Why Startups Need Legal Counsel | Jackie Ammon

 

About Jackie Ammon

Jackie Ammon is a senior associate who focuses her practice on corporate matters at WilmerHale. Prior to joining WilmerHale, Ms. Ammon was a judicial extern for the Honorable Frederick F. Mumm of the US District Court for the Central District of California. In that role, she wrote Report and Recommendation for Petitions for writ of habeas corpus and social security disability appeals. Previously, she lobbied with the Fraternity and Sorority Political Action Committee. In 2008, Ms. Ammon was an intern at the Office of Speaker of the House of Representatives. While there, she supported Nancy Pelosi by researching and writing memoranda for the General Counsel on prison terms in Guantanamo Bay, and assisted with monitoring healthcare and energy legislation.

Episode Transcript of: Why Startups Need Legal Counsel | Jackie Ammon

Alan
Welcome back. I’m here today visiting with Jackie Ammon. She’s an attorney with Wilmer Hale Jackie, welcome to J show. Hi.

Jackie
Thanks for having me.

Alan
So, Jackie, for the listeners, can you give us your background and what brought you up to where you are today?

Jackie
Sure. So I didn’t know really, that I wanted to be an attorney, when I was in college, just kind of, you know, having fun and studying political science, which is a degree that can go a lot of directions. And my junior year, I did an internship in the Speaker’s office in Congress, in Washington, DC, and all the staff are lawyers. And I loved it so much, I realized, if I want to be anywhere near this, I need to become a lawyer. And so that was kind of the drive the rest of my junior and senior year in college, fast forward, go to law school in San Francisco and realize that not just kind of Congress government, but I just loved working with people, and found that corporate law was really going to be a passion of mine, because of the ability to work with, with clients so directly. And as a result, got a job at Wilmer Hale, and I’m now practicing corporate law in Silicon Valley.

Alan
You know, it must be exciting in Silicon Valley with the how much alive it is with new innovations and new companies and and as you’re doing corporate transactions, or is there a particular type of company that you enjoy working on? More?

Jackie
Yeah, so my favorite companies are actually the ones that I get, before they’ve done anything, it’s the quintessential two guys in a garage, you know, coding and coming up with an idea. And I really love those companies, because I get to grow with them. You know, you see them when it’s just an idea, and you watch them turn into a company that’s creating jobs, and potentially saving lives or changing the world in some way with their technology. And those are really my favorite kinds, because, you know, a lot of the issues that they encounter a novel, and so they’re not only novel to the client, but to me. And so getting to work those through those together is really fun.

Alan
So when, when a client comes to you, how do they usually find you?

Jackie
It’s a great question. You know, the valley is small, even though it’s big. So, you know, a lot of times it’s through clients, I’ve already had, you know, referring, sometimes people, just google search lawyers, I mean, as silly as that sounds, but you know, our firm has a good reputation for being able to help with a lot of different areas, right, you’re having IP issues, you want to file a patent, we can help with that, you know, if you’re having regulatory issues, I have a client that is working through some FAA regulations, which just seems a little unusual for a tech company, because they’re obviously not an airline. But you know, we can help with the regulatory issues as well. And then I kind of feel as the corporate attorney, that I’m the quarterback. So you know, I’m helping the business grow and helping with corporate governance. But I also get to be a part of all of those other aspects that we’re helping with on the legal front.

Alan
At Wilmerhale, they have multiple locations across the US.

Jackie
Yes. So we have two big offices in Boston and DC, probably our second biggest office is our Palo Alto office. We have one in Los Angeles, and then one in Denver. So I’m hoping to make my way out to Denver soon and work from out there.

Alan
Oh, my goodness. And so then in the in Silicon Valley office, how big is the office there,

Jackie
It’s about 90 attorneys, which is pretty large, you know, we’re not one of the biggest in the valley. That’s because we’re based out of the east coast. But, you know, I like to think of our Palo Alto office as the small office feel with the big office resources, that and so you kind of get, you can get to know your attorney really well, you know, have a lot of one on one time if you want it. But we have the resources that you know, a multinational 1000 person 1000 attorney firm has,

Alan
hat’s important for today’s business environment, for companies that want to scale.

