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Electronic Signatures

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Electronic Signatures - What are they?

Using electronic signatures as part of any business process that requires the use of contracts can provide immense value in terms of speed and efficiency to any business.  Even though electronic signatures are nothing new, I talk to people all the time who have questions about how and why electronic signatures are legalling binding.  Below I've listed a vew of the reasons, some links, and some bext practices.

What exactly is an electronic signature?

The E-Sign Act defines "electronic signature" as "an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record."  

The E-Sign Act, aiming to bring uniformity to patchwork state legislation governing electronic signatures and records, mandates that no signature be denied legal effect simply because it is in electronic form. Additionally, "a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation."

In the US, there are a number of laws that make electronic signatures legally binding:

Click-to-sign create a binding Electronic Signature also.

A federal court has actually intepreted the ESIGN act as applying not only to squiggly black lines that mimic ink signatures, but also to clicking / tapping buttons that say things like "I Agree" or "I accept."  

Additionally, courts have held that agreements reached by electronic means are not invalid pursuant to analogous statutory requirements. For example, the Federal Arbitration Act (the "FAA") specifies that its protections for arbitration agreements pertain only to a "written provision" in any contract. 9 U.S.C. § 2. Courts have uniformly applied the E-Sign Act to subsequent interpretations of the FAA's written provision requirement. See, e.g., Campbell v. Gen. Dynamics Gov't Sys. Corp., 407 F.3d 546, 556 (1st Cir.2005) ("[The E-Sign Act] definitively resolves the issue ... as to whether an e-mail agreement to arbitrate is unenforceable under the FAA because it does not satisfy the FAA's `written provision' requirement, 9 U.S.C. § 2. By its plain terms, the E-Sign Act prohibits any interpretation of the FAA's `written provision' requirement that would preclude giving legal effect to an agreement solely on the basis that it was in electronic form."); Specht v. Netscape Comm'cns Corp., 306 F.3d 17, 26 n. 11 (2d Cir.2002) (assessing whether clicking to download software created enforceable agreement to arbitrate, and noting that the matter of whether "the agreement is a `written provision' despite being provided to users in a downloadable electronic form ... has been settled by [the E-Sign Act]," although ultimately finding that consumers' clicking "yes" in the context presented in that case did not manifest assent to license terms).

We find this analysis helpful in reaching the same conclusion in the context of the Copyright Act. To invalidate copyright transfer agreements solely because they were made electronically would thwart the clear congressional intent embodied in the E-Sign Act. We therefore hold that an electronic agreement may effect a valid transfer of copyright interests under Section 204 of the Copyright Act.[13] 603*603 Accordingly, we agree with the district court that MRIS is likely to succeed against AHRN in establishing its ownership of copyright interests in the copied photographs."

A few best practices to make sure your electronic signatures are legally binding:


  • Make sure all signers knows that they are signing a document electronically.
  • Authenticate the identify of your signers.  Email or SMS works well for this.
  • Make sure you have good, durable electronic records of all contracts that are signed electronically.





506(c) - Using General Solicitation /Advertising in Reg D Private Offerings.

Yesterday, the SEC took a big step in finally making the JOBS Act (or at least a portion of it) a reality for businesses trying to raise capital.  One of the biggest problems with the private offerings has been the difficulty in finding investors.  General solicitation / advertising has always been a no-no unless there was a public, registered offering.  With the introduction of new Rule 506(c), that all changes (albeit with some important caveats).

Prior to New Rule 506(c) - No General Soliciation / Advertising

Prior to the approval of 506(c), most exempt private offerings required that businesses raising capital have a "pre-existing substantive relationship" with anyone that invests in that business's private offering.  That means no advertising, no website investor solicitation, no flyers, no social get the point.  It made it difficult and time consuming to find potential investors by severely limiting the pool of potential investors to which a business had access.  

