Founders of companies face unique legal issues and have unique needs. We provide tax, corporate, and related advice to founders during the many stages of their careers, from start-up to expansion to IPO, from venture funding to merger or sale. We often represent founders and chief executives of companies. Founders have unique legal and tax needs that often cannot be satisfied by the counsel representing the company. Often, corporate counsel is ill-equipped to handle the legal (and particularly the tax) needs of the founders. And, in cases where corporate counsel could provide appropriate tax and legal advice to founders, conflict of interest rules frequently prevent it, especially in the post-Sarbanes-Oxley era.
Accordingly, we find that we often represent founders distinct from their companies. Generally, such representations arise when there is some fundamental change afoot with the founders' company structure. For example, the founders may need separate representation when their company is in the process of being acquired by another company. Perhaps the company may be resolving legal disputes with others, possibly even including the founders. Alternatively, the founders may be transitioning out of the company, or transitioning to a quite different role as their company grows.
Representing a founder in any of these circumstances does not necessarily mean there are overt conflicts of interest between the company and its founders. There may be conflicts of interest between the founders and their companies that are plain to everyone. However, we normally find no overt conflict of interest, but one that is decidedly subtle. We find that founders are often slighted in the process of any of these organic changes.
In representing founders during the process of their company being acquired, for example, we frequently work closely with company counsel as part of the same team. The founders have their own unique tax and legal issues in such acquisitions, which may include on or more of the following:
Founders may be asked to make representations and warranties that are different from the representations and warranties made by other executives. Sometimes founders will be asked to make these representations and warranties jointly and severally, and their magnitude may be out of all proportion to the founders respective economic interests in their company.
Examples of significant matters in which we have represented founders include:
Represented one of the founders of Epinions, Inc. against several prominent venture capitalists concerning founder and employee stock valuations in the merger of Epinions with Dealtime Ltd., forming Shