Electronic Minute Books 2.0

August 8th, 2011 by Macy Stoneback

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.

There are more efficient, searchable, paperless ways of maintaining corporate records.  The best solution depends on how a company weighs the below factors.  The following table compares the traditional paper method to various electronic options.

Paper Binders

Company Network File Folders

Cloud-based Storage (e.g., box.net, dropbox.com)

Tailored Solution (e.g., Corporate Focus or Secretariat)

Ease of Use

Clunky books

Simple navigability

Login; simple navigability

Feature-rich, so more complex



Yes, limited


Yes, advanced

External Review





Controlled Access/ Permissions

No, unless by lock and key




Accessibility Anywhere


No, unless external access is set up

Yes, via Internet

Yes, via Internet






Make Notes Regarding a Document

Sticky notes




Hyperlink to bulky attachments

No, just paper cross-reference page




Backup Copies





Easy Exportability




Yes, but more involved to export database fields


None, except office supplies and staff time


$10 – $20/mo.



At the very least, this table demonstrates how electronic minute books have significant advantages over their hard copy counterparts.  The main advantages that the cloud-based solutions have over network file folders are external access and search features.  External access is an extremely important factor for at least a few reasons: (1) it is a more secure way to share files than by email, (2) it is deal-room ready for review by potential investors and buyers, and (3) in a separate folder, documents can be shared with the board of directors for board meetings.   Beyond simply storing documents, tailored solutions can offer a richer set of capabilities, such as (1) tracking capitalization and equity grants, (2) preparing stock certificates, (3) storing contact details for officers and directors, and (4) setting reminders.  The added capabilities are rather expensive though for most small companies.

As with any decision whether to move files to the cloud, there are considerations of security and reliability.  Many have written on this topic, but at the very least you would want to look into encryption protocol, administrative, technical and physical safeguards for security, geographic redundancy, the cloud provider’s reputation / longevity, and their policies for file recovery in the event you inadvertently delete a file.

If you decide to use an electronic storage method for your minute book, it is important to develop and follow an organization structure and file naming conventions for the documents.  Here’s one way to organize and name the files (bold titles represent folders):


2011-01-31 Articles of Incorporation

2011-03-16 Certificate of Authority (IL)

2011-07-21 Articles of Amendment


2011-02-03 Bylaws

2011-07-15 Amended and Restated Bylaws

Minutes and Consents

2011-02-03 Incorporator Consent

2011-02-03 Board Consent

2011-04-01 Board Consent

2011-04-01 Shareholder Meeting (This would likely consist of an Agenda, Minutes, Affidavit of Service, and Exhibits, all of which could be combined into an Adobe Portfolio or Binder)


Stock Tables

Capitalization Table (w/separate tabs for snapshots as of various dates)

Equity Grants Tables (w/separate tabs for options, restricted stock, and other types of awards)

Stock Register

Warrant Register

Stock Certificates (or Stock Issuance Statements, if uncertificated)

01.         Jones

02.         Capitol Investment Group

03.         Green Partners

Stock Incentive Plan

ABC Inc. Stock Incentive Plan

Equity Grants

Restricted Stock

2011-05-17 Meyer

Stock Options

2011-04-05 Johnson

2011-04-05 Williams


01.         Capitol Investment Group

02.         Green Partners

Documents will be displayed in alphabetical order, so the file names should start with either the number of the document (if numbered) or the date to force a logical display order.  The organizational folders and file naming conventions will vary depending on the types of documents, but the above structure gives a baseline framework.  Electronic drafts of these documents should be kept in another folder so it’s clear that the above folders include only the final versions.

For companies that already have years of company history stored in hard copy minute books, the decision to convert to electronic minute books is a cost-benefit analysis.  The cost is the time for a staff member or intern to scan, save, and organize the files (perhaps as a down-time project) or the fee to outsource to a digital reproduction service.  Then, companies must train their personnel on the new system.  The benefits are listed in the above table.  Many will conclude that the benefits outweigh the costs.

Let’s face it — organizing minute books is not most people’s idea of fun (unless you’re warped like me).  However, keeping your corporate minute book documents organized, especially electronically, will help you find information you need and speed up the due diligence process for an investment, acquisition, or other deal.  Developing a plan early in your company’s life, or converting from a paper system to an electronic system, will be well worth the time invested.