Rule 506(c) - Lifting the Ban on General Solicitation/ Advertising

With the SEC's approval of the final rule on July 10, 2013, certain types of private offerings will be permitted to employ general solicitation and advertising to offer securities and solicit potential investors - no more requirement to have a "pre-existing substantive relationship" with investors.  It is important to note that, although yes the regulation has been approved - it is not effective until 60 days after publication in the Federal Register.

There are, of course, caveats and conditions.

There are, of course, a few hoops businesses will need to jump through in order to employ general solicitation and advertising without going awry of federal securities rules and regulations.  Of course, you should consult with an attorney to help craft a private offering structure and documents that comply with the new regulations.  That being said, in a nutshell, in order to employ general solicitation / advertising in a private offering:

  • An issuer must take reasonable steps to verify that the investors are accredited investors.
  • All purchasers of securities must fall within one of the categories of persons who are accredited investors under an existing rule (Rule 501 of Regulation D) or the issuer reasonably believes that the investors fall within one of the categories at the time of the sale of the securities.

The determination of the reasonableness of the steps taken to verify an accredited investor is an objective assessment by an issuer. An issuer is required to consider the facts and circumstances of each purchaser and the transaction.  What this likely means is that a widely posted social media solicitation would likely require a higher degree of assessment than a post to pre-screened network of accredited investors.

Taking reasonable steps to ensure investors are accredited.

An individual investor (the requirement for entities is different) is considered accredited if:

  • Individual net worth or joint net worth with a spouse exceeds $1 million at the time of the purchase, excluding the net value of a primary residence, OR
  • Individual annual income exceeded $200,000 in each of the two most recent years or a joint annual income with a spouse exceeding $300,000 for those years, and a reasonable expectation of the same income level in the current year.

In the past, it was enough to have a reasonable belief that either of these conditions were true - and to simply get a signed representation from the investor.  Now "reasonable steps" are required.  Luckily, the SEC provided a "non-exclusive" list of methods that issuers may use to satisfy the verification requirement for individual investors, which include:

  • Reviewing copies of any IRS form that reports the income of the purchaser and obtaining a written representation that the purchaser will likely continue to earn the necessary income in the current year.
  • Reviewing copies of recent documents that verify assets and income.
  • Receiving a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser's accredited status.

A New Box to Check on Form D.

The new rule also amends Form D, which is the notice that issuers must file with the SEC when they sell securities under Regulation D. The revised Form D adds a new check box that indicates if an issuer is claiming the new Rule 506 exemption that would permit general solicitation or general advertising.

A Few Other Important Things to Note.

The SEC also approved a rule disqualifiing felon and other "bad actors" from Rule 506 offerings.  This blog post won't get into that, but take a look, and be sure to discuss with your attorney.

The SEC is also proposing some significant changes to Form D for private offerings that choose to employ general solicitation and advertising.  Any changes there will take awhile as right now it is just a proposed rule, but certainly something to keep an eye on.

As always, you should consult an attorney with experience in these matters.






Your Website Legal Agreements Could Be Useless.

Did that title get you attention?

The post below is an excerpt from a post I have up on - a venture I am launching to help website owners make sure they are implementing website legal agreements properly.  The whole field is really an unbelievable mess.

Website Legal Agreements come in lots of forms –  Terms of Use, Service Agreements, Disclaimers…and many more.  Nearly every website has some form of legal agreement – which means that most site owners, their developers, and their lawyers realize the importance of using the right website legal agreements.

The problem, though, is that most of them are most likely unenforceable.  Not because of what they say (although that certainly could be the case), but rather because the website legal agreements are presented to the site user improperly. For example, burying a “Terms of Use” browsewrap agreement in the footer of a site might not make that type of website legal agreement enforceable.  Additionally, a “User Agreement” that is purported to be accepted by clicking a button or checking a box may not be enforceable of the acceptance process is not constructed properly.  The result of an unenforceable agreement is – well – a completely meaningless website legal agreement that has been reduced to nothing more than words on the internet.

