Archive for the ‘Forms’ Category

Wisconsin Incorporation Documents

We figured it was about time at least one law firm did it: we are making available publicly sample Wisconsin incorporation documents for an emerging technology company startup: http://alphatechcounsel.com/Wisconsin-Incorporation_Documents.html.  The documents include Wisconsin Articles of Incorporation, Bylaws, Restricted Stock Agreement, initial consents, Invention Assignment Agreement, etc.

Like many of our clients, we have developed a way to use technology to increase efficiency while providing value.  We prepared the suite of sample incorporation documents by selecting from alternatives of a significant number of variables that are available for the automated systems that we have developed internally.  We programmed these variables into our incorporation documents to help us prepare the documents efficiently and accurately. We are making these documents available for informational and reference purposes.

In addition to automating incorporation documents, we have also automated bridge financing documents, employment and consulting documents, equity grant documents, and confidential disclosure agreements, among others.

Hopefully the sample documents will prove to be a good reference source for Wisconsin emerging company startups.

By Matt Storms | Permalink | 1 Comment

 

Electronic Minute Books 2.0

As a paralegal, I have done my fair share of preparing and updating corporate minute books.  Keeping an organized, complete minute book is necessary for establishing the legal record of actions properly documented, retrieving information, and quickly disclosing documents to investors for due diligence, among other reasons.  Despite the proliferation of electronic files, physical copies of minutes and consents are still typically kept in three-ring binders or those confounded hard red books.  Neither Wisconsin nor Delaware laws require that minutes be kept in original, hard copy. Read the rest of this entry »

By Macy Stoneback | Permalink | No Comments

 

Who Owns the Rights to Customer Feedback?

Suppose a customer proposes an idea to improve the software or SaaS offering of a company. The company likes the idea so much that it integrates the idea into its next upgrade. The question becomes, who owns the idea that is integrated into the software or SaaS offering?

As a general rule, the person who creates an idea, authored work, invention, or process, owns the related intellectual property.  There are exceptions to the general rule.  But, in the software and SaaS arena involving licensors and licensees, the general rule applies in most circumstances. Read the rest of this entry »

By Matt Storms | Permalink | No Comments

 

Bridge Financing Documents

One of the sets of documents that we automated at AlphaTech is the bridge financing documents for an emerging company.  Attached is a sample of the documents: Convertible Note and Subscription Agreement

Instead of just using form documents as most law firms do, robust automation allows us to deliver common document sets for emerging companies in a more efficient manner.  So what else does “robust automation” yield?  It improves document accuracy, provides a valuable knowledgebase from which to draw, and enables us to deliver common document sets to our clients quickly.  It also frees up time of our lawyers to enable them to spend less time on basic contract drafting and more time on activities that afford our clients higher value. Read the rest of this entry »

By Matt Storms | Permalink | 1 Comment

 

Preparing Board Meeting Minutes: Necessary Evil and Corporate Drudgery?

For many entrepreneurs, the idea of preparing minutes of board meetings seems like a thankless chore, especially when there are only two or three directors. It may be tempting to skip this corporate formality if the purposes for it are not understood. Also, many entrepreneurs wonder what magic language should go in them to make them “legal.”

Reasons for Preparing Board Meeting Minutes

There are several reasons for preparing good corporate minutes:

  1. State Law Requirements and Corporate Bylaws. State laws generally require corporations to prepare and keep minutes of board meetings. According to Delaware state law (a state where many companies are incorporated), “one of the officers shall have the duty to record the proceedings of the meetings of the stockholders and directors in a book to be kept for that purpose.” The Wisconsin Statutes do not require corporations to take board minutes unless requested by a director, but most corporation bylaws require the corporation to maintain adequate minutes of board meetings.
  2. Reduce Personal Liability Exposure. Preparing and maintaining proper corporate minutes may help reduce the risk of personal liability. Directors have a fiduciary duty of care, meaning that they have to show that they sufficiently analyzed the alternatives before making a decision. They also have a fiduciary duty of loyalty, meaning that they must act in the best interest of the corporation and its shareholders, above any of his or her own interests. Maintaining good corporate minutes can help to establish that the duties of care and loyalty have been fulfilled. Also, by having good corporate records, there may be less chance of a third party “piercing the corporate veil” by claiming that the corporation is nothing more than a sham of the owners who disregard the separateness of the entity and should not receive the benefits of limited liability protection.
  3. Third Party Requirements. Another reason to keep minutes is to provide evidence of approval of transactions involving third parties (e.g., banks, investors, and strategic partners). In addition to being a state or bylaws requirement to approve significant transactions, some third parties require evidence of such approval as a condition of closing.
  4. Reduce Likelihood of Certain Types of Litigation. In a 2006 case, the Supreme Court of Delaware described best practices for approval of an action by a board committee and concluded that the company could have avoided decade-long litigation if proper minutes had been recorded for every meeting with detail regarding the information that was used to make the decisions.
  5. Creation of a Historical Record. A bonus of preparing minutes is that the company will accumulate a searchable, historical record of all of the significant actions taken by the company. By either gathering signatures electronically or by scanning and combining the final, signed minutes into a searchable PDF binder, they will be easily searchable and ready for delivery to future investors, bankers, and auditors who require them for a transaction or audit.