August 8th, 2011 by Macy Stoneback | Permalink | No Comments |


The Confusing World of Joint Ownership of Intellectual Property

July 26th, 2011 by Matt Storms

A confusing topic for many entrepreneurs is joint ownership of intellectual property.  It often comes up in connection with joint development arrangements, subcontracting portions of work, joint ventures, and other collaborative projects involving intellectual property development, whether it be in connection with software, cleantech, medical device, drug development, or other technology-based initiatives.

Joint ownership of intellectual property can result when two (or more) people co-invent a patentable invention or co-author a joint work of authorship.  Joint ownership can also come up as a matter of a compromise in a contract.

While it may seem fair and a reasonable compromise to declare that all intellectual property developed as part of a collaborative project should be jointly owned, many of the implications of jointly owned intellectual property are counterintuitive.  For instance, joint ownership related to patents is very different than joint ownership of copyright.

So, let us go through the basic implications of joint ownership by the default rules in the United States for patents, copyright, trade secrets, and trademarks.

Joint Ownership of a Patent

In the absence of an agreement to the contrary, each joint owner of a patent may make, use, offer to sell, sell and import the patented invention without the consent of the other joint owners, provided that the joint owner does not infringe the patent rights under a separate patent.  Notably with patents, there is no duty of accounting among the owners of the patent.  In other words, one owner can profit from the patent and does not have to share  the proceeds of the profits with the other owner(s).

To exclusively license a patent to another, however, generally requires the consent of all the owners of the patent.  Also, the consents of all owners of a patent are generally needed for patent enforcement.  This means that in many cases, any single owner can limit enforcement of the rights under the patent.

Joint Ownership of Copyright

Analogous to patents, each owner of a copyright is free to copy, distribute, prepare derivative works based on the joint work, and exercise the other exclusive rights of copyright.  Unlike patents, however, joint owners of copyright do have to account to one another for profits they receive in connection with the jointly owned copyright.  In other words, each owner has to share the profits with the other owners.

To exclusively license copyright requires the consent of all the owners of the copyright.  Also, unlike joint owners of a patent, one owner of a copyright cannot block another owner of that copyright from suing for infringement by simply refusing to join in the suit.  While each individual owner has the right to enforce the copyright in preventing others from using the copyrighted material, another owner can circumvent that enforcement by simply licensing to the “infringer” the right to use the copyrighted material.

Joint Ownership of a Trade Secret

The law surrounding joint ownership of trade secrets is not as well established as it is for patents and copyright.  As with copyright, joint owners of a trade secret likely have to account to one another for profits related to the trade secret.  Although, that conclusion is not entirely clear by case law or statute.  To exclusively license a trade secret likely requires the consent of all the owners of the trade secret.  Sometimes joint ownership can make maintaining secrecy difficult, however, which if compromised could jeopardize the trade secret status.  Although in some contexts, joint owners may have an obligation to one another to keep a trade secret confidential.

Joint Ownership of a Trademark

While joint ownership of trademarks is possible, it is somewhat unusual in that joint ownership is counter to the fundamental purpose of a trademark, which is to serve as a designation of origin from a single entity or person.  A more common strategy is a jointly owned single entity owning the mark.  When there is joint ownership of a trademark, however, as with copyright and trade secrets, joint owners of a trademark likely have to account to one another for profits related to the mark.  To exclusively license a trademark requires the consent of all the owners of the trademark.

Other Issues of Joint Ownership of Intellectual Property

There are a few other general things to keep in mind with regard to joint ownership of intellectual property.  As with the status of joint ownership itself, the parties can modify many of the default rules by addressing the particular issues in a contract, subject to certain legal restrictions such as those related to antitrust.  For example, the parties can decide that only one party is in charge of registration, maintenance, and prosecution of the intellectual property and that the parties must share all royalties in a certain manner (e.g., 70/30).

In addition, the default rules outlined above are quite different in many foreign countries.  For example, in Canada and the U.K., in the absence of an agreement to the contrary, a joint owner of a patent, while having the right to exploit the patented invention, has no right to license it to a third party without the consent of the other owners.

While joint ownership makes sense in certain contexts, many times it does not.  Often joint ownership sounds good in concept at a very high level, but when emerging companies understand the implications of joint ownership of intellectual property they frequently try to avoid it or they contract out of many of the default rules.

July 26th, 2011 by Matt Storms | Permalink | 5 Comments |


Who Owns the Rights to Customer Feedback?

July 6th, 2011 by Matt Storms

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.

