Rimon Law Blog

Clean Tech is generally considered to include multiple advanced technologies in four economic sectors: energy, waste, materials, and transportation. These technologies break down in categories such as energy generation and storage, water and wastewater, air and environment, etc. There is no clear-cut definition for a “Clean-Tech” Company, but as shown by its name, a clean-tech company should be a company equipping its core business with clean technology. As a related concept, Clean-tech Law contemplates a diverse set of legal issues related to the commercialization of clean technology, and the more traditional legal areas of clean technology law include intellectual property, patent law, licensing, litigation, and federal state legislative and regulatory issues.
According to reports prepared by Cleantech Group, compared to other industry sectors, clean tech now draws the most venture investments of any sector, recently surpassing software or biotechnology. However, since maintaining a healthy cash flow is one of the primary concerns of almost every company, and the venture investments in the clean technology industry sectors have fallen sharply in recent days, finding an alternative fund raising channel is vital to the survival of technology companies.
Media reports have now described Washington as the new driver of clean tech company growth. Obama’s energy plan calls for a $150 billion investment in clean technologies for over 10 years, aggressive targets for greenhouse emission reductions, and programs to promote energy efficiency, low-carbon biofuels, and renewable energies. Applications for government funds made available by the recent American Recovery and Reinvestment Act.

As an alternative form of fund raising, applying for federal government grants might be a good choice for many clean tech companies nowadays, especially when the other channels of fund raising, such as venture investment and bank loans, is difficul to obtain. While the business plan submitted to the venture capitalists or bank is money-making oriented, government funding application should focus on the environmental impact of the technology development by the clean tech companies. It is not an easy task; it is a great challenge requiring a new kind of brain-storming by the management of clean tech companies and consultation with experts on clean tech law and policy.

Lawyers and law firms are traditionally very risk-averse. This is why law firms were among the last professionals to stop using Word Perfect. However, with the current recession, clients are demanding more affordable and efficient service from the law firms they employ. Law firms are finally starting to listen and adapt. The best example of change in the air is the virtual law firm model.

A Virtual Law Firm generally has the following characteristics:

1. It has a stable core group of attorneys;

2. It has established collaborative relationships with other, specialized law firms that possess expertise that’s occasionally needed;

3. It is glued together with appropriate computer and telecommunications technology; and,

4. It expands and reduces personnel as needed.

While traditional law firms are very slow to adapt, it is clear to me that the practice of transactional law has changed, and has been changing for the last ten years. No longer do corporate attorneys see their clients in their offices – everything is done by e-mail and telephone.

So why do most big firms still spend so much of their resources on such expensive office space, and so little time and money on technological infrastructure like video conferencing, cloud computing, and client e-rooms? This is because law firms are made to award risk-averse behavior while discouraging entrepreneurship. Traditional law firms are managed by attorneys that have worked their way up the chain by billing long hours, not by learning innovative ways to restructure the business. Further, the traditional anatomy of a law firm relies on training new talent so that they can eventually become partners – however this training rarely includes business or management training.

For this reason Rimon was created by veterans of big law firms seeking a new model that rewards efficiency and entrepreneurship rather than long billable hours. This is done by allowing the attorneys with the most legal experience to focus on their clients legal work, while attorneys with more business experience can focus on improving the firm’s infrastructure to create a better, and less expensive, experience for our clients.

Other firms are following suit with great innovations and improvements coming to the industry on a monthly basis. Firms are becoming more environmentally conscious, community-oriented, affordable, and are seeking new innovations to billing – such as flat fees and satisfaction-based billing programs. This is an exciting change that I hope will continue even after the economy improves.

Whenever a corporation or limited liability company does business (i.e. enters contracts or agreements) in a state other than the state in which they are domiciled, they are required to do a foreign filing in that state. For example, if a business is incorporated in Delaware, but has an office and/or employees based in California, that business needs to do a foreign filing in California. In such a situation the corporation will need to pay franchise taxes in both Delaware and California.

This can be a very complex question. If you are looking to grow the company and get outside investment, then you should probably form an entity in Delaware. If your entity will have real estate holdings Nevada might also be a good option. Otherwise, it might make the most sense to simply form the entity in the state where you will be conducting most of your business.

