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Emerging Companies Insider

The Emerging Companies Insider blog focuses on recent and developing areas of the law affecting startup and emerging growth companies and their investors, including choice of entity, shareholders’ agreements, issuance of equity to employees, preparing for and executing a capital raise, exit strategies and the JOBS Act and its impact on how companies can and should raise capital from investors.

Recent Blog Posts

  • Accelerating Start-ups by Deferring Taxes A recently passed House bill would permit certain start-up employees to defer taxes on stock options and restricted stock units (RSUs).  The proposed legislation aims to help emerging companies attract and retain talent by offering equity compensation on more attractive terms. Copyright: yupiramos / 123RF Stock Photo Cash-strapped start-ups often grant an ownership stake to employees to compensate for below-market wages.  This strategy also aligns incentives by giving employees a share of the company’s growth. However, current tax law makes such equity compensation... More
  • PA Legislature Authorizes Payroll Cards On November 4, 2016, Pennsylvania Governor Tom Wolf signed into law Senate Bill 1265.  Act 161 of 2016 (the “Act”) amends the Pennsylvania Wage Payment and Collection Law (the “WPCL”) and allows employers to pay wages and other compensation via the use of debit cards commonly called payroll cards. This Act, which takes effect on May 3, 2017, supersedes previous case law which held that the use of payroll cards violated the WPCL. Copyright: nyo09 / 123RF Stock Photo There are some... More
  • December 1, 2016 Overtime Rules Blocked by Judge On November 22, Judge Mazzant of the U.S. District Court for the Eastern District of Texas issued a nationwide injunction against the Department of Labor blocking its Final Overtime Rule, which was set to go into effect on December 1, 2016. The Final Rule would have more than doubled the Fair Labor Standards Act (FLSA) salary test for executive, administrative, and professional employees from $455 per week to $921 per week. White-collar employees earning below the $921 threshold would have... More
  • Where Do Non-Compete Agreements Go from Here? Not long before the election, the Obama Administration issued a “call to action” statement in which it urged state governments to restrict many of the non-compete agreements that employers often impose on employees. The statement calls on state legislatures to adopt certain “best practices” for regulating employee non-compete agreements, including: banning non-compete clauses for certain categories of workers, such as workers under a certain wage threshold, workers in certain occupations that promote public health and safety, and workers who are unlikely to... More
  • Thinking of Using Payroll Debit Cards? Soon in PA (UPDATED) Payroll debit cards can be a useful way for employers like franchisees to pay wages to employees. They are convenient for both employers and employees and, especially for unbanked employees, a way of having ready access to earnings. A recent decision from the Pennsylvania Superior Court in Siciliano, et al., v. Mueller, et al., 2016 PA Super 229, clarifies that mandatory use of payroll debit cards is presently barred by the Pennsylvania Wage Payment and Collection Law (the “WPCL”). Copyright: kues... More
  • Should You Tolerate Hold-Over Contracts? A recent ruling by the Nebraska Supreme court reminds franchisors to properly renew their Franchise Agreements with their franchisees as they may lack contractual protection, and in the least clarity, as to their rights in the case of hold-over franchise arrangements.  Though in the franchise context, much of the lessons learned from this case may apply to any contractual arrangement where the parties have not tended to the proper renewal of the contract.  I find this happens fairly frequently for... More
  • Should You Tolerate Hold-Over Franchisees? A recent ruling by the Nebraska Supreme court reminds franchisors to properly renew their Franchise Agreements with their franchisees as they may lack contractual protection, and in the least clarity, as to their rights in the case of hold-over franchise arrangements. Copyright: styxclick / 123RF Stock Photo In Donut Holdings, Inc. v. William Risberg, — N.W.2d —, 294 Neb. 861 (Neb. Sept. 30, 20160), the Nebraska Supreme Court affirmed a trial court’s decision that a franchisor was not entitled to recover lost royalties... More
