General Practice, Solo & Small Firm Division

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Practice Area Newsletter

American Bar Association - Defending Liberty, Pursuing Justice

SUMMER 2011

Vol. 7, No. 4

 

BUSINESS LAW

 

Selected Letters for Small Business Lawyers

By Jean L. Batman

[EDITOR'S NOTE: Below are a sampling of some selected letters from a book written by Jean L. Batman. This book contains many valuable letters that can be used when writing to a business client. I find this book quite helpful in giving guidance to the attorney in everyday practice when communicating. It also has sample letters terminating contracts, sample letters of intent, and many more. In future issues, other sample letters will be published. JLS.]

Marketing Letter Featuring an Attorney and Reception

{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}

RE: FIRM Welcomes ATTORNEY

Dear {Salutation}:

Please join us in welcoming ATTORNEY to the FIRM as a Partner in the CITY office, where she will continue to focus her practice on general corporate, securities, and commercial transactions.

ATTORNEY serves as outside General Counsel to a variety of companies and individuals engaged in a broad range of industries, including Real Estate Development, Financial and Professional Services, Manufacturing, Software, Retail, Biotechnology, and High Technology. She has lectured and written on a number of topics of interest to the business community, such as Venture Financing and Finding Practical Solutions to Common Business Problems.

[ATTORNEY leadership positions, memberships, and awards.]

ATTORNEY is a graduate of the LAW SCHOOL (J.D.) and UNDERGRADUATE UNIVERSITY (B.A. in Political Science).

We invite you to meet ATTORNEY at the following informal reception welcoming her to FIRM:

DATE:
TIME:
LOCATION:
RSVP:

Thank you.
Very truly,
FIRM NAME
Lawyer Name

Seasonal Greetings

{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}

RE: Happy Holidays!

Dear {Salutation}:

This is the time of year we reach out to friends, family, and colleagues to let them know how much we appreciate them and to give our warmest wishes for the holidays and the New Year. We don’t say it often enough—thank you!

It has been a busy year for many of you forming new entities, learning to grow, forging strategic partnerships, and closing financing transactions, both at home and at the office. We’re proud to have been at your side each step of the way.

Best wishes for an enjoyable holiday season and a very happy New Year!

Warmly,
FIRM NAME
Lawyer Name

Estimating Legal Expenses for a Start-up

{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}

RE: Estimating Legal Expenses for Your New Venture

Dear {Salutation}:

I enjoyed reading your Executive Summary. I see a lot of potential for your business concept. For what it’s worth, I have attached a copy of the template I give to my clients for their Executive Summaries.

Below is a discussion of the some of the types of legal expenses you may encounter in your new venture. But first, I have to give you my disclaimer about estimates (which you’ll see again in our engagement letter, if we get to that stage):

Any estimate of fees and costs associated with our engagement is only an estimate, not a fixed fee or an agreed limit. The actual fees and costs incurred will depend on a variety of factors, some of which are beyond our control. At the same time, we understand that you may wish to establish a budget for your legal expenses and will work with you to establish such budgets on request. We will also work with you to help make the most efficient use of our time as practicable. Although we will perform our professional services to the best of our ability, we trust you understand that we cannot guarantee, and we have not guaranteed, any outcome.

We should probably talk further about what type of entity makes the most sense for this business. However, based on your stated goal of taking the company public, and the likelihood of having to raise venture capital on the way to an IPO, it probably would be best to form a corporation, and it may be beneficial to form it in Delaware rather than California. Legal fees, filing fees, filing service, and agent for service of process costs will vary depending on where the company is formed and the number of states in which you must qualify to do business, among others elements.

A Shareholder Agreement among founders is highly recommended. Budget some cost for a basic agreement to document rights of first refusal, buy/sell provisions, etc. This can take a lot of time and cost a lot more if the founders don’t readily agree on a valuation method, vesting requirements, or transfer restrictions in general—or don’t really know what they want to cover. However, I think it is worthwhile doing, even if it becomes pricey, because I have seen companies fail over disputes among founders in the absence of an agreement (not that an agreement is any guarantee, but it can be a big help).

Investor documentation and securities law compliance in connection with early-stage fund-raising can be done relatively inexpensively if you limit yourself to “Accredited Investors” as defined in Rule 501 of Regulation D under the Securities Act, a small number of investors, and raise money in California only. An Accredited Investor has individual income (exclusive of the income of his spouse) in excess of $200,000 for each of the two most recent years, or joint income with his spouse in excess of $300,000 in each of those years, and reasonably expects the same income level for the current year; or has (either individually or with his spouse) a net worth in excess of $1 million. Some entities also qualify as Accredited Investors. Accredited Investors are generally deemed to be capable of protecting their own interests in making an investment decision and should be given full access to company information and management in the conduct of their due diligence, subject to an appropriate confidentiality agreement.