Jackie
I think so. I mean, you know, when you’re kind of going back to what I was saying before, about, you know, being able to start with people from the beginning, a lot of those people need a lot of hand holding in a good way, right? You know, you don’t know anything about running a business, you know, a lot about the substance of your technology or what you’re doing. But, you know, I get to really teach people how to run a business. It’s not just necessarily, you know, how are you going to structure this legally, you know, is it going to be an LLC? Is it going to be a corporation? Are you going to be who’s going to be on the board who are going to be the officers? How are we going to run a board meeting? That’s all part of it. You know, and that’s, that’s illegal, but a lot of it’s, you know, how do you fire somebody I had to help a team fire CEO about a month ago. That’s not really legal, that’s business and so we get to do it all

Alan
There’s little companies you have to be the jack of all trades and you know, in knowing how to advise clients as you go through their their growth spurts, yeah, absolutely. So Jackie, I need to take a quick break. And after the break, when we come back, I want to I want to talk about the What’s New and structuring of companies in the industry today. So busy here with Jackie Ammon. She’s at Turning with Wilmer inhale, we’ll be right back after these messages.

Alan
Welcome back, and I’m here today with Jackie Ammon. She is a attorney with Wilmer Hale and Jackie, before the break, we’re talking about your background of why you got into corporate law and the types of companies that you work with. And I want to, I want to just start off with, you know, two entrepreneurs come to you they have a company that they want to form, and how would you advise them? Right, in terms of how do they select the entities? You know, what are their options there? And, you know, how do they get things going off the ground?

Jackie
Yeah. So usually, the first question is, do you want to be venture backed? Are you trying to raise money from third parties? Or are you trying? Are you going to build up with your own revenue? And that’s, that’s really, I mean, as you know, that’s tax driven. And that, and that’s really what drives the question, if you’re looking to raise money from a VC or some kind of angel investor, you really need the corporate structure, primarily because entities can invest via an LLC, if you’re going to be a small company kind of grinding on your own initially, and you want to be able to take the losses and gains on your personal tax return, then the LLC is going to be the way to go. I don’t usually advise startups, the two boys in the garage coding to go the partnership route, especially later on the liability concerns make a corporate structure or an LLC, a more a more viable option. And what I mean by that, when I say liability is, you know, let’s say your product hurt somebody, you don’t want your personal assets to be on the line. So a corporate structure or corporate form, will protect the founders from from personal liability,

Alan
In today’s world, I guess is, is as things evolve, we see a lot of different structures going place. And also people have the opportunity, again, just reviewing that partnership, sole proprietor, sole proprietorship that go to the corporation and, and in the deal structure. You know, typically a lot of companies that want to grow the entrepreneurs, usually they got the ideas, but they don’t have the money. And so what’s the right time for them to start coming in and entertaining? Should I be taking funds early on? Should I wait a little bit? How would you advise him is as the attorney,

Jackie
so there are a couple of ways to raise money, I wouldn’t, you know, unless you can find, quote, unquote, good money, you know, early on, you don’t really want to give too much too much equity away in your company, right, you’re building this thing from scratch, you want to hold on to as much of it as you can, as long as you can. So usually, we advise clients to do some kind of convertible debt, and that you can just raise, you know, a couple $1,000 at a time, friends and family really easy. Well, you know, easy easier than, you know, your equity, equity financing. And that’s usually the route that I recommend startups take early on, you know, a lot of times you can, you know, Bootstrap, you don’t need a lot of money. If you’re just two guys in a garage coding, as long as you have your computers, you can probably get pretty far without too much funding, as long as you’re okay, you know, eating bread for dinner and living in your garage. But, you know, I think the convertible debt is a good way to raise money if you have people who are willing to put a little in and take the risk.

Alan
So Jackie, what’s the risk of the person who, you know, the you got the new technology out there in the CPA world? TurboTax and quicken and in the law world, a Legal Zoom in these, do it yourself? What’s the risk of a person saying let me just Bootstrap and do everything myself and just go online? You know, what’s their downside?