So how do you fix this? Good question.

Generally, for a website legal agreement to be enforceable to a website’s users, the following criteria should be adhered to:
  • The website user must have adequate notice that the proposed website legal agreement exists.
  • The website user must have a meaningful opportunity to review the website legal agreement.
  • The website user must have adequate notice that taking some specified, optional action means that he/she has accepted the terms of the website legal agreement.
  • The website user must actually take that action.

I work with my clients all the time on these issues - and will be launching to help others fix this problem.  I think most people involved in an internet business - developers, site owners and operators, and even lawyers - simply assume that the only thing that matters when it comes to website legal agreements is making sure they are drafted properly.  Sure that is very important, but a contract only means something if people actually know it exists - let alone actually agreeing to it in an enforceable manner.

Have questions?  Give me a shout or ask you lawyer to give your website legal implementation a quick review. And be sure to check out when it launches.




Latest on JOBS Act: SEC Proposed Rules to Permit General Solicitation in Private Offerings – What This Means for Your Business

One of the most difficult aspects of raising capital via a Private Placement / Private Offering is finding potential investors – let alone convincing potential investors to actually invest in your offering.  The main culprit of this difficulty is the prohibition on using general solicitation to get the word out about your Private Placement.  No advertising.  No standing on stage shouting out top a bunch of strangers that you are raising capital.  Nope – you basically need to have a pre-existing relationship – and that narrows your choices big time.

The JOBS Act FINALLY looks to be close to changing all that.


Section 201(a) of the JOBS Act requires the SEC to remove the prohibition on general solicitation and general advertising in offerings done pursuant to Rules 506 and 144A, so long as all purchasers of the securities are “accredited investors.”  Also, it requires you to take reasonable steps to verify that purchasers are accredited investors, using procedures developed by the SEC.

On August 29, 2012, the SEC proposed several amendments to Rules 506 and 144A to implement these requirements.  Highlighted below are the important proposed changes the SEC made, three ways it would benefit you when seeking to raise capital for your business, and two key concerns you should be aware of.

Proposed Rules

Proposed Rule 506(c) would permit general solicitation and general advertising.  However, if you generally solicit or advertise under this new rule, you would essentially have to: (1) take “reasonable steps” to verify that all of the purchasers are accredited investors; and (2) check a box on Form D indicating that you are acting pursuant to Rules 501, 502(a), and 502(d), which allow for general solicitation.

No specific method is required for verifying a purchaser’s accredited status.  Rather than creating specific safe-harbor steps, the SEC  has stated that the steps that you take would be required to be reasonable under the “particular facts and circumstances of each purchaser.”  The SEC included a non-exclusive list of factors that you would consider when taking reasonable steps to verify, including: (1) the nature of the purchaser and the type of accredited investor that the purchaser claims to be; (2) the amount and type of information that is available to you about the purchaser; and (3) the nature and terms of the offering, including the manner in which investors were solicited, and the terms of the investment, such as the minimum investment amount. 

There was been some criticism that the “reasonable steps” standard may raise privacy concerns for accredited investors if issuers must seek personal financial information as a "reasonable step." The SEC attempted to address this criticism in its release by stating that the greater the personal relationship the potential investor and the issuer have, the lesser the level of investigation required to meet the "reasonable steps" standard. The SEC has pointed out that information for use in verifying accredited investor status is available from various public and third party sources are available for certain information that could be used to substantiate a claim of accreditation. The SEC has also suggested that receiving a letter from an attorney, a broker-dealer, or an accountant of the investor may be enough for an issuer to rely on the investor’s claim that he is accredited.

You needn’t comply with the new rules.  If you were to comply with the existing 506 and 144A rules—and you do not generally solicit or advertise—you would not be subjected to the amended rules.  There would be no additional verification requirements.

Be sure to keep records.  Regardless of the particular steps taken, it would be important for you to maintain adequate records that document the steps taken to verify that a purchaser is an accredited investor.


