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FAQ: Should My Startup Issue Stock Certificates?

Sorry, no Draw the Law this week (or next week), as I am working on a something important.  I will announce what it is tomorrow.
As for today, this is a follow-up on a FAQ that a lot of founders and startup corporations ask me.  Should they issue stock certificates?

Is It Required by Law?

As I said last week, no. In Hawaii, a corporation, through its board of directors (under the authority of the articles of incorporation or bylaws) may issue shares without certificates.  In general, most, if not all jurisdictions, have done away with the requirement of a piece of paper signifying ownership in a corporation.

Even social media giant, Facebook, scrapped its plans earlier this year to issue paper stock certificate to its shareholders.  More and more companies are turning to electronic registration as a way to keep track of shares.

What about the Startups?

It’s true large, publicly traded corporations are moving away from the traditions of paper, but does that mean you should.  There are some attorneys who feel you should as it signifies ownership and allows a small group of founders to have a check on each other given the fluidic nature of startups.  Others embrace the digital and just say keep good electronic records and documentation.  Not to mention paper certificates are actually costly to print, which is an added cost your young corporation may not need.

For startups, the founding owners should discuss whether or not they want to issue paper certificates or not.  It really is a personal preference, as some people enjoy having the tangible proof of ownership and nostalgia of the paper.  In fact, Scripophily.com buys an sells original paper stocks for people interested in collecting.  Still others prefer the cheaper method, and just keep an electronic spreadsheet to keep track and just send updates.

If My Startup Decides to Issue Stock Certificates What Does it Require?

Hawaii Revised Statute §414-86 states the following required items to be on a stock certificate if you choose to issue them:

 (b)  At a minimum each share certificate must state on its face:

(1)  The name of the issuing corporation and that it is organized under the law of this State;

(2)  The name of the person to whom issued; and

(3)  The number and class of shares and the designation of the series, if any, the certificate represents.

(c)  If the issuing corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the board of directors to determine variations for future series) must be summarized on the front or back of each certificate.  Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge.

(d)  Each share certificate:

(1)  Must be signed (either manually or in facsimile) by two officers designated in the bylaws or by the board of directors; and

(2)  May bear the corporate seal or its facsimile.

Last Word

Personally, on a practical level, I do not think you need them, but that isn’t a legal opinion.  It just has to do with startup expenses and printing out specialized paper may not be necessary and would only drive up your costs at the beginning when you need to focus on your business model.  However, in some cases it may be warranted, but everyone’s situation is different.  Therefore, consider speaking to an attorney to provide advice and their thoughts given your situation on this matter and all that other paperwork that you need!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

FAQ: Are Stock Certificates Necessary (under law)?

My Short Response: No.
^Shortest post on my blog. More to come later!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.


IP Licensing Lesson: Don’t Copy and Paste, Ask and Talk

So people who know me, know that I love video games. So I was excited when I saw Disney’s movie trailer for Wreck-it Ralph, an animated story about a villain who gets tired of being a villain.  In the trailer, one of the signature scenes is the main character attends an AA-style meeting with fellow video games. The amazing thing about this is the sheer amount of characters from different video game companies that appear in this film.
I know many of you reading this may be like, why is that a big deal? It is a big deal because generally the process to secure licensing rights to use copyrighted material or a trademark is expensive and can be extremely time-consuming. However, this article by IGN.com, a site that focuses on mostly video games and other entertainment, interviewed the creators of Wreck-it Ralph. Be aware that characters in video games, cartoons, comic books, etc . . . sometimes have been both registered trademarked and copyrighted, as a strategy to create multiple layers of intellectual property (IP) protection.

I think there is a valuable lesson for business owners who do advertising, graphic design and content creation, and social media marketing in this quote:

But as the film started taking shape, rights issues eventually became a factor. “We went out and met with people in person, which I think is the key,” said Spencer. “When people came in for E3, we would actually meet with all of the companies and talk about the movie. From the very beginning we said, ‘We want to be authentic to your character. What we would like to do is put in an approval process where you look at our animation and you say that we’re being true to the character.'” As the creators noted, most companies were all for it.

Now, later in the article the creators do note there were some arduous processes, like double-checking with Nintendo if it’s characters were being represented accurately, but the lesson is clear ASK and TALK to the IP owner about what you want to do. This is the art of the sale and business deal, and I think authenticity goes a long way.