  • FTC Issues New Data Breach Response Guide The FTC has issued an updated data breach response guide. The guide provides an outline of steps the FTC believes your company should follow in the event of a data breach. They fall into several broad categories:  securing operations, fixing vulnerabilities, and notifying appropriate parties. Under the heading of “securing operations,” the FTC suggests things such as assembling a team of forensics and legal experts, securing physical areas, taking servers and other affected equipment offline, and conducting an investigation into what... More
  • California Limits Choice of Law and Forum in Employment Contracts In a development that applies to all businesses operating in California, Governor Jerry Brown recently signed a new bill which prohibits employers in California from requiring employees, as a condition of employment, to submit to the law of another state or foreign jurisdiction for disputes related to their employment. Applicable to employees who primarily reside and work in California, the new law provides that employers may not include provisions in employment agreements that require the adjudication of claims outside of California,... More
  • Founders Keepers? Even Founders Must Purchase Their Stock Founding a company is an exciting moment in an entrepreneur’s career.  But even on Day 1, there are steps entrepreneurs should take to avoid major financial and diligence issues in the future.  In this series of posts, we’ll cover some basics that often trip up founders to help guide you through those early steps. Entrepreneurs often assume they own their company de facto (i.e., by virtue of the fact that they formed it, without any other required action)- a proposition that... More
  • Is Brand Control the Same as Employment? In Williams v. Jani-King, counsel for Jani-King has requested the Third Circuit en banc reconsider its decision to allow class certification to franchisees who claim to be employees, rather than independent contractors. Although the Third Circuit did not reach the merits of the case, which claims misclassification of the franchisees as independent contractors, the Third Circuit considered the controls inherent in the franchise relationship as a factor under Pennsylvania law.  In a strong dissent, Circuit Judge Cowen recognized franchising as a... More
  • Someone Quit? Act Immediately to Protect Digital Data. A recent article in Wired instructed employees in how to digitally erase all their stuff when they quit their jobs. The problem is that the author drew few distinctions between wiping computers of all personal items–family photographs or videos, personal emails, etc.–and company-related work product. Most franchisors and franchisees will take the position–and rightly so!–that employees’ work product on their company-issued laptops, cell phones, and voicemail accounts is company property. The corollary to the Wired article is what the employer should shut... More
  • California Governor Vetoes New Franchise Legislation On September 22, 2016, California Governor Brown vetoed two pieces of franchise legislation which had been passed by both houses.  Both of these bills originated with the State Bar of California’s Franchise Law Committee. The first bill is Assembly Bill 1782.  Effectively, Bill 1782 provided for a Limited Trade Show Exemption, which means that a franchisor can attend a trade show in California without being registered in California.  The provisions of the bill included numerous conditions for allowing a franchisor to... More
  • “Give Me Your Startups”:  Newly Proposed Rule Opens Borders to Foreign Entrepreneurs A new rule proposed by the U.S. Citizenship and Immigration Services (USCIS) grants limited entrée to entrepreneurs establishing stateside startups.  The “International Entrepreneur Rule” would permit the Secretary of Homeland Security to offer parole (temporary permission to be in the U.S.) to individuals whose businesses provide “significant public benefit.” Who Qualifies? Copyright: dvrcan / 123RF Stock Photo So what is a “significant public benefit”?  According to the proposed rule, an entrepreneur can meet this standard by demonstrating that the startup has substantial potential... More
  • Alert: FDA Says Dietary Supplements Subject to Strict New Guidance Copyright: newrossosh / 123RF Stock Photo In an Alert published yesterday, I provided an update on new FDA guidance regarding dietary supplements: Dietary supplements that came on the market after October 15, 1994 must have a new dietary ingredient notification (NDI) to the FDA, according to an extensive new guidance document issued on August 11. This includes manufacturing processes on supplements prior to this date that change the identity of the ingredient such as a different chemical structure or composition, use of extraction... More