With ownership established by law, there are several ways to handle the intellectual property rights related to customer feedback through contracts and policies.  Here are some of the approaches companies take:

“We don’t want your ideas”

One approach is to not solicit or accept customer feedback.  This is the approach that McDonald’s has taken with regard to its Customer E-mail Center Terms and Conditions.  A rationale for this approach is to avoid confusion or conflict of ownership if a customer has the same idea as someone within the organization.  As is the case for other organizations that have adopted this approach, McDonald’s policy is that if a customer ignores McDonald’s request that they not send ideas or suggestions, the customer grants McDonald’s a license to use, copy, and display whatever the customer provides to McDonald’s.  For a variety of reasons, such as the negative public relations associated with not wanting customer suggestions or ideas, most SaaS and software companies do not choose this approach.

“We own your ideas”

At the other end of the spectrum, the recipient of the ideas, authored works, inventions, or processes can take the position that everything that is submitted to the recipient is owned by the recipient.  One sees this approach in a variety of contexts, especially where either contracts or terms of service are not heavily negotiated or where the relevant idea, authored work, invention, or process created will have little value to the creator.  Radiant Systems is an example of this approach.

“We can use your ideas”

Somewhere in between the above two alternatives is the concept that while the creator of the idea, authored work, invention, or process owns it, the recipient has a royalty-free right to use, copy, and display it.  This allows the company to use the customer feedback, but the customer retains ownership of it.  Adobe, Hewlett Packard, SAP, YouTube, and others take this approach with at least some of their offerings and general public feedback.

Ignoring the issue

Sometimes contracts and terms of service ignore the customer feedback issue.  Presumably, this is just an oversight or the companies are taking the position that they at least have an implied license to the feedback.

For many businesses, listening to and incorporating customer feedback into the product or service improvement process not only is good for sound customer relationships but it just makes good business sense.   Similarly, for software and SaaS companies, ensuring that the companies’ contracts adequately address intellectual property ownership and license rights to that customer feedback makes good legal sense.

July 6th, 2011 by Matt Storms | Permalink | No Comments |


Spreenkler Seed Incubator Launch Night

May 13th, 2011 by Matt Storms

Last night I attended the Spreenkler Launch Night in Milwaukee. What a great event! It marked the culmination of months of hard work by the inaugural class of the Spreenkler seed incubator by showcasing the graduating class of founders. More importantly, it marked the initial concerted effort in the area to use a systematic approach to create, refine, and commercialize multiple software/Internet-based products and services. And probably even more importantly, as evidenced by the event last night, the incubator brought together a community of like-minded people from all parts of the region and ends of the political spectrum who are motivated to work together to create exciting new technology companies in our area.

Here’s some information about the new companies:


The first company that presented was Eventcopia. The company ties local businesses with customers by linking existing event calendar systems. It enables companies to provide more detailed information to their customers about the customers’ particular upcoming events, including things to anticipate in connection with the events and special pricing and offerings that the customers can take advantage of in connection with the event. Eventcopia has at least four beta customers in the Milwaukee area.

KnockDown Ninja

KnockDown Ninja is a company that “puts butts into seats.” It uses social media tools in a unique way for event promotion. Specifically, it uses peer-to-peer promotion and rewards those who promote an event through lower prices for the event for the promoters and their friends. The company takes a commission on sales and is current in beta testing.


The third company that presented was CrowdSling. The company organizes and validates opinions. How so? They provide a platform to users to identify issues and for others to take supporting or contrary positions. CrowdSling also enables others to evaluate the quality of the opinions and the ability to sort the opinions by how strong the opinions are rated.


ZoomShift offers a web-based staff scheduling tool. It enables companies like restaurants to create and communicate schedules to employees within in a couple of minutes, rather than a few hours. It also allows employees to change and swap schedules through the application. It recently landed its first beta customer.


The final company that presented was Offermation. Offermation focuses on online advertising for small business. It uses a wizard web-based system to create and monitor online advertising campaigns. It covers online advertising, coupons, text messages, and other advertising mechanisms.

Kudos to Greg Meier, Steve Glynn, Joe Kirgues, Emmanuel Mamalakis, and the rest of the Spreenkler team for their efforts. Exciting stuff. Well done.

May 13th, 2011 by Matt Storms | Permalink | No Comments |


Finders under Fire

December 31st, 2010 by Matt Storms and Paul Page

Small businesses often have challenges with raising capital from investors.  Gaining access to equity capital can be difficult and complying with a myriad of rules and regulations when seeking help in raising funds can be very confusing.  When raising equity capital, many entrepreneurs seek assistance from unlicensed “finders” for introductions to potential investors. Recent government enforcement actions and commentary from regulatory agencies, however, emphasize some of the risks associated with working with unlicensed finders.