I have noticed recently many people are flocking to Slideshare to put up their presentations. I wonder, as I look through these well put together presentations, whether or not the people got the IP owner’s permission to use their images, logos, etc . . . . Did you talk to them? I realize it is easier to COPY and PASTE, but I will let you in on a little secret it is also easy to COPY and PASTE a CEASE and DESIST letter with a demand for damages.

Business Entity Formation Talk at ING Direct Cafe in Waikiki

Business Entity Formation Talk at ING Direct Cafe in Waikiki

August 1st – I will be holding my Business Entity Formation Talk from 6:00 – 7:00 pm. Come learn the differences between the entities at ING Direct Cafe.

Happy 4th of July, the Declaration of Independence is it legally binding?


Hello my fellow Americans that are reading this post (to my international friends, thank you for visiting on this momentous day for the United States of America).  Anyway, some legal scholars will always have differing opinions, but I do side with the group that says the Declaration of Independence is NOT a legal binding document.  It is NOT a contract.

Rather than wasting your day off with legal philosophy, just think of the act of the Declaration of Independence as a repudiation of a “contract” that is that the colonies had with the crown of England.  However, notice with normal contract law, that a court has the power to enforce or direct damages against the breaching party.

In our country’s great struggle for freedom and independence we repudiated our connection to a despotic king’s attempt to control our colonies.  The way to enforce this “contract” – through force of arms, i.e. the Revolutionary War.  However, as a legal document, the Supreme Court, does not find the Declaration of Independence as substantive law.

I think that this legal podcast explains the situation quite well. In short, our Constitution enshrines many of the sentiments of the Declaration of Independence, which is a binding legal document.  While, I am sure you probably want to discuss this more given the Supreme Court’s rulings from the past week, take a breath and enjoy your day and declare some freedom from the stress of the work week!

Happy 4th of July!

Draw the Law Delayed

Hey everyone Draw the Law will be delayed slightly today.  It will discuss the use of nondisclosure agreements, as we continue our tour of commonly used agreements by startups or small businesses. In the mean time, check out my event next week (which will also be discussing NDAs).
You can sign-up by clicking the link.

Brand and Content Protection: Insight on Copyright, Trademark, and Trade Secrets Law

All successful businesses nowadays need to produce their own content and manage a unique brand or they will be lost in the noise of the Internet.  With the certain interests pushing bills like SOPA and court cases pending regarding ownership of intellectual property it is best for business owners to understand the law of copyright, trademarks, and trade secrets.  Learn how the law does (or doesn’t) protect your work and ideas.

We will discuss creating your content and brand, what registering copyright and trademark does for you, and some strategies for managing and protecting, such as licensing, those important creative assets that make your business unique.  Lastly, we will end with an open discussion with where the law might be heading.

  • Date: May, 23rd (Wednesday) 
  • Time: 6:00 p.m. – 7:00 p.m.; 45 minute presentation with 15 minutes for Q&A
  • Place: The Greenhouse Innovation Hub, 685 Auahi Street
  • Price: $20.00 – materials and samples included

Check back later today for Draw the Law. Have a good morning!

Draw the Law Delayed for Law Week!


Hey everyone, I know you were all looking forward to talking about licensing agreements for this week’s Draw the Law, a follow-up to my discussion on marketing or reseller agreements, but you are just going to have to wait one more week.  As an Oahu Director of Hawaii’s Young Lawyers Division I am working on Law Week this week (as well as following the wrap-up of the local state Legislature).  So my sketches of the concept have to wait one more week.  Pardon the delay.

Law Week with KHON2 Action Line (April 30th – May 4th)

Instead please, if you live in Hawaii, take advantage of our Law Week program put on by many legal professionals here in the State.  Although you may have missed Monday’s KHON2’s Action Line on Consumer Protection, Bankruptcy, and Foreclosure law you can still call in for the following topics:

  1. Tuesday, Family Law (Divorce, Custody, and Child Support);
  2. Wednesday, Estate Planning and Elder Care Law
  3. Thursday, Employment Law and Wrongful Termination
  4. Friday, Property Law (Landlord/Tenant)

Please call the studio between the hours of 11:00 am – 1:00 pm (Hawaii time) at the following number: 808-591-0222.  For further information, click this link.

