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2 Apr

Sheheryar Sardar and Benish Shah were recently on a panel regarding Equity Crowdfunding in the wake of the Jobs Act.  As Title III of the Jobs Act is what directly affects most equity crowdfunding platforms and startups looking to use them, we thought it would be helpful to summarize some of the main points:

1.  Deals will now allow investments from non-accredited investors.  The term “non-accredited investor” is thrown around a lot, but most people don’t know what it means.  Non-accredited investors are those that are below a certain threshold of income that prevents them from qualifying as accredited.  In simple terms – it’s the SEC trying to protect people from losing all their money in a bad investment.  To do that under Title III, there are camps on how much non-accredited investors are allowed to invest in a given year:

  • For income below $100,000, invest a max of $2,000 or 5% of income or net worth
  • For income over $100,000, invest a max of 10% of income or net worth
  • Investments made in a Title III crowdfunding transaction can’t be resold for a period of one year

2.  Restrictions on how much you can raise.  Companies are restricted to raising $1 million in a 12-month period.  For acceleration purposes, this limit may have larger consequences for companies.

3.  High costs associated with raising under Title III.  Higher compliance and reporting costs that in many instances require an audit.  Let’s break this down in real world terms:  your company is trying to raise $300,000.  You will end up shelling out approximately $20K before you can get approved to raise, and then around $80K+ if you raise.  For a startup looking to raise a seed round, almost half of it may end up going to fees.

4.  Disclosures. Disclosures. Disclosures.  Companies raising under Title III of the Jobs Act must disclose financial statements of the company that, depending on the amount offered and sold during a 12-month period, would have to be accompanied by a copy of the company’s tax returns or reviewed or audited by an independent public accountant or auditor.  Disclose officers and directors information, and owners of 20 percent or more of the company.  They must also disclose: use of proceeds, price to the public of the securities being offered, target offering amount, deadline to reach offering amount, and whether excess investments will be accepted.


Questions about equity crowdfunding Email Sheheryar Sardar at

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Buying a pre-existing business – the need to know.

11 Feb

letter of intent sardar law firm

We get a lot of requests to meet up and talk business with professionals that want to switch to “business.”  Many times those professionals are looking to buy a business but have not had any experience on how to do so.  So we thought it might be helpful to lay out some tips on the first part of formalizing a deal to buy a business:  the letter of intent (referred, brilliantly, as the “LOI” during conversations).

The letter of intent is not the end of a negotiation to buy a business; in fact, it’s the first step to formalize mere discussions into an actual business deal.  A letter of intent is way to draft out the assumptions and views of both parties regarding the critical elements of the business deal.  It’s a tried and true concept:  getting it on paper is the first path to understanding what you are getting. Note:  remember, the letter of intent is NOT the actual agreement that governs the buy/sell of a business; in fact, it is not an agreement in the contractual sense and should not reflect an agreement (that’s kind of key). 

(Some) Things to include in your letter of intent when purchase a business

First. This is not an exhaustive list.  These are guidelines.

#1:  Mark the document as a Letter of Intent.

The document should be clearly marked as a letter of intent and not a binding contract.  Your lawyer should include such delineating language in the subject, title, or first paragraph of the LOI to ensure that it is clearly stated and not lost in any fine print.  This prevents your LOI from being arguably used as a contract or offer.

#2:  Good faith language. 

Your LOI should include (and some states may actually impose this via statute) the requirement that all negotiations must be done in good faith.  This sounds like an obvious, clearcut idea but “good faith” can be construed in different ways.  When including a “good faith” statement, parse it out and define it.  Or at the very least, define what can be considered “bad faith” to ensure that all parties are on the same page.  For example, your “bad faith” definition can include the barring of the parties from using the negotiation and diligence process as an information collection expedition for competitive purposes.

#3:  Is it a sale of stock or assets.

We’ve discussed before the importance of understanding the difference between stock and asset purchasing deals from the seller’s side.  It is just as important from the buyer’s side of a deal. Your LOI should make it clear what the parties are negotiating for.  This core question is going to be the basis for the deal structure itself, and should be addressed first rather than last.

#4: The purchase price roadmap. 

While the LOI is not an agreement, it should include the potential purchase price as well as what the purchase price is based on.  This purchase price, as well as the under lying assumptions, will be proved or rendered incorrect during the due diligence process.  If the LOI is clear about how the potential purchase price was reached, parties will be able to adjust it better per findings in the due diligence process.

#5:  Payment method and delivery. 