Key Benefits of Proposed Rules

Broader access to investment capital.  If you are starting a business, the SEC’s proposed rules are good for you in that they would offer broader access to investment capital.  The ability to solicit and advertise your Private Placement / Private Offering to a larger pool of investors would make it easier for you to raise capital for your business.

2 Key Concerns

1.  The SEC provided no specific steps to verify a purchaser’s accredited status.  The SEC did not provide sufficient guidance as to what “reasonable steps” you should take to verify that a potential investor is an accredited investor.  It only provides that the steps you take be reasonable under the “particular facts and circumstances of each purchaser.”  No clear, bright-line rule is provided to protect you.  An important benefit of the JOBS Act is that it allows you to know with reasonable certainty that your offering is exempt from registration under the Securities Act.  If your receiving of the exemption is dependent on individual facts and circumstances, it takes away a lot of certainty.  If the SEC does not provide more guidance, you should be very cautious and obtain as much information from qualifying investors as you can—including a letter from their attorney, accountant, or broker confirming their investor status.

2.  There is inadequate investor protection.  The proposed rules to the JOBS Act do nothing to guarantee that investors are adequately protected in private offerings.  Commissioner Aguilar was the lone vote against the SEC’s proposal for this reason.  It would allow some fiscally shrewd opportunists to promote ambiguous, high-risk transactions to the public to get some quick cash. 

Request for Public Comment

The SEC urges the public to submit comments in regards to its proposed rules.  The SEC’s proposal and request for comment are available at  Comments are due by October 5, 2012.

It will be interesting to see the SEC’s final adoption of these rules.  Be sure to check back for an update when it does so.

As always, you should be sure to consult experienced securities attorney before you engage in a private placement / private offering of securities.


Preparing to Sell Your Business - Tips from an M&A Attorney

Selling your business, whether it is a long-time family business or something your built up recently, can be both exciting and stressful.  Lots of times my clients are overwhelmed by not just the emotions that come along with what is typically a life changing event, but also the amount of work (legal and otherwise) that goes into selling a business.  Starting with the due diligence process, selling a business can be extremely time consuming.  

If you have the luxury of knowing ahead of time that you are selling your business, there are some things you can do to make the process go smoother.  I've included a few of those things below:


  • Get Organized.  Make sure you have all of your business documentation organized and easy to find.  If you have an M&A Attorney, ask them to provide a standard due diligence checklist for selling a business.  This will give you an idea of the types of documents a buyer will want to see.  Typically this will include corporate documents (i.e. your minute book), contracts with 3rd parties, financial statements, debt instruments and financing agreements, title documents, permits...etc.  Getting organized in advance will help you save time (and agony) once your deal negotiations (and the inevitable due diligence requests) start pouring in.
  • Make Sure Your Corporate Documents are Up to Date.  Check with your state to make sure any annual/ bi-annual filings for your business have been made.  If your business is regulated and requires licensure, make sure those are up to date as well.  Little snafu's like an expired license or expired authority to do business can really hold up the process of selling a business.
  • Do a UCC Search.  Have a UCC search conducted in your state.  Make sure you recognize anything on there.  Anything you don't recognize or anything that should have been removed - take steps to clean up. 
  • Have your books looked at.  Depending on the type of business and the size of the deal, you may need to provide audited financial statements.  Have you bookkeeper / accountant tidy up your books for the past 3 years so that if audited statements are required, you can get moving on them easier.
  • Do Some Reading on What to Expect When you Sell a Business.  (sort of is what you are doing now)  Beyond what you are reading here, try to familiarize yourself with some of the typically major components of a business sale and the types of agreements that will be used to memorialize the sale.  If you have an M&A Attorney, business broker or CPA - ask them for form documents that you can review (some light bedtime reading).


Taking any/all of these steps will make your life much easier when you finally get around to selling your business.  As always, make sure to surround yourself with qualified professionals, including an M&A Attorney with experience selling businesses.