Your costs will also be lower if all of your investors are in California, as you will avoid having to file multiple securities law notices and pay multiple filing fees. However, having investors in a number of states is not a real problem (as compared to accepting non-Accredited Investors); it will just mean we’ll have to file notices with the SEC and each state in which you sell shares, and pay the applicable state filing fees, as opposed to a single notice and a single fee if everyone is in California. Therefore, your legal costs in connection with early-stage fundraising can vary dramatically. Based on our telephone conversation the other day, if you’re only raising funds from one or two Accredited Investors in California, investing in Common Stock (as opposed to Preferred), your legal budget for the offering can definitely be on the lower end of the spectrum. However, if it turns out your investors want venture capital–style documentation (e.g., preferred stock, shareholder agreement, voting agreement, legal opinion, etc), which more and more high-net-worth investors (or “Angels”) require, your legal costs will be much higher.

Trademark registrations are recommended, and the cost varies depending on the number of marks and the number of classes of goods in which each mark is to be registered. The USPTO filing fees for applications completed online are currently $275 for each class of goods or services for each mark being registered. Our fees will depend on the amount of time spent. Professional search costs (to determine availability) can be expensive, but a lot of my clients do their own searches using online resources and skip right to the application itself if the mark appears to be available. Of course, relying on your own research could result in an investment in a mark that you are ultimately not able to register.

There will, no doubt, also be other contractual arrangements to document along the way, such as for production, manufacture, distribution, etc. Also, if you don’t already have one, you should be using a Nondisclosure Agreement (NDA) before you reveal any details of the proposed product/business to third parties. I can prepare a form NDA for you if you need one. Also, I have sample agreements for a wide variety of circumstances that I can use to prepare whatever types of agreements you may need along the way. However, it should be noted that third parties often insist on using their own forms, in which case you’ll want me to review and/or revise them before you sign. I’d suggest including room in your budget for these sorts of ongoing legal drafting and review projects that inevitably arise along the way. Some months may go by without using the budget, and some months may burn up several months’ worth of the budget. Simple form contract preparation or review can take as little as one-half hour, while complex contractual arrangements can cost a fortune to complete. I don’t imagine you’ll encounter anything too complex in the beginning, but since you don’t know exactly what you will encounter, you would be wise to have something in your budget on an ongoing basis.

Rather than going on and on, let me just say that I am very efficient with my time, having practiced in this area of law for many years, and will work with you to attempt to keep your legal costs well within your budget.

Please do not hesitate to call me with any questions with regard to the above. I hope to have the opportunity to work with you on this exciting new venture.

Very truly,
FIRM NAME
Lawyer Name
Enclosure

Forwarding a Template for an Executive Summary

{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}

RE: Drafting an Executive Summary

Dear {Salutation}:

Attached please find an Executive Summary template you can use to approach prospective investors. You may want to require a nondisclosure agreement before you share a detailed business plan with anyone.

I would be happy to review your draft Executive Summary for suggested changes from a legal perspective. At the very least, please retain the restrictive language on the front of the template and the safe harbor language at the end.

Your Executive Summary should be revised each time there is a material change to any of the information contained in the summary. Be sure to review your summary periodically with an eye toward necessary changes.

Finally, please remain mindful of the type of prospective investor you approach, as we discussed in connection with the securities law requirements for your proposed stock sale.

Please do not hesitate to call me with any questions in regard to the above.

Very truly,
FIRM NAME
Lawyer Name
Enclosure

Letters for Small Business Lawyers

Did you find this article helpful? Do you think more information like this would help you? More information is available. This material is excerpted from Letters for Small Business Lawyers by Jean L. Batman, 2011. Pages 3, 9, 11–12, and 127. Copyright 2011 © by the American Bar Association. Reprinted with permission. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. GP|Solo members can purchase this book at a discount.

Jean L. Batman founded Legal Venture Counsel, Inc. in 2004 to provide outside general counsel services to investors, entrepreneurs, and small businesses. Prior to forming Legal Venture Counsel, Ms. Batman was a Partner in the San Francisco offices of Duane Morris LLP, one of the country’s 100 largest law firms. As outside general counsel to a variety of companies and individuals, Ms. Batman provides business and financial legal services to privately-held entities operating in a broad range of industries including real estate development, financial and professional services, manufacturing, software, retail, biotechnology/specialty pharmaceutical, and high technology.

© Copyright 2011, American Bar Association.