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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

Follow Sardar Law Firm on Twitter @CorpCounselNYC

Follow Social Media Legal Twitter @socialmedia_law 



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.

Starting a New Company? Here’s Your Checklist.

29 Apr

starting your own company lawyer new york

Ever wonder what’s required or recommended to set up a new company? Yes, incorporation is an obvious first step, but there is much more to delineating a company as a separate legal entity than just filing registration papers with a state.  Depending on the type of entity you want to set up and the industry you’re in, some aspects may change, but the checklist below should be fairly universal and standard.  Check it out:


1.  Choose Entity Type.  Are you a sole proprietor or partnership? Either way, you’ll then need to decide whether to choose an LLC or a C Corporation, the two most common types of entities. An LLC is a hybrid between a partnership and a corporation, with limited liability, and is easier to maintain.  A corporation can issue shares/stock and may be a better fit if you are in the tech space, but it does have many compliance features.


2.  Choose State of Incorporation.  Where do you live or work? Will your company have offices? Will it look to seek outside funding (angel/venture capital)? Or will it be a small brick-and-mortar business? While Delaware is the top destination for incorporation, it should not be considered the de facto state of incorporation without a thorough review of your goals.


3.   Designate a Company Name.  Irrespective of what name you choose, you need counsel to conduct due diligence on any existing trademarks and domain names.  Failing to do so may result in serious adverse legal consequences. The last thing you want is to be dragged down in court when what you really should be focused on is your company’s growth.


4.  Identity Founders, Ownership Percentages.  If you have partners or “co-founders,” you will need to memorialize this.  You’ll also need to designate ownership percentages, with corresponding founders shares if the entity is a C Corp.  If you are issuing shares, are there vesting proscriptions applicable to those shares? Many founder teams seek to incentivize their performance over a specific duration of time with a vesting schedule so not all stock is transferred at once.


5.  Founders Roles, Responsibilities and Expectations.  The number of instances partnerships have gone to court over these issues (often under breach of fiduciary duties) is astounding.  What are the founders’ roles and expectations of each other? What titles and work commitments are in place? Is there a hierarchy (there should be)? Are any founders financing the new company? How does this impact expectations?


6.  Articles of Incorporation/Formation and Bylaws.  You will be filing with the state of your choice, articles or certificate of incorporation/formation, designating the name of the new company and the number of shares authorized to issue with a par value per share (if C Corp). Often, you’ll need a registered agent to serve as a local designee in that state. You will need bylaws, in addition to organizational consents.  All of these documents serve two purposes: (1) provide for clarity in terms of management and operations of the new company; and (2) comply with state law to show the world the new company is a separate legal entity and not a mere extension of your personal conduct and activities.  On this note, you should create an annual budget for entity registration/registered agent and annual report expenses that will come up once a year in the state of incorporation. This also includes franchise taxes payable to the state.


7.  Founder’s Stock Purchase Agreement (SPA) and Option Pool.  If C Corp., presumably you will be issuing shares to yourself and your co-founders. This is subject to an SPA, which should comply with or be exempt from, state and federal securities laws.  You would be purchasing the shares from the company, either through a monetary payment or the assignment of technology.  If you want to issue shares to early employees or key individuals to incentivize their work, you are required to have an option pool that designates a portion of the authorized shares for this purpose; the same goes for investors.  Don’t forget that 83(b) election under IRS rules which allows for taxation at par value of shares issued as restricted stock. A strict 30-day rule applies for mailing an 83(b) election notice after the date of restricted stock issuance.


8.  Operating or Shareholder Agreement.  If an LLC, you need an operating agreement. If C-Corp, a shareholder agreement.

9.  Intellectual Property.  You will very likely need to file a trademark for your name and any tagline, and patents for any differentiated technology, software or methods.  The U.S. is essential, and depending on your goals, Europe and other regions as well.  You may need a Proprietary Inventions Agreement to protect your inventions from yourself and your co-founders, and to assign them to the Company.

