Stock Options vs Warrants

Clients frequently ask us the differences between “stock options” and “warrants” and which is the right instrument for compensatory arrangements. Stock options and compensatory warrants are a great way to align the interests of a company with another individual or entity.

Of the two, stock options are more commonly used for compensatory purposes and can be issued to key employees, officers, directors, board members and other service providers.  Typically, the company will have a stock option plan under which they can issue a maximum number of stock options.   The issuance of stock options will be governed by the stock option plan and will usually have a vesting period, repurchase rights in the event of termination of service and other restrictions. The stock option is being used as a compensatory vehicle in order to increase an individual’s (or entity’s) overall compensation.

On the other hand warrants are not issued pursuant to any stock option plan and typically will not come with vesting restrictions.  Warrants are more typically associated with investment transactions, however they can be used similarly to stock option as compensation.  The typical term for the exercise of a warrant lasts longer then a stock option – it is not uncommon to see a warrant that lasts for ten years (although that is far more common with investment transactions), while a stock option will typically have a much shorter exercies period.  While a warrant can be used for compensatory purposes, it is important to note that a compensatory warrant will likely be taxed just like the compensatory stock option, while a investment warrant will have far different tax implications).

In short, stock options and warrants can both be used for compensatory purposes, but it is far more common to issue stock options under a stock options plan.  The differences are largely superficial and can be minimized by drafting either document to suit your company’s needs.  Before deciding which instrument is right for a company it is important for both the company and the recipient to consult its attorney and tax advisor.

Chicago Tribune

Peter Minton was quoted in the Chicago Tribune on using competition to your advantage:

“As fellow professionals, other attorneys are actually one of my best sources of clients and can be great resources for my practice and clientele. I may bring them in for a client because of a conflict with one of my other clients on a project, for extra help during an upswing in business or if the other attorney is just a better fit for the client’s immediate legal needs.”

The full story is available here.

Accredited Investors

Whenever a company offers or sells its securities, it must register with the US Securities and Exchange Commission (the “SEC”) or do its offering under the an exemption from the SEC’s registration requirements.  For many angel rounds, the exemption used is Ruglation D of the Securities Act of 1933 (the “Act”).  An important consideration when ascertaining whether an issuance is properly exempted under Reg D is an inquity into whether the investors are “accredited” under the Act.  The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:

1. a bank, insurance company, registered investment company, business development company, or small business investment company;

2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;

3. a charitable organization, corporation, or partnership with assets exceeding $5 million;

4. a director, executive officer, or general partner of the company selling the securities;

5. a business in which all the equity owners are accredited investors;

6. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;

7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or

8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

For more information about the SEC’s registration requirements and common exemptions, read the SEC’s brochure, Q&A: Small Business & the SEC.

Start-Strong! Pre-Employment Boot Camp

I had the honor of being asked by the U.S. Department of State to speak to a wonderful group of young Latvians at the Start-Strong!  Pre-Employment Boot Camp in Liepaja, Latvia this past July 30th.  The boot camp involved more than 500 Latvian youths, and my seminar focused on effective communication.  The attendees were a great group and I really hope they found the experience as enlightening as I did.

Hanging Your Own Shingle: Building a Successful Solo Practice

I had the pleasure of speaking last week on a panel on going solo with Angela Barker, of the Law Office of Angela Barker, LLC; Allison G. Greenberg of Fensterstock & Partners LLP; Ian E. Scott of Scott Legal Services PC and moderated by Daphney Francois of Francois Legal Services.

I thought it was a very successful panel – the diversity of backgrounds and paths taken to create the varied practcies represented on the panel was very inspiring.

More info on the panel is available here.

Asset Sale Closing

I am very pleased to announce that this past month the Minton Law Group closed its largest M&A transaction to date – the sale of an eCommerce retailer for $26M. The purchaser was represented by Paul Weiss, home to so many fellow Georgetown and SRZ alumni, and it was a real pleasure to work them on the deal. I truly cannot express how happy I am for my client or how proud I am the excellent work my team did.

Posted in M&A

May Milestones

May was a great month for the Minton Law Group.  First, the firm signed on its first attorney, Josh Levin.  I had the pleasure to work with Josh at Schulte Roth & Zabel, and was impressed with his work and attitude when we worked together, and I have first-hand knowledge of the high-level training SRZ’s corporate associates obtain.  While helping me, Josh is also an entrepreneur who recently co-founded Flash Tabs (www.Flash-Tabs.com) a mobile app that allows bar and restaurant patrons to open tabs, place orders and make payments directly from their smartphones by processing orders and payments through each venue’s existing point of sale system.  Needless to say, he is very a busy man.

Second, May marked my first month with three deal closings that spanned the gamut of convertible notes, preferred stock and LLC membership purchases.  It was a fantastic month and there are a lot of reasons to think that trend will continue.

Finally, on a personal note, I am pleased to say that I joined the Board of Directors of the Penn Club, and am looking forward to doing a lot of neat things through that position.

6 Legal Requirements For Unpaid Internship Programs

My latest article in Forbes has published:  “6 Legal Requirements For Unpaid Internship Programs“.

“[T]here are some very serious legal considerations every for-profit company –including startups — must be aware of before attempting to use unpaid interns.

Under federal law, every employee in America is entitled to a minimum wage, additional compensation for overtime and certain other benefits. An employment relationship will also have consequences for the employer relating to worker’s compensation, discrimination laws, employee benefits, state labor laws and unemployment insurance coverage. For these requirements not to apply, the employment relationship must fall under applicable legal exemptions.”

Please read the whole thing.