UCI Applied Innovation

January 15, 2016 “Lunch and Learn”

© 2016 Virginia A. Suveiu, Esq. All Rights Reserved.

The information provided or communicated in this seminar, whether written or oral, should not be relied upon as legal advice or opinion regarding any specific matter. All attendees and readers should contact professional legal counsel to obtain advice on projects or issues. This informational presentation is provided with the understanding that the information contained herein and any oral statements made by the presenter are for educational purposes only.

Any size organization should implement effective

compliance and ethics programs, per Amendment 673,

US Sentencing Commission, Guidelines Manual, section

8B2 (Nov. 2013).

The US Sentencing Guidelines provide a model to help

mitigate the risk of compliance failure.

Therefore, achieving consistent legal compliance in

today’s highly regulated environment is critical.

Promising to obey the law is no longer enough.

Note that various agreements, like corporate credit

agreements, commonly include additional

representations and covenants that the borrower/issuer

has implemented and maintained policies and

procedures ensuring compliance with specified laws.

The legal risk appetite is appropriate and expected

risks are commensurate with expected rewards;

Management has implemented an appropriate system

to manage, monitor and mitigate legal risk;

This system informs the organization of the major

risks, as part of a broader appropriate culture of risk-

awareness;

There is recognition that legal risk management is

not only essential to the successful execution of the

organization’s overall strategy, but that it is part of

the organization’s culture;

The organization’s culture does not become overly

reactive, rather should encourage targeted training.

At the start! Help select a form of entity Help understand the legal implications of

contracts Help identify and protect intellectual assets Advise on real estate and other transactions

Attorney-client relationship: Mutual respect and trust Value

Choosing the form of entity

Capital considerations

Licenses, permits and legal documentation

Asset protection

State of formation

Limited liability

Taxation

Raising capital

Governance

Structures include: sole proprietorships, partnerships, LLCs, limited partnerships, S corporations, and C corporations

DE or NV?

State of primary operations

Entity formed in a non-operating state

Costs of forming an entity in a non-operating state:

-Fees to register as a foreign entity in the operating state

-Agent for service of process

-Annual franchise taxes

Continual income deriving source

Sale of the business

IPO

How much capitalization is sufficient:

-Self funded

-Outside investors

Founders’ stock-price, common v. preferred

Securities law compliance

Periodic Valuation of Stock

Promissory notes

Convertible notes

Debentures

Common stock

Preferred stock

Options

Warrants (issued directly by the company)

Federal, State, City and/or County licenses and permits

Employer ID numbers

Export/import licenses

Right to use the chosen entity name

Contracts

-Purchase/sale agreements

-Services agreements

-Terms and Conditions

-IP agreements

-Employment/independent contractor agreements

-Employment manual

Essential elements: offer, acceptance, consideration

State partnership act

General and limited

Legal formalities

Content:

How managed

How profits and losses are allocated & distributed

Avoid boilerplate!

Identification of IP Assets

-Patents

-Trade secrets

-Copyright

-Trademarks

Re-cap of aforementioned concepts

Enterprise Risk Management

ISO 31000

New way of viewing legal risk management

What about the lean business model canvas?

Risk and Insurance Management Society (RIMS) Risk

Maturity Model for ERM, is an umbrella framework of

content and methodology which details requirements

for sustainable and effective ERM, with seven attributes

creating ERM’s value and utility in an organization: 1)

ERM-based approach; 2) ERM process management; 3)

risk appetite management; 4) root cause discipline; 5)

uncovering risks; 6) performance management; and 7)

business resiliency and sustainability.

Criticism of ERM: completely misses entity-threatening

risks, missing the fundamental point of formalized risk

management, which is to increase certainty that

objectives are achieved with a tolerable level of risk to

senior management and the board.

Definition of risk: effect of uncertainty on objectives

(source: ISO 31000:2009, ISO/IEC Guide 73:2009).

Risk only arises when an organization sets out to

achieve something.

Risk arises from those internal and external factors and

influences that the organization does not completely

control but that may cause it to fail to achieve its

objectives or may cause delay.

Such factors and influences can also lead to those

objectives being obtained early or even exceeded.

Risk is neither positive nor negative, but the

consequences that the organization experiences may

vary from loss/detriment to gain/benefit.

Managing risk is a process of optimization that makes

the achievement of objectives more likely.

Depending on the organization, effective

regulatory compliance and legal risk

management (while overall goals for most all

organizations) can have varying structures

and dimensions.

Scope: a) as a project: there are defined

objectives with scope being progressively

elaborated throughout the project life cycle;

and b) as a program: generally larger in scope

than a project and provides more significant

benefits.

Officers and directors, D & O insurance

Employment law issues:

-compliance with wage & hour laws, OSHA and other

applicable state and federal laws

-employees v. consultants & independent contractors

Bank account, business license, sales tax resale number/account, general liability insurance

Life insurance

Set risk tolerance, identify potential risks, prioritize risk tolerance, manage & mitigate risk

See the connections

Develop risk management mentality

Look ahead

Manage regulation by rethinking

Focus on insight

ISO 31000 framework

Legal Property Rights: a) given to companies & individuals to protect

certain creations (primary motivation to take risks); b) can be:

patents, copyrights, trademarks.

Understand product life cycle, which is determined by: a) rate of

technological change; and b) fads/trends.

Challenge is for the organization to tap into the creativity of the

individual employee.

Organizational culture not only must support creativity to make

intrapreneurship possible, but also understand how to handle that

creativity.

Managing & Promoting Innovation includes coordination of creative

minds in project management, as well as other cross-functional team

members.

New Venture Division: completely independent division that is given

a complete set of support functions to manage a project start to

finish and bring a new product/service to market.

Joint Venture: allows 2 organizations to pool resources to take on a

risky R&D project with costs, risks and eventual profits shared.

Educate yourself on various aspects of starting a business.

Seek relevant professional advice BEFORE starting a business.

Always factor in the proposed exit strategy in making significant business decisions.

Identify and appropriately protect assets.

Do you due diligence BEFOREHAND!

Do NOT use a name/logo without the attorney conducting a trademark search.

Do NOT ignore your long-term goals when choosing form of entity.

Do NOT sign up for anything that is not researched.

Do NOT sign a contract unless you have sought professional legal advice.