Will it be an all cash deal, a note, or an alternative retained interest deal?  The LOI should state this so that, again, all parties are on the same page.  Make a note of what the payment method will be, as well as the payment delivery method.

Withe letters of intent, the key thing to remember is that while it is not an agreement between to parties for the purchase or sale of a business, it is the first step of formalizing negotiations to enter into a business deal.  Your LOI should address major points of the potential deal to help all parties get on the same page before wasting valuable time.

Questions about letters of intent?  Email Sheheryar Sardar at

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B the Change You Wish To See: Is a Benefit Corporation Worth It?

8 Oct

benefit corporations

The deeply flawed protagonist of the iconic show Mad Men once remarked, “There is no big lie. The universe is indifferent.” If Don Draper witnessed what precipitated the financial crisis of 2008, he may have conceded the big lie in bewilderment.  We all know how the story goes since – there is public outcry over the home mortgage crisis and the ensuing government bailout, Congress enacts legislation to institutionally reform the financial sector and capital markets, and, one could posit, the universe isn’t so much indifferent as it is self-correcting. Still, while much of the reform may seem cosmetic, imagine a state legislator or civil servant-lawyer in Maryland thinking about the dire state of things and, to make things better, comes up with one novel solution – a private corporation that benefits people and the environment, thereby making people feel good about business. Maryland quickly passes legislation in 2010, the first state in the union to do so, and voila, the benefit corporation is born.

So, what’s the deal? One would think having the word ‘Benefit’ before ‘Corporation’ may provide a garden variety of practical advantages, but a deeper look begs the question: does a Benefit Corporation really live up to its name? To add further confusion, a Benefit Corporation, a legal entity created by state statute, is distinct from a B Corp, which is a classification designation obtained through a strict, rigorous process that inherits a massive amount of ongoing scrutiny.

Come Again? Please Distinguish

Remarkably, the only minimum requirement to become a Benefit Corporation is the motivation to join. Yes, following the standards aligned with a Benefit Corporation are entirely voluntarily. Whereas the certification process to obtain B Corp classification will make any founder go Mad Hatter on his dinner table subjects. Simply put, a B Corp is similar to a non-profit that must focus on the greater public good, but is still taxed as a business.  Please, have a seat with your tea and crumpets, sir, as you are about to receive some alarming news –  there are no tax benefits for a B Corp or a Benefit Corporation over traditionally incorporated companies.

So, no tax benefits, and yet, unlike C Corps or LLCs, B Corps must adhere to the most elevated ethical standards of conducting business, while being subjected to thorough scrutiny of the powers-that-be. To become a B Corp, a company must complete an Impact Assessment.  The company must score a minimum of 80 out of 200 points to qualify. There are 40 different versions of the Impact Assessment depending on your industry, company size, et. al. The criterion is byzantine but, I argue, productive. Does the company have a history of financial disclosure and transparency with its employees? Do the company use renewable energy sources to power its operations, and if so, how much? What social and environmental criteria does the company impose on its vendors and suppliers? Has the company’s explicitly incorporated its commitment to social impact and the environment into its mission statement?

Why Bother Obtaining B Corp Status?

Because it’s good for humanity. And, it embraces moral, ethical and social values that promote the ideals of how business should be conducted.

Many companies that have obtained B Corp status have done so not for any legal or financial advantage, but to join a movement that is socially conscious.  Inviting the rigorous standards of maintaining B Corp status further motivates these founders to continue their social stewardship and not fall off the bandwagon. The world is indeed not indifferent.


Sounds Great, But Can I Just Become a Benefit Corporation Instead?

Sure you can.  The uber-cool prescription glasses company Warby Parker is, and here’s why being a Benefit Corporation is a good thing: Quintessentially, a corporation’s first priority and mission is to maximize its profit to the benefit of its shareholders.  A Benefit Corporation however, and by extension its Board of Directors, must consider the social and ethical components of any such decisions.  A great textbook example cited by major business journals is when Unilever acquired Ben and Jerry through a hostile takeover. Ben Jerry initially rejected Unilever’s offer and instead accepted a lesser offer that embraced its socially conscious corporate mission. Unilever sued and won on the grounds that Ben Jerry had a fiduciary obligation to ensure the maximum return to its shareholders.  Ben and Jerry lost control of their own company.  If it had been a Benefit Corporation, Ben and Jerry may have been able to prevent such a takeover.