10.  Employment or Independent Contractor Agreements.  If you’re hiring employees or seeking services from independent contractors (ICs), you need contracts.  For employees: role/title, compensation structure, expectations, termination (New York is an “at-will” state), and any unemployment benefits/workers compensation compliance.  For ICs, you would outline the services to be rendered and expectant results, compensation, disclaimer of any tax or unemployment liability, among other critical provisions.  Non-disclosure and non-competition covenants should be standard and included.  ICs will often include consultants and advisors.


12.  Accounting and Tax Requirements.  You do plan on making money, right? Then you need an accountant and likely a bookkeeper. All those federal, state and local tax requirements will creep up on your soon enough. You may need to make quarterly payments.


13.  Conducting Business. Plan on operating in one state or multiple states? You may need to separately register your company in different states to conduct business.


14.  Insurance and Risk.  This is highly dependent on the industry your company operates in.  If you’re a boutique hedge fund or law firm, you should absolutely make sure any insurance requirements are met, in addition to any risk mitigation procedures and protocols.  If you’re a retail or restaurant establishment, other insurance procurements may be necessary.

15.  Secure a Federal EIN and a bank account.  For tax purposes, the federal government requires an EIN. The EIN will also enable you to open a bank account.


While your new company may have other legal matters and requirements to address, this checklist should serve as the basic architecture to get started.  Starting a new company can be one of the most exhilarating and rewarding experiences of your life, but knowing the practical nuts and bolts of setting it up and protecting yourself will be a key feature of your new enterprise’s success.



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.


Top Six Legal Issues Facing Today’s Online Media Companies

18 Apr

legal issues being faced by online media companies

Social and digital media has grown exponentially in the last decade, with enterprising companies creating uncontested market space in the online and digital industries. Whether your company is engaged in a new search engine, an analytics platform, or ecommerce; social media as a tool has become a necessary component of both the customer acquisition process and marketing from within the company.  Without viral capabilities and digital readiness, companies are unable to harness quick user engagement with their platforms and services. Further, now many individuals within a company serve as brand ambassadors through social media, often listing where they work on Facebook, Twitter, Foursquare, Quora, among others.


Due to the fast-paced nature of social media, companies often overlook the legal issues inherent in social media that serve as silos of protection.  While staying ahead of the competition is paramount, creating and maintaining well-drafted legal content will reduce the chances of getting mired in disputes that deviate attention from the core focus of growth.


Here is a brief list of legal issues to consider:


1) Terms of Service.  If you have a website or ecommerce platform, you will need to publish terms of service or use on your website, to put customers and users on notice as to the various limitations and conditions to which they are consenting by using your site. This document will serve to govern the relationship between your company and the audience that interacts with your site. Each Terms of Service is unique to the industry and nature of your company. For example, terms for a fashion ecommerce site will differ greatly from a software development business.

2) Privacy Policy.  A sound privacy policy is important for purposes of maintaining certain state, federal and even international regulatory compliance. Privacy has become a politically charged topic within the digital and electronic landscape, with Congress and international bodies penalizing companies that violate certain privacy laws.  For example, if you collect customer information such as addresses, emails or demographic data, you may need to clearly identify the purpose of such an activity.  In the absence of a well-constructed privacy policy (and thereby user consent), your company may be subject to liability or run afoul of the law.

3) Non-Compete and Non-Solicitation.  Consider protecting your company by prohibiting your partners and employees from competing directly with your company immediately upon their departure. A Non-Compete provision would be framed within a specific time period and limited to a geographic area, but these clauses are very important because these key individuals may possess inside knowledge of your competitive advantage.  A Non-Solicitation provision would prevent ex-partners or employees from soliciting high value colleagues and/or customers away from your company.

4)   Moonlighting and Loyalty:  Moonlighting and Loyalty addresses employee activities outside of the normal course of business. This clause may or may not be necessary, depending on the nature of your business. A lawyer can assess your contract’s needs once you discuss your commercial goals together.

5)  Ownership of Intellectual Property:  You may want to protect any processes, templates, systems, or methods created by an employee, by retaining any IP rights over these items. A contract at the outset will provide necessary protections so that any work products created under your business do not ultimately go to a competitor.