Why have a stock option plan?

Startups often prefer to compensate using stock options because it does not require a cash outlay. In addition, employees may prefer the favorable tax treatment associated with stock options. Stock options also often give employees a stake in the long-term success of the company that salaries or bonuses often do not.

What is a stock option?

A stock option is the right to acquire a certain number of shares of stock for a specific price (“exercise price”). Usually, the employer does not permit an employee to exercise the right to purchase immediately on the date the stock option is issued. Rather, the right to purchase stock typically “vests” or accrues over a period of time or upon meeting certain company performance goals. This encourages employees to remain with the company for the rest of the vesting period or helps the company meet its goals.

Tax consequences of Incentive Stock Options and Nonstatutory Stock Options
There are two forms of stock options: incentive stock options (“ISO”) and nonstatutory stock options (“NSO”). ISOs are different from NSOs in that ISOs receive favorable federal tax treatment if the option meets certain requirements of the Internal Revenue Code.

When granted, both ISOs and NSOs should have an exercise price that is not less than 100 percent of the fair market value of the underlying stock. Neither ISOs nor NSOs are taxable upon grant to the employee or when the option vests. The difference between them lies in the tax consequences when the option is exercised. When an NSO is exercised, the employee recognizes compensation (ordinary) income in an amount equal to the spread at exercise. An employee does not recognize taxable income on exercise of an ISO. However, the spread at exercise is includible in the employee’s federal alternative minimum taxable (“AMT”) income and may give rise to AMT tax liability.

If stock acquired upon exercise of an NSO is held for more than one year, any gain realized on the disposition of the stock is taxed at favorable long-term capital gain rates. ISOs must be held for at least two years from the date of grant and at least one year from the date of exercise to qualify for favorable capital gain tax rates. Otherwise, the employee recognizes compensation income that is taxed at ordinary income tax rates.

The other difference between ISOs and NSOs is in the benefit to the employer: for NSOs, the employer can take a deduction equal to the amount recognized by the employee upon exercise of the NSO. For ISOs, there is no deduction.

The different aspects of ISOs and NSOs provide flexibility in tailoring an equity compensation plan to fit a company’s needs.

What is restricted stock?

Instead of issuing stock options, some companies issue “restricted stock.” Restricted stock refers to stock that is transferred to an employee as compensation for services, subject to a vesting schedule. The employee usually is not required to pay for the stock. If the employee does not remain with the employer until the end of the vesting period, the stock must be returned to the employer. If the employee has paid any amount for the restricted stock but then fails to become vested, the employer usually refunds the purchase price to the employee. A discussion of the tax consequences of restricted stock is beyond the scope of this primer and requires a detailed conversation with a tax attorney.

Given the complex legal, accounting and tax issues, a company should seek advice before implementing an equity compensation plan.

Rimon offers the following flat-fee packages:

1. Basic non-qualified stock option plan without revisions drafted by a corporate attorney for $300. A review by a tax attorney for an additional $400: The client receives a basic no-frills non-qualified stock option plan. This package is appropriate if the value of the stock at the date of issuance is easily determinable and the client accepts the plan without discussing the alternatives.

2. A more extensive analysis by a corporate attorney and tax attorney: $400 for drafting by a corporate attorney and $700 for tax review: This includes a consultation as to whether to choose (a) qualified or (b) non-qualified stock option plan, or (c) restricted stock. This package is appropriate if the value of the stock at the date of issuance is easily determinable.

Your company’s ideas, methods, organization, and products are entitled to varying degrees of protection. With products and secrets more esoteric and virtual than ever before, it is essential that expectations and responsibilities are set forth in black and white.
A nondisclosure agreement serves a dual purpose: it educates the employee or contractor and it protects the company. A clearly written nondisclosure agreement will tell your workers what his or her responsibilities are toward the company and what the law considers company property.

A new company should determine which of its workers are employees and which are independent contractors. The workers’ status will determine what benefits s/he is owed during employment and at its conclusion. A new company is building its reputation not just for its product, but for its staff and for fairness as an employer as well. ATo this end, a company should have a written agreement to clarify for its workers and itself the job expectations, benefits and responsibilities. A written contract delineates scope and hours of work, how the relationship is to continue, and how it is to be terminated.