The Benefit Corporation is a legal creation barely out of its diapers, so before you dismiss it outright, think about how you want to conduct business and what type of company you wish to run – for yourself, your employees, and your stakeholders. An old Nigerian proverb says, “better a single decision maker than a thousand advisors.” Your key decision now may very well determine the direction of your company for years to come, with benefits that is.

Have more questions?  Email Sheheryar Sardar of Sardar Law Firm LLC.

Understanding Dilution

24 Jun

Every now and then we have meeting with an individual in the market for investment and they say, “We want to make sure our stock does not get diluted.”  We nod and agree, and then they say, “Could you explain to me what diluted stock is?”

So here it is:  the Sardar Law Firm attempt at creating a simple explanation of stock dilution.


stock dilution infographic sardar law firm nyc



Sheheryar T. Sardar, Esq.
Sardar Law Firm LLC
New York, New York
Core Practice Areas:  Technology, Corporate & General Counsel, Startup Law, Project Finance, VC/PE, Arbitration/Mediation, Entertainment, and Human Capital

Disclaimer: The contents of this article shall not to be considered legal advice or to create any lawyer-client relationship. The article may contain attorney advertising.

Critical Questions for Co-Founders

12 Feb

As the wave of startups continues to heat up, many entrepreneurs are entering into companies without asking the right questions.  Often, they don’t know what questions are absolutely critical in order to move forward on solid footing.  We at New York City’s startup focused law firm, SLF, sat down and pulled together the 3 top questions co-founders should ask.

how will shares be divided

This comes down to the basic architecture of ownership: who own’s what percentage of the company.  Deciding this early on prevents ownership problems from arising as the company grows. The answer is not always easy, because it’s rarely ever going to be divided equally down the middle.  So have the hard conversations.

co founders leave startup

This is another difficult question, because: (1) no startup co-founder wants to admit that they would leave; and (2) it’s hard to imagine why anyone would want to leave an innovative idea.  The unfortunate truth is that it does happen, and it happens often.  In fact, it’s better that a co-founder that is not fully committed to the startup takes his/her leave instead of holding the company back.  Map out the steps that can be taken if a co-founder decides to exit.

co founders salary

Even though co-founders may not be drawing a salary at the inception of the company, there should always be a plan for when salaries will be drawn and how much each co-founder will get paid.  There should also be a frank discussion about who can change compensation, and when compensation can be increased/decreased.  This should include salary, benefits, commission, etc.  The more thorough you are at the outset, the less ambiguity will exist years from now.

More questions?  Come to the Startup Fundamentals class with Sardar Law Firm.
startup basics class nyc legal fundamentals

VC Financing for Startups: Understanding Cost Drivers

12 Dec

By:  Benish Shah
Sardar Law Firm LLC
New York, New York
Core Practice Areas:  Fashion/Retail, E-commerce, Commercial Litigation, Art Law, Startup Law, Social Media, Mergers & Acquisitions, and Corporate & General Counsel

There has been a lot of debate on the legal costs associated with financing rounds for startups.  Fred Wilson’s challenge to startup lawyers called for legal costs to be reduced to $5,000.00 for a seed financing round.   The issue, brought up by many lawyers is this: (1) large firms are not going to drop their rates from $17k+ to $5k because their costs are too high based on the army of associates working on each piece of the matter; (2) startup focused firms aren’t well known enough to VCs but they could get the work done in between $5K-$10k because they are lean and understand the startup world because they themselves are startups.

To understand what drives legal fees (aside from an army of associates) during a financing round, it’s important for startups, especially those going through their first few rounds, to understand why a transaction costs more than a few hundred dollars.  It’s also important to understand why choosing a firm that’s a good fit for a startup matters in these rounds.

Leveraging Knowledge 

Few things can hurt a startup more than a vague or hurried term sheet that will result in increased costs down the road.  To avoid these problems, smart entrepreneurs and investors involve counsel early on in the term sheet process to make it as smooth as possible.  For entrepreneurs, they need to understand that a VC’s counsel is not the startup’s counsel and that they absolutely need their own counsel as well. It’s like buying an insurance policy that will cost your startup much less than potential future problems stemming from vague term sheets.

Involving attorneys from the get go also allows lawyers to provide increased value-add through market knowledge; entrepreneurs and investors can leverage that knowledge and experience for their own benefit.  For startups, they can also discuss with their lawyers what is “normal” or “market-value” and what safeguards they should be pushing for, and what they can be more lenient on.  Lawyers have a knack for seeing what can cause a potentially massive lawsuit down the road, but clients need to involve them early on to leverage such knowledge.