So . . . What do Finders Find?

Generally, finders make introductions between investors and companies, but do not actually sell securities or close transactions on behalf of the companies selling the securities.  If a finder is providing anything more than a simple introduction or access to contact information, or is receiving a fee based on the completion of a transaction, then the finder needs to be licensed as a broker-dealer.

Finders are generally not allowed to pitch for the company, develop deal terms, or negotiate for or represent the company, unless they are licensed as broker-dealers.  Both state and federal law require anyone who is involved in the business of selling securities to be licensed.  If a company uses the services of an unlicensed finder when a broker-dealer license is required, then (1) the company may be at risk for civil and criminal penalties; (2) the investors may be able to rescind their investment transaction and demand their money back; and (3) the company’s ability to raise capital in the future may be limited. If the management of a company desires to have someone help develop deal terms for them, have someone pitch for or with them, and receive compensation for those or similar services based on a successful capital raise, then the company will likely have to engage a licensed broker-dealer.

Regulation of Broker-Dealers and Finders

The regulation of broker-dealers was instituted under state and federal law to protect potential investors from abusive and misleading sales practices.  Broker-dealers are required to conduct a reasonable investigation into both the securities that they offer and the issuers of the securities.  They also are required to evaluate whether the securities are suitable for the investors purchasing them. By categorizing finders as broker-dealers, regulators are attempting to prevent them from engaging in the abusive and misleading sales practices that securities regulations are intended to curtail.

There is no specific “finder’s license” issued by the U.S. Securities and Exchange Commission (SEC), and obtaining a state and federal securities license to become a broker-dealer is a significant burden; moreover, most of the requirements to obtain the license has little to do with what finders actually do.  Most finders are well-connected people who only occasionally make introductions of companies to potential investors, so taking securities exams, meeting ongoing securities-related educational requirements, and being subject to the oversight and monitoring of a broker-dealer’s compliance department is generally not worth the hassle to them.

Recent Developments: Finders under Fire

Over the past few years, the SEC and state securities regulators have been more aggressively enforcing restrictions on the activities of unlicensed finders. On May 17, 2010, the SEC denied a request from a law firm seeking a “no-action letter” related to the law firm’s proposed introductions of a client to individuals who “may have an interest” in investing in the client, where the law firm would receive a small percentage of the investments made as a result of the introductions.  In its response, the SEC stated that “transaction-based compensation” is a “hallmark of broker-dealer activity” and that “any person receiving transaction-based compensation in connection with another person’s purchase or sale of securities typically must register as a broker-dealer or be an associated person of a registered broker-dealer.”  Additionally, the SEC stated that a finder who is introducing people who may be interested in buying securities would likely be both “pre-screening potential investors to determine their eligibility” to purchase the securities, and “pre-selling securities” to gauge the investors’ interest. The SEC concluded that compensation tied to successful investments would give the law firm a “salesman’s stake,” triggering the need for broker-dealer registration.

Cash-strapped states have also taken the approach of aggressively seeking civil and criminal penalties against unlicensed finders.  For example, a prominent national law firm acting as a finder was recently required to pay a $550,000 penalty for making introductions and arranging for meetings between a state pension fund’s representatives and one of the firm’s clients seeking investment from the pension funds.  Despite the fact that no investment was ever made, the state’s attorney general prosecuted the firm on the grounds that some of the firm’s attorneys were engaging in the marketing of securities without proper licenses.  State pension funds and other disgruntled investors are also using rescission rights under securities laws to force the return of money invested in unprofitable funds when unlicensed finders were used to assist with the transactions.

The increased legal prosecution of unlicensed finders means that fewer individuals are willing to provide critical introductions to potential investors. The actions by securities regulators reduce the ability of small businesses to raise capital at a time when capital is in short supply. The development of a “finder’s license,” with requirements that are narrowly tailored to the services that finders provide, might help resolve the issues facing finders and smaller companies, but a narrow license for finders is not the direction that state and federal agencies are currently heading towards.