Jackie
I mean, I think the downside, and you know, I have a lot of clients who come in who have used Legal Zoom. And it’s not that you can’t do that, but no company is one size fits. All. Right, everybody has a different story and LegalZoom. And those kinds of products that are available, are really pigeonholing every company into one kind of one kind of company. Right? So for instance, when you’re a corporation, you file your charter publicly in Delaware. And so you might have things in there that, you know, LegalZoom just as you don’t actually want to be public. And that’s something an attorney can advise you on early on that you might not even think about or realize. You know, a lot of people worry about the cost of an attorney early on. On and I can totally understand that. And I what I would say to that is a lot of the firms in the Valley. Understand that when you work with emerging companies, you understand that they can’t afford, you know, 1000s and 1000s of dollars of legal fees early on. And so I would encourage entrepreneurs to negotiate with their attorneys. You know, people are flexible. They want to get paid, everybody’s running a business. But you know, people are flexible, they understand. And they’ll try and work with you. So you shouldn’t be afraid to engage an attorney just because of the legal fees, because frankly, it’s going to be more expensive to clean up the mess later, than it would be to just do it right the first time.

Alan
That’s great advice. I’m visiting here today with Jackie M. And she’s an attorney with Wilmer Hale, Jackie needs to take a quick break, and we’ll be right back after these messages.

Alan
Welcome back and visit here today with Jackie Ammon. And she’s an attorney with Wilmer Hale and Jackie, before the break, we talked about your specialization as a corporate attorney helping companies with their deal structure putting things together. But when clients come to you, if I could just ask the question, what are some of the the misconceptions or you know, how people are misdirect when it comes to thinking about how an attorney can help them?

Jackie
Sure, so I think there’s three common issues that I see with clients coming in, at an early stage. The first is that everybody’s gonna get along. And by that, I mean that all the founder, you know, we don’t have to do a lot of paperwork, we don’t have to lock everything up, because we’re all friends. And we’re gonna remain friends through this whole process. And, you know, the lawyers are around to say, that might not be the case. And I see it happen all the time where a founding team comes in, they think everything’s gonna be great. They don’t want to sign paperwork to protect IP or things like that. And next thing, you know, six months later, someone leaves the company has a huge stake of equity. And there’s not a ton we can do, because we didn’t, you know, the company didn’t want to correct the paperwork at the time. So I think, you know, there’s nothing wrong with admitting that things might go sour, or people might decide to part ways. So it doesn’t have to be a scary conversation, it just has to be a realistic one. So that’s something the attorney can help with. And I think that’s pitfall number one. Pitfall number two, which is somewhat related, is not getting everybody to assign their IP to the company. For a lot of these technology companies, intellectual property is their asset, that is the value besides the people. So if everyone’s not giving their IP assigning the IP to the company, when it comes time to get financed, or sell the company, you run into the problem of does this company actually own the assets it purports to own. And so that’s something the attorneys again, can help with at the outset, but everybody who’s doing anything at any kind of technology company, should be signing intellectual property assignment agreements. And then the third, I think, is, you know, not taking care of your books and tax issues. You know, we’ve talked about this before, but are, in my opinion, business laws is highly driven by by tax law. And, you know, you need to have clean books, you need to have clean records. And so you know, engaging a bookkeeper or an accountant early, who can help you with those issues. And, you know, QuickBooks can be great. But again, you need somebody with the expertise, because not everything is one size fits all, and you want to make sure that you’re doing it right at the beginning. So you don’t have to spend the time and money cleaning it up later.

Alan
It’s good advice. And I Oh, I’ll add to that, that is probably what you see is is the more persons organized and upfront getting started on the right. Foundation platform, the easier it is for them later on.

Jackie
Yeah, I would think so. You know, when I when I talk to entrepreneurs, I like to say, you know, it’s like Hansel and Gretel, follow the breadcrumbs. Right, when somebody when an investor wants to come in, and, and invest in you, they’re gonna want to take a look at your entire corporate record. And you want to make it really easy for them to follow the breadcrumbs of how you got from point A to point B to point C to now where you are getting invested. And if your books aren’t clean, if your paperwork is not clean, if it’s hard to follow, if you’re doing things that are, you know, out of the ordinary for Silicon Valley, you’re just going to make it harder for yourself down the road.

Alan
You know, Jackie, there’s a lot of companies that seem to be incorporating in states like Delaware, but they’re doing business here.

