case may be, if the recipient of your letter sees you as a clean and professional organization, this could be one way to start the conversation toward something much greater.

How would you advise companies considering this strategy?

Think with the end in mind. Before you write the letter, think about your desired outcome and talk about it internally.

You will want to make sure the letter is accurate and viable so you can continue to pursue your desired opportunities in the marketplace. Then, put your best foot forward. Keep in mind, your letter may be read by unintended recipients such as news media or your main customers. 

If you write a strident and aggressive letter, your competitor may find a way to use it against you in the marketplace. Don’t let them do that. Make sure you give your recipient a reasonable ‘out’ by not forcing them to mount an aggressive defense out the gate. When done right, you could turn your competitor into an ally.

Tom Speiss is a shareholder at Stradling Yocca Carlson & Rauth. Reach him at (424) 214-7042 or tspeiss@sycr.com.

WEBSITE: Find Tom Speiss’ profile at www.sycr.com/thomas-j-speiss-iii.

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Published in Orange County

With the IPO market heating up, now may be a good time to seriously consider taking your company public. Determining whether your company is a good IPO candidate requires careful thought and professional planning.  

“It is important to start planning now because it could take a year or two before your company is ready,” says Ryan C. Wilkins, shareholder in the corporate and securities practice at Stradling Yocca Carlson & Rauth.

Smart Business spoke with Wilkins about the steps companies should take before going public. 

What do companies need to consider when deciding whether to go public? 

Give careful thought to whether the upside of going public outweighs the downside.  Potential benefits include: better access to the capital markets, the ability to use equity for acquisitions and the cachet associated with being a public company, which can help attract top talent and open doors to new customers or suppliers. 

The drawbacks can include: increased scrutiny on your short-term operational results, the public disclosure of sensitive information that may be used by your competitors and the significant ongoing costs associated with being a public company. These costs principally relate to the audit of financial statements, the preparation and filing of reports with the SEC, and compliance with numerous SEC and exchange listing requirements (and extra personnel you may need to hire to manage these requirements).  

What comes after the decision to go public?

The first thing you’ll need to do is engage reputable bankers. Retaining the right  team is critical because bankers with an outstanding reputation for leading successful IPOs within your industry can send a strong signal about your company to the market.

Next you’ll want to retain reputable accountants and attorneys. These advisers are also key because of the advice they provide during the offering process, as well as the signals they can send to the market.

What happens after the team is selected?

Once your deal team has been selected, the bankers will set an ‘all hands’ organizational meeting to discuss the proposed deal timeline and allocate responsibilities for key action items.  

Next, your advisers will focus on preparing the registration statement, which is the main offering document filed with the SEC. The registration statement provides a detailed discussion of many elements of the company, including its business, management and historical financial information. While recent rule changes under the JOBS Act have made compliance with some of these requirements less burdensome for companies, the preparation of this document is still a major undertaking that will take a period of several months.

The registration statement serves two main purposes. First, it is a marketing document designed to entice investors to make an investment in your company. As a result, the deal team will want to draft the document to position your company in the best possible light. However, it is also a legal document, and misstatements in (or omissions from) the document can result in liability against your company and management team. Because of these competing interests, preparation of the registration statement is a difficult and time-consuming process.

What happens after the registration statement is ready?

Once the registration statement is ready, it is filed with the SEC. It usually takes approximately 30 days for the SEC to review and respond with comments. Depending on the scope of the comments, this comment process can involve multiple iterations over a period of several months.   

While awaiting comments from the SEC, it is important to continue to work diligently on completing other elements of the offering. For example, the company and its advisers will need to prepare a stock exchange listing application, adopt corporate governance policies and negotiate an underwriting agreement with the bankers. At the same time, the executive team needs to continue running the business and meeting projections. This will strengthen your case to potential investors — that your company represents a strong investment.

Ryan C. Wilkins is a shareholder at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4115 or rwilkins@sycr.com.

Website: Find Ryan Wilkins’ profile at www.sycr.com/Ryan-C-Wilkins.

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth

 

 

 

 

Published in Los Angeles

There are very few written policies that are required by law to be provided to employees, but there are certain policies companies can adopt to protect themselves and reduce their liability exposures. This can either be done though a company handbook or by distributing individual policies to employees.

“Courts have said that by advising employees of certain information, the burden shifts from the employer proving something didn’t happen to the employee proving something did. That can be a significant difference in an employer’s ability to defend itself both in terms of success and cost,” says Jeffrey Dinkin, a shareholder at Stradling Yocca Carlson & Rauth.

Smart Business spoke with Dinkin about key policies that should be included in employee handbooks and what other options exist.

What are some required policies suitable for an employee handbook?

All employers are required to have sexual harassment policies that clearly state to whom employees should report complaints. More than one person should be designated, but if that’s not possible, there are outside resources to which you could direct them.

For companies with five or more employees, if the company has leave policies, policies regarding pregnancy disability leave must be included. As a note, under recently enacted legislation there must be continued employer health insurance contributions during the period of pregnancy disability leave for up to four months. The California Family Rights Act also allows 12 weeks of baby bonding leave, with continued employer health insurance contributions now also being required.

Employers with 50 or more employees are covered by the Family and Medical Leave Act, which must be honored when you learn an employee is eligible for family medical leave, and requires a related employer policy.

Also, a new law dictates that employees paid in commissions need to be provided a clearly written commission agreement that describes how commission is calculated, earned and paid. It needs to be signed by, and a copy given to, the employee.

What else could an employer include in an employee handbook?

Employers should have a policy that requires employees to accurately record all time worked (the start and stop times), as well as the start and stop time for meal periods. The policy should clearly prohibit off-the-clock work. It is important to also address meals and rest periods provided by the company.

Technology and communications policies are increasingly necessary. It’s important that an employer indicate that the materials stored and communicated on devices owned by the employer belong to the employer, and it has the right to review and monitor those communications at its discretion.

There’s a lot of attention on bring-your-own-device workplaces. Employers need to communicate that work-related mobile activity is not private and information can be retrieved from a personal device including when the employee exits the company.

Is an employee handbook required?

Companies don’t need to have a handbook, but having one allows them to set forth some essential policies and employee rights and obligations that should be observed.  Handbooks enable everyone to have a reference to their rights and obligations.

What will suffice as notice in place of a handbook?

You can provide individual policies. Employers often provide new hires with the policy regarding sexual harassment, or there can be a separate meal and rest period policy. There is other information that must be provided to employees through permanent postings at the workplace or handouts.

Who should assemble the handbook?

An employment attorney is a good resource. He or she will typically have a model handbook that can provide a starting point that’s then customized to suit the employer’s needs. The chamber of commerce or an HR consultant have similar resources.

However, a big part of employers preparing a handbook is for them to become aware of their obligations and rights so they might better order their employment policies to protect themselves. It’s a good education tool and a chance for an employer to order its thoughts on how it wants to treat its workforce. ?

Jeffrey Dinkin is a shareholder at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4000 or jdinkin@sycr.com.

Website: Find Jeffrey Dinkin’s profile at www.sycr.com/Jeffrey-Dinkin.

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Published in Orange County