Read the rest of this entry »

By Macy Shubak | Permalink | 1 Comment

 

Paper Stock Certificates: A Thing of the Past?

As public companies are increasingly opting out of providing paper certificates to shareholders in favor of providing electronic registration (a movement known as “dematerialization”), most private companies and their shareholders have yet to follow suit.  Issuing uncertificated shares is allowed under most states’ laws, and, as many on the public company side can attest, numerous cost and time efficiencies can be gained by going paperless with shares.  As we accept electronic statements to represent our public company holdings and exhibits to Operating Agreements to note our LLC ownership interests, do we really still need as evidence of our private company ownership a hokey, bordered piece of paper with an eagle on it?

Disadvantages of Issuing Paper Stock Certificates

Consider the inefficiency and chances for errors in the typical cumbersome process to issue paper stock certificates:  Read the rest of this entry »

By Macy Shubak | Permalink | No Comments

 

Wide Adoption of Electronic Signatures and Electronic Contracts Overdue

While almost a decade has passed since the federal Electronic Signatures in Global and National Commerce Act (ESIGN Act) became law, most companies have yet to take advantage of the opportunities that the act affords. Other than online click-wrap license agreements and Internet sales terms and conditions, most companies are still entering into most of their agreements on paper.  Having moved beyond faxing in most cases, the norm these days for most businesses is to print, sign, scan, and email the contract. In large or important agreements, companies typically also exchange multiple sets of originals, so that each side (and their legal counsel) have original copies. In most situations, this elaborate process is unnecessary.  For a variety of reasons, we often encourage clients to go paperless with their contracts when appropriate. 

Software and Internet Services that Assist with Electronic Contracts

There is some encouraging news that going paperless in the contracting process may become more prevalent.  Adobe recently released a free beta version of its online eSignatures software-as-a-service (SaaS).  The SaaS offering is easy to use and may spur more adoption of e-signature technology.  Low cost competitive products from DocuSign, Arx, and AlphaTrust are also worthy of consideration.  These and other e-signature vendor products offer the following benefits:

  • E-signatures speed up the contracting process.   The extra steps of printing for signature, scanning, preparing a cover letter/fax, and mailing/faxing are removed. 
  • E-signature service can be accessed virtually anywhere.  All that the parties need is a computer with an Internet connection.  No need for the traveling executive to find a printer and scanner/fax or have the hotel staff print the document, prepare a coversheet and fax the signed document back. 
  • Electronic contracting saves paper.  There is no need to print the agreement, so it supports the virtually paperless office, such as ours.

In addition, traditional concerns over security have mostly been allayed.  The e-signature vendors typically offer one or more security measures to authenticate the sender and verify that the document has not changed since it was signed.  Many e-signature vendor offerings are SAS 70 Type II compliant and upload and download over an SSL encrypted channel.  Audit trails show when and by whom documents were sent, viewed, and signed.  After signing and downloading, with most of the products, the party sending the contract typically has the ability to delete the electronic contract from the cloud.

Laws Related to Electronic Contracts

Numerous laws in the United States and abroad recognize the legitimacy of electronic signatures.  The federal ESIGN Act and Uniform Electronic Transactions Act (UETA) serve to establish generally the legal equivalence of electronic records and signatures with paper writings and manually-signed signatures, removing barriers to electronic commerce.  Forty-seven states have adopted the UETA, a model law for states to enact to cover contracts governed by state law; the remaining states, New York, Illinois, and Washington, have each adopted their own statutes governing electronic transactions.  Under the UETA, an electronic signature is attributable to a person if it was the act of the person, which can be shown by the effectiveness of the security procedures for signature authentication and the context and surrounding circumstances at the time of the document’s creation.  No one can be required to use a digital signature or to accept a digital signature.  Besides the United States, the European Union has adopted the Electronic Signature Directive (1999/93/EC) and numerous countries have adopted electronic signature laws.   