Flat Fee Indiana Business Attorney - Why I Do it

Attorneys and law firms are notorious for charging by the hour.  In some instances it is necessary, such as when very adversarial negotiations are involved.  My practice deals with mostly all transactional matter such as private funding, contract drafting, mergers and acquisitions, and general corporate legal advice -  and for all of those and more I offer flat fees.  Sure, are there instances when adversarial negotiations merit billing by the hour - but even then - I employ a hybrid flat fee / hourly billing method.  For example, in the M&A context, a proposal might look like this for a small $1,000,000 asset purchase when I represent the buyer:


  • Flat Fee  include initial draft of an Asset Purchase Agreement, one round of revisions, and initial drafts of up to 4 ancillary documents (i.e. a bill of sale, assignment and assumption agreement, consulting agreement...etc).
  • Everything above and beyond is billed hourly, unless we agree ahead of time on additional levels to the flat legal fee.


The key is defining the scope of the representation that is included in the quote for flat fee legal services.  

Don't settle for a retainer / hourly rate unless you have to.  Make sure you at least ask for flat fee legal services when you are looking for an attorney.


Goldman Sachs to its US Clients - NO [FACEBOOK] SOUP FOR YOU!

Yesterday I was interviewed by the New York Post regarding my thoughts on why Goldman Sachs yanked its offer to its US clients to invest in Facebook, indirectly via a special purpose entity it set up that would act as a single shareholder of Facebook.  You can see the article here.  Here is the comment and quote they attributed to me:

Still, some legal experts said that Goldman is being overly cautious as there is little precedent for halting a private deal due to media attention.

"There's just no precedent for a deal being blown up because of hype in the media," said Brian Powers, an attorney specializing in private placements.


My understanding of the deal is that Goldman Sachs was offering shares of the special purpose entity to its high net worth, pre-qualified (i.e. accredited) investors.  The deal has been all over the media, as is anything that involves Facebook - and obviously anyone and everyone wanted in on the deal.  Problems arose on two fronts.  First, the SEC apparently was raising an eye over the requirement that private companies maintain no more than 500 shareholders.  I have no idea how many shareholders Facebook has, but the SEC was apparently concerned about this even though technically the Goldman Sachs deal was only creating 1 additional shareholder.

Second, and more importantly the reason being cited by Goldmans Sachs, the intense media attention made Goldman Sachs fear they would run afoul of the proibition against general solicitation and advertising in a private placement of securities - which this was intened to be.   The applcable regulation is rule 502(c), which states:


[N]either the issuer nor any person acting on its behalf shall offer or sell the securities by means of any form of general solicitation or general advertising, including, but not limited to, the following:
1) Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and 
2) Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.
The SEC and courts are pretty clear that an issuer can't just go out and advertise an offering to the general public in the newspaper..etc.  What is different here, though, is that there was no solicitation to the general public or even any sort of "advertisement" in general circulation - there was simply media attention - just lots of it.  The other difference here is that, despite the media attention, Goldman Sachs had no intention or desire to open the offering to anyone other than its own prexisting and pre-qualified clients.  On the surface, then, it doesn't seem like Goldman Sachs has done anything in contravention of SEC rules.
But that is a view from the outside, and I admit that I know very little about the facts here other than what has been reported in a few different media reports.  I don't know how the media attention started - did Goldman Sachs initiate it via a press release?  Was it leaked?  Did it offer the deal to its clients before the story broke?  A safer approach would have been to confidentially open the deal up to its clients BEFORE the story was released (or leaked) to the media.  If, instead, Goldman broke the story in the media BEFORE taking it to clients, the exposure to potentially blowing its exemption from the registration requirements is probably greater.


There is no way of really knowing what action the SEC may have taken had the offering remained on the table to Goldman's US clients. If I had to guess, though, this was simply a matter of eliminating an unecessary risk.  Media reports are saying that the offering was fully subscribed many times over, and I am guessing the entire offering can easily be subscribed via foreign clients. Rather than run the risk of drawing the ire of the SEC - I am betting Goldman decided to simply eliminate that risk and take the much less risky foreign money.