Jackie
Why? It’s a great question. So you actually can incorporate in any state in the country and be what’s called domicile there. And then do business in any other state. And so we actually recommend that all of our clients incorporate in Delaware, Delaware makes its money, you know, it’s a small state. And maybe a lot of people can’t even point to it on a map. But they’ve really made their name by being incredibly business friendly, being incredibly efficient, you know, working with the businesses to get things done. And that business friendly attitude makes them a great place for a company to incorporate cheaply and efficiently. And then if you’re doing business in a state, like, say, California, where we are, we can qualify you as a foreign entity here. So that you’re, you’re also doing business in California, but your primary, you know, corporate issues are going to be handled in Delaware.

Alan
Now, there’s, there’s a trick to getting a Delaware company set up and it has to do with the number of shares, can you maybe cover that.

Jackie
So we recommend that our clients authorize about 10 million shares. That’s a magic number for a couple of reasons, but primarily keeps the taxes the franchise taxes low. In Delaware, it’s kind of a sweet spot number. It’s also you know, from a corporate perspective, when you’re issuing equity, or really high numbers, so that you don’t have to go back and amend your charter a bunch of times to have equity in order to be issuing it out to various founders, or if you want to, you know, take on an investor who wants stock. So, you know, franchise tax, again, everything’s tax driven, right? And we find that 10 million is the magic number. I think most law firms in Silicon Valley would agree.

Alan
Yeah, there’s also something with securities law where Delaware and stuff ends up being a little bit more favorable with their security.

Jackie
Yes, I think so. So Delaware’s courts actually are split into two and the Court of Chancery handles most corporate matters. And again, talking about being efficient and quick, you know, the this Court sees all sorts of cases, they are well well versed in corporate law in Delaware and federal securities laws as applicable. And so, you know, if you were to engage in shareholder litigation or something down the road, or you have securities laws issues, you know, the Court of Chancery, can help smooth the process as much as possible. I mean, still a court, you still have to litigate, it’s still expensive. But, you know, I think overall, Delaware is really the place you want to be. There’s some word recently about Nevada trying to be Delaware, part two, you know, if companies want to incorporate in Nevada, I usually say, we can do that Delaware is probably better right now. But, you know, if Nevada keeps moving forward, and trying to imitate Delaware and being business friendly, I think that might also end up being a good spot, and maybe a little bit closer for the California companies.

Alan
Now, in the in the world, today, the world is getting a lot smaller with technology, a lot of people are doing business across the border, any particular thing they need to know if they’re going into let’s just take a country like Canada.

Jackie
Yeah. So you know, a couple of things. One is to know that you just are going to have to do business a little differently there. You know, when you’re moving into a different country, you should get local counsel, you should get local tax advice. Because everything’s going to be a little bit different, you know, we can help to a certain extent, but having local counsel on the ground, who knows what’s going on is priority number one. I think another thing that, and this varies across states as well. But in addition to going international, the HR issues are really important. You know, countries, treat employees a certain way, they have different visions about how employees should be treated. And so just because they do it one way in California doesn’t mean they do it that way in Pennsylvania, and it certainly doesn’t mean that they do it that way, in, you know, England or Canada or China. And so when you’re going to have employees move internationally, or you’re going to hire people internationally, you really need to be cognizant of, of the issues that might arise. And I think that’s where most companies land into trouble. You know, we’re pretty well versed in getting funds internationally, right? If you want to raise money from an investor overseas, that’s a little easier, but things like HR, things like hiring employees, things like taxes, that’s that’s stuff that you really need to get local advice on, to make sure that you’re doing it right and that you’re in compliance with the jurisdiction that you’re in.

Alan
Jackie, for any of the listeners that would like to reach out and contact you how do they do so?

Jackie
So you can go to the wilmerhale website, just Google wilmerhale and search my name, Jackie Amman, and you can find me on there. All my my V card information is on the website.

Alan
I’ve been visiting here today with Jackie Ammon. She’s an attorney with Wilmer Hale Jackie, thanks for being on today’s show.

Jackie
Thanks for having me.

Alan
We’ll be right back after these messages.

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This transcript was generated by software and may not accurately reflect exactly what was said.

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