How Electronic Signatures Work

These are the basic steps to send a document for signature using an electronic signature solution.  The initiator sets up a password-protected account, uploads a document, types the email addresses of the recipients, composes a short cover note (if desired), clicks to sign (or chooses to sign last), and sends.  Recipients receive an email with the customized message and a link to a document to sign.  Recipients are not required to pay to use the electronic signature service, but they may need to set up an account.  After completing any required authentication checks, they click on the link, review the document, and click to sign and send.  After the document is fully signed, all parties receive an email with a link to the document with digital signature stamps from each signing party.  In the case of Adobe’s eSignatures SaaS offering, Adobe will apply a certifying signature, appearing as a blue ribbon, indicating that the document has not changed since it was signed. 

Additional E-Signature-Based Offerings that Facilitate the Electronic Contracting Process

E-signature vendors with low-cost software or services offer many of the following additional features (some of which Adobe may incorporate into later versions):

  • Signatures in multiple places and on specific lines (whereas Adobe’s eSignatures SaaS offering just appends a signature page to the end with all the electronic signatures)
  • Fill-in-the-blank forms and agreements, guiding receiving parties through the document with signature flags, initial flags, and instructions, and preventing a party from signing a document with an incomplete blank
  • Ability to compare the signed document to the encrypted hash captured at document signing to confirm that the signature is valid and the document has not been modified (whereas Adobe’s blue ribbon indication is immediate)
  • Signing parties other than the sender do not need to subscribe to the service (free)
  • Folders to deliver multiple documents in logical groups
  • Workflow processes for internal approvals
  • Access via mobile devices
  • Optional multi-layered authentication, such as passwords, ID checks administered by third parties with questions from public and private databases, security fobs, etc.
  • Integration with business enterprise software 
  • Server-based as well as hosted solutions
  • Custom branding and instructions 
  • Optional behind-the-scenes digital signature cryptology

Using Digital Signatures for Additional Security

A subset of electronic signatures, digital signatures provide more checks to ensure security, but more time and cost can be involved in administering them.  Digital signature technology can also be used to control who has access to a document or who can sign or certify it.  Digital signature technology is the gold standard of security in terms of validating the authenticity of the signature and preserving the integrity of the document.  This is due to the secure method of locking and unlocking the signatures on the document.  A digital signature, also known as a digital ID, requires a private key of the signer and a public key for the receiving party to validate the signature.  Many large organizations implement a public key infrastructure to issue, authenticate, and revoke digital IDs used for digitally signing documents.  Most receiving parties require that a certificate authority, such as VeriSign or GlobalSign, validate the authenticity of the public key.  There are fees in the hundreds to thousands associated with using a Certificate Authority.  David Youd explains digital signature cryptology in simple terms and pictures (http://www.youdzone.com/signature.html).   While it is not difficult to establish a digital ID or validate another party’s digital IDs, some education and administration is involved. 

When to Use Handwritten Signatures vs. Electronic Signatures on Contracts

Although electronic signatures are in most cases recognized as being equally valid as handwritten signatures, there are occasions when handwritten signatures may be more appropriate.  When doing a substantial deal with a party in a more formalistic country, such as Japan, China, Spain, and Italy, a personal signing ceremony can be a culturally sensitive choice.  Parties might also prefer to sign in person or exchange wet ink signatures when stakes are high or emotions run deep, as with the sale of a business.  In addition, under law, there are certain types of agreements that cannot validly be signed electronically.  For example, in many places, wills, testamentary trusts, family law documents, and U.C.C. documents must be signed by hand.  If in doubt as to whether a contract may validly be signed electronically, check with your attorney first.  Also, government regulators in some highly regulated industries such as pharmaceutical and financial services regard the use of digital signature technology favorably for regulatory and legal compliance. 

Just as signing and emailing documents became prevalent with widespread adoption of PDF files and improvements in scanners, so, too, are electronic signatures likely to become more mainstream as people discover the increasing efficiency and security of e-signature technology.

By Matt Storms and Macy Shubak | Permalink | 2 Comments