Understanding Due Diligence

In most funding rounds, costs start increasing due to due diligence required by investors before a deal is closed.  This means due diligence on the following (if not more) subjects:

(1) Litigation Diligence:  Investors want to ensure that there are no pending or threatened suits against the startup that could materially reduce its value  (they cannot just take your word on this).

(2) Tax and Liability Diligence: Investors need assurance that the startup is up to date on all taxes and potential obligations.

(3) IP Diligence:  The assurance that each IP the startup claims as its own really belongs to the startup and not anyone else. This also includes review of whether there are any open source or similar issues, that all former/current employees/consultants/contractors/founders have legally and properly assigned rights to any IP to the startup, and if reverse vesting of common stock held by key employees is necessary.

(4) Employee Diligence: Ensuring that employees/contractors/consultants/founders have signed properly drafted non-compete, non-disclosure and non-solicitation agreements.  Also ensuring that employees & contractors are properly classified to avoid potential liabilities.  

(5) Corporate Governance Diligence:  Investors want to ensure that the entity is properly formed and corporate governance matters have been properly followed (i.e. startup’s corporate records must be in order; if they are not, lawyers and the startup must go into overdrive conducting a “cleanup” to ensure that everything is up to date, properly documented, and ready for inspection – this can add significant costs and often can be delay, or kill, a deal closing).

(6) Stock Option Diligence: Legal diligence to ensure that all stock option grants were properly approved and 409A compliant; this may also result in a change to the price per share if contemplated on a “pre-money valuation” basis.

(There are more aspects that can drive up the costs, but those listed above can be some of the most time-consuming).

Setting a Cap

Anytime a startup (or an investor) hires counsel, they should ask for a cap on the legal fees; SLF works to ensure that in closing deals such as early financing rounds, our legal bill comes under the cap, however other firms have been known to bill at the cap regardless of complexity or simplicity of the deal.

If an attorney or firm does not want to talk in terms of a cap on the legal fee, it may be prudent to search around a little more.

For more information on startup legal services, email us at or join us for a class taught by Benish Shah and Sheheryar Sardar.



Selling Your Company: Stock Deal or Asset Deal?

18 Sep

By:  Benish Shah
Sardar Law Firm LLC
New York, New York
Core Practice Areas:  Fashion/Retail, E-commerce, Commercial Litigation, Art Law, Startup Law, Social Media, Mergers & Acquisitions, and Corporate & General Counsel

Most companies here the the phrase “mergers and acquisitions” being thrown around in the corporate world as if we’re all talking about something as simple as grabbing a cup of coffee from Starbucks.  Mature companies and startups all say that their goal is to be acquired.   However, when asked a specific question – like “would that be a stock deal or asset deal?” – there is a bit of confusion, and mild panic.

The truth is, selling your company is not as simple as it sounds.  But, to break it down, there are generally two types of acquisition deals that companies can enter into:  (1) Stock Purchase Deal; or (2) Asset Purchase Deal.  Either the buyer purchases all of the assets of the selling business, or the buyer purchases all of the ownership interests (stock, membership interests, etc.) and takes over the company.  Once the buyer has taken over, the company can either continue as a subsidiary or be merged into the buyer.  If the selling company is not a corporation or an LLC (for example, if it is a partnership) the deal has to be for assets.

Asset Purchase Deal

In asset purchase deal, the buyer purchase all the assets of the company by paying cash, stock, or other property. The assets include everything used in the operation of the business; from equipment, to websites, intellectual property, contracts, and even client lists.  The buyer is often shielded from having to buy any liabilities of the seller, or any assets of the selling company.  One key thing is that the assets of the selling company have to be formally assigned to the buyer, including: contracts, vehicles, intellectual property, websites, leases, real property, etc.  This may require getting consent from other parties, which can prolong the asset acquisition process.

Stock Purchase Deal 

In a stock purchase deal, the buyer buys all the stock of the selling company.  The concept is a bit more simple because there is no need to transfer the assets.  The selling company still owns all of its assets when the deal closes, but the buyer is now the new owner of the company.  However, the problem that many buyers have with stock purchase deals is that the buyer will be keeping all the assets and all the liabilities of the selling company.

Knowing the basics of these structures, sellers will generally go for a stock purchase deal and buyers tend to prefer an asset purchase deal. Depending on the facts of the deal, each type of deal has its pluses and minuses. But the most important part is knowing the basics so you can be armed with the right information when shopping your company around.

Interested in discussing the acquisition of your company?  Contact: Benish Shah or Sheheryar Sardar at  Sardar Law Firm –

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