The Difficulty of Using Broker-Dealers for Small Capital Raises

Instead of using a finder, a company seeking investment may want to try to find a licensed securities broker-dealer.   However, there are very few licensed broker-dealers that provide services related to offerings below $5,000,000 in value.  The potential risks and relatively modest compensation related to small offerings leaves little incentive for licensed broker-dealers to act as finders for those offerings.  Sometimes, however, broker-dealers are willing to assist companies with these smaller raises if they believe that a much larger raise is in the company’s future or that it will increase the likelihood of the broker-dealer being engaged in connection with the sale of the company.

To view a listing of registered broker-dealers, along with each broker-dealer’s history of disputes with customers and regulatory and legal problems, the Financial Industry Regulatory Authority (FINRA) offers on its website the free FINRA BrokerCheck®.

December 31st, 2010 by Matt Storms and Paul Page | Permalink | No Comments |


Bridge Financing Documents

November 6th, 2010 by Matt Storms

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.

Take for example the attached bridge financing documents.  With a click of a few buttons and filling in of a few blanks, we can change the attached bridge financing document set from a $1,000,000 bridge financing with a single lead investor but with multiple closings and a 20% discount on the next round’s security to a set of documents that includes a $750,000 bridge financing from five investors in a single closing with 30% warrant coverage and a $5 million pre-money cap on the next round’s valuation for conversion purposes.  To quote a client, “that’s neat.”

November 6th, 2010 by Matt Storms | Permalink | 1 Comment |


Incentives for 2010 Small Businesses Investments

October 20th, 2010 by Matt Storms and Paul Page

Last month, President Obama signed the Small Business Jobs Act of 2010 (Act) into law. One of the incentives under the Act effectively eliminates capital gains tax on certain investments in qualified small business stock that are made before the end of 2010. This incentive under Section 1202 of the tax code may help a number of emerging technology companies to close investment deals before year end. As may be expected though, there are both significant requirements to qualify for the tax incentives as well as limitations on the capital gains exclusions. But, a 0% capital gains tax rate is compelling for those who qualify for the Section 1202 tax incentives.

Scope of Investment Incentives

Under the Act, the capital gains from investments made between September 27, 2010 and January 1, 2011 in qualified small business stock are generally not subject to taxation. The total amount of the capital gains that are eligible for exclusion is capped at the greater of $10 million or 10 times the taxpayer’s basis in the stock. The Act also eliminates the alternative minimum tax (AMT) preference for qualified investments, further improving the potential tax benefits to investors who are subject to AMT.

What Investments Qualify for Incentives?

In order to qualify for the limited capital gains tax exclusion for an investment made during the remaining months of 2010, an investment must be made in an entity that has the following characteristics:

  • a C corporation that meets certain active business requirements–no pass-through entities, such as LLCs, S corporations, or partnerships;
  • a “qualified small business,” which means that it must have less than $50 million in assets (parents and their majority-owned subsidiaries are treated as one entity for purposes of the exclusion); and
  • a “qualified trade or business,” which excludes (among others) banking, insurance, financing, leasing, investing, farming, and hotel businesses, and a variety of service businesses (such as those in health, law, consulting, financial services, etc., or any other trade or business where the principal asset of such trade or business is the reputation or skill of its employees).

Likely the most onerous requirement to qualify for the incentives is the holding period for the investment. Generally, stock must be held by the investor for at least five years to qualify. In addition, the investment must be (a) for the purchase of stock directly from the issuer of the stock or through an underwriter, rather than purchasing previously issued stock from an existing shareholder; and (b) acquired in exchange for cash, property (not including stock), or services.

Who Qualifies for the Section 1202 Tax Incentives?

Angel investors, venture capital firms, and individual investors should all be able to take advantage of the small business investment tax break. Corporations are excluded, however. Gains realized by pass-through entities, such as limited liability companies, partnerships, S corporations, and common trusts qualify to the extent that they meet the five-year holding requirement or transfer the stock to the partners in the entity.

What are Some Notable Exclusions to the Section 1202 Tax Incentives?

Certain stock repurchases made by a corporation before the issuance of the stock may disqualify the original investment from the capital gains tax exclusion. Investors may also disqualify themselves from the tax break if they (a) hold a short sale position for the same stock; (b) acquire an option to sell the stock at a fixed price; or (c) enter into a transaction that reduces the risk of holding the investment.

The combination of the potential tax incentives and an expected increase in capital gains tax rates in the near future means the timing of investments may be critical to maximizing potential tax benefits and limiting exposure to tax increases for investors, which should make investing before year more attractive.

October 20th, 2010 by Matt Storms and Paul Page | Permalink | No Comments |