Buying or Selling a Business – Tips from an M&A Attorney

The RocketLawyer Press posted a guest blog post from yours truly today with some tips to consider when buying or selling a business.  You can find the entire post at this link.  In the article, I give a brief overview of some M&A options, a few legal considerations, and a few practical considerations.  M&A work is something I really enjoy.  Check out the post and shoot me a message if you have questions.


Virtual Lawyer Spotlight - Brian Powers (hey thats me!)

Last week I was profiled on The Sociable Lawyer blog regarding my "virtual law practice."  The blog is running a series of posts regarding the changes on how legal services are obtained and delivered online, and I had the honor of being the first attorney profiled.  I have included a few highlights from the article below, but you can click here to read for the full article.

Tell us a little about yourself and your practice:

I am a solo practitioner – my practice focuses on corporate transactions including M&A, private capital raises, corporate formation, technology related transactions, and general contract work. I work with startups and established businesses of all sizes from all over the world.

What does the term “virtual law practice” mean to you?
A virtual law practice is a practice that utilizes technology to increase efficiency and reduce much of the needless overhead associated with the traditional practice of law. This doesn’t necessarily mean that in-person contact with clients and other attorneys is eliminated, but when possible and appropriate, communication is conducted electronically via email, phone, or a secure client website. Paper is minimized, physical file storage is reduced, the need for staff is reduced, and the need for traditional brick and mortar office space is all but eliminated. The result is a very efficient way to practice law as a solo practitioner.

What is your business model? (i.e. who are your clients and how do you serve them?)
My clients tend to be technology companies, although I have clients from a wide range of industries. I use my efficient practice model as a sales pitch to prospective clients – i.e. – I provide top notch legal services, I am very attentive to client communication, and turn client work around quickly. I can do this at affordable rates and fixed fees by virtue of my practice model. That is really what most clients want – quality work, good communication, reasonable turn around time, and affordability. I also have a portion of my practice that exists almost exclusively online by using web based document assembly software.


Selling Your Business? Here's a Checklist (Part 1).

In my M&A Law Practice, I work with clients who are selling a business all the time.  This can be an exciting and stressful time for business owners - and often times they become overwhelmed by the process.  In addition to the legal advice and services I provide, I always try to help them the other aspects of this process.  Below I have created a simple checklist of the things I usually share with business owners to help them wrap their mind around the process of selling a business.

Some Practical Considerations

  1. Make sure you think through the reasons you are selling a business.  This may sound obvious, but there are lots of implications to selling a business.  Are you tired of the business?  Do you want to retire?  Do you want to remain involved with the business, but just need/want the capital from the sale?  All of these sorts of things should be considered when working with your M&A attorney and other advisers in determining the terms of the sale of the business
  2. Is this a "family business" in which your children or other family members have an interest or expectation of long term involvement?  Sometimes people sell off a closely held business without considering the options of keeping the business in the family for future generations.  While this might not be a possibility or option for some, it is something I always recommend people give some thought to.  There are ways to step away from the a business, generate passive income, and still hand it over to family.
  3. Is finding the right buyer important to you?  A business owner who has spent years building a business might often be reluctant to sell the business for fear of a potential buyer not maintaining the business in the vision of its founder.  Some business owners don't care about this - but if you do - finding the right buyer for your business becomes very important.
  4. Determine what you want to get out of the sale of your business before you begin negotiating terms.  Don't let a buyer dictate the terms when you sell a business. Before you begin the process, put a great deal of thought into what you want or need to get out of the sale. Use that as the primary driver as you negotiate terms.  For people selling a business out of desperation, this might not help things all that much - but still - it is important to remember why you are selling your business as you work through the details.

Check back soon for  a checklist of some legal stuff you should add to your checklist when selling a business.