6)  Use, Licensing, Technology Transfer:  Companies often look to outsource their products or services through digital or online channels, often with third party agencies and partners providing additional marketing, acquisition or branding services. Partnerships are often created to facilitate such business development. In this context, contracts protect the use and licensing of your work product so that it isn’t leaked or misappropriated.  A strong vendor/services contract will make your transition to the next stage of development that much more efficient while protecting the proprietary nature of your company’s work product.  Similarly, if you are interested in commercially exploiting your methods, processes or inventions (Technology Transfer), you will need contracts to protect your financial interests.

Spending a little time developing your legal architecture is a strategic investment in your company. Failing to do so may result in a costly dispute that takes valuable resources, including your time and attention, away from the company.  Not implementing a sound legal platform is a risk far too great for any company to take, as the landscape of digital and social media continues to evolve.


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

American Investors & Middle East Private Equity

29 Jun

The current economic climate has forced American investors to reassess their general investment strategies in the Middle East private equity market (MEPE). Legal protections are becoming more pronounced due to the tightening of credit. Vested parties are conducting critical due diligence, assessing both the creditworthiness of the debtor parties and Return on Investment (ROI).

In this capacity, legal conditions have become more nuanced than ever. Investors want iron-clad financing contracts, which are affecting the increased use of vendor financing and earn outs. Vendor financing refers to a loan from one company to another which is used to buy goods from the company providing the loan. The benefits to the vendor include increased sales and earned interest, while the risk involves potential payment delay or default. Earn outs, by way of example, involves the acquiror company paying 60–80% of the purchase price up front, with the remaining 20–40% structured as an earn-out and paid out over time as the acquired company achieves certain levels of sales or profitability.

In both vendor financing and earn outs, financial sponsors are seeking to increase value-added investments in tight debt markets. One solution may involve larger equity checks and the use of mezzanine financing, although both will result in higher transaction costs and decreased leveraged returns.

Incorporating legally accurate and umambiguous definitions and provisions is therefore highly encouraged, particularly when defining the parameters of measuring future financial performance. This will minimize disputes, present and future costs, while preserving strict contracting.

Improving Corporate Governance

Corporate governance refers to a set of processes, customs, policies, and institutions affecting the way a company is directed, administered or controlled. It also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.

Applying the concepts behind corporate governance to the Middle East private equity market, companies and institutions serving as investors must continue to provide meaningful minority protections, enhanced risk management systems and timely and reliable information flows. In this financially volatile climate, private equity must manage working capital and cash flows, while focusing on the operating results of portfolio companies.

Financial sponsors will therefore pay greater attention on contractual rights to facilitate leadership and oversight, thus ensuring prompt financial reporting.

However, investors should be cautioned that insolvency laws in the Middle East are poorly understood and rarely tested. The learning curve remains steep, with sponsors and investors continuously seeking guidance on various alternative scenarios. The widen breadth of such analysis may impact the structuring and documentation of deals. The investor will need to pay strict attention to contract rights regarding exits, deadlocks, dispute resolution and rescue funding.

Increasing Value-Added Legal Services

Value added advisory legal services in these difficult times are highly recommended due to the need for thorough documentation and advice regarding new private equity structures. The Middle East has seen a sharp increase of legal services over the past decade due to the increasingly sophisticated private equity client base. International best practices and industry standards have been adapted to a region characterized by family ownership, minority investments, carve outs and foreign ownership restrictions.

This year has presented a new set of legal challenges for private equity. While deal pipelines and investment risk may have weakened, private equity should gradually emerge into a formidable force for Middle East financing, particularly in sectors that are relatively recession resistant such as healthcare and education. Depressed sectors such as hospitality and real estate may allow for bargains. As long as price volatility and credit tightening continues, private equity players should continue to retain legal services as an integral component of their business strategy.

By, Sheheryar T. Sardar, Esq.
Sardar Law Firm LLC
New York, New York

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