Free Legal Clinics (May 5th)

If you miss out on our legal phone lines we will be bringing volunteer paralegals and attorneys to a neighborhood near you this Saturday.  We have volunteer attorneys taking your questions and providing free legal information.  There are no solicitation fees and everything discussed is in confidence.

The main goal is help the public gain access to justice and highlight this year’s theme of Law Week, No Courts, No Justice No Freedom.  We are bringing the professionals of the court to you, so you can be better informed of your legal rights. Please see below for a list of locations, all clinics will be open from 10:00 am – 2:00 p.m. this Saturday, May 5th.

Mahalo and see you around!

The clinic locations are as follows:

Oahu Legal Clinic Locations:

  • Don Quijote – Kaheka
  • Don Quijote – Pearl City
  • Don Quijote – Waipahu
  • Haleiwa Historical Gym (Haleiwa)
  • Sack N Save (Nanakuli)
  • Waianae Coast Comprehensive Health Center (Waianae)
  • Windward Mall Shopping Center (Windward)
  • Filipino Festival (Kapiolani Park)
  • Kapolei Marketplace (Kapolei)

Neighbor Island Locations:

  • • Maui Mall (Maui)
  • • Puainako Town Ctr. (Hilo)
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Know Your Legalese: Promissory Estoppel

Yesterday, I talked about detrimental reliance, which is known to lawyers as promissory estoppel. The reason why lawyers call detrimental reliance by that weird-looking term, promissory estoppel, has to do with the way the lawsuit works operationally in court.  In a typical breach of contract, the nonbreaching party sues for damages under the contract that the breaching party fulfilled to do its obligation.  The nonbreaching party has to prove there was a contract and that to have a contract good consideration needed to be a part of it.
In the case of detrimental reliance there is no consideration.  It is just a promise that one party relied on.  Therefore, in a a standard breach of contract suit the nonbreaching party would lose the case.  However, this is where promissory estoppel steps in.  A party that has reasonably relied to their detriment can assert promissory estoppel as the basis of a cause of action for damages.  It operates by estopping the promisor from denying the existence of a contract due to lack of consideration.

Basically, in an employment type of situation it goes like this, “Hey, you cannot say there wasn’t a contract. I moved across the ocean to work here because of what you promised.”  Even though the speaker, gave no consideration to the prospective employer, he is saying that due to a promise he changed his position (he moved).

*That it is why, in my opinion, promissory estoppel is a contract-like situation because there is no consideration. We are using a legal device (promissory estoppel/detrimental reliance) to enforce a promise where no consideration has been given between the parties, only a promise.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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Sorry Draw the Law Delayed to Wednesday

Hey everyone, thank you for your continued support and reading Draw the Law. Unfortunately, I have been extremely busy and will not be able to get to today’s Draw the Law on Conditions in Contract law.  It will be up tomorrow, Wednesday, March 14, 2012.
In the meantime, please check out this other great websites for entrepreneurs, small business owners, social media marketers, and lawyers:

Pardon the delay, and check back Wednesday!

-RKH

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BTW Legalese: Parties that end in “or” or “ee”

By the way, you may have noticed, contract law there are a lot of terms that describe the parties involved that end with “or” or “ee”. For example, offeror and offeree from this week’s Draw the Law.  If you see this in a long legal document you can immediately recognize the relationship of the parties involved.
The ”or” person is the originating person of the action.  It starts with them, and then ends with the “ee” person.  Like’s take the example of offerror and offeree.  The offeror is the one making the offer, whereas the offeree is receiving the offer.

This works for other relationships like in an assignment, where there is the assignor, the one assigning property or interest rights in something, and the assignee, the one receiving the property or interest rights.  Some relationships, do not necessarily follow this categorization, as you will see below (i.e. trustor and trustee).

Consider the following pairs:

  • Offeror/offeree – offeror makes an offer to the offeree
  • Payor/payee – the payor makes payment to the payee (i.e. the payee is the one who endorses a received check)
  • Lessor/lessee – the lessor leases property (or the right to use property) to the lessee
  • Licensor/licensee – the licensor grants a license of the right to use something (IP) to the licensee
  • Assignor/assignee – the assignor transfers rights or property to the assignee (via an assignment)
  • Grantor/grantee – the grantor grants title in real property to the grantee
  • donor/donee – the donor donates (gifts something) to the donee)
  • *Settlor (trustor)/trustee – the settlor creates the trust, which the trustee holds and manages for the benefit of the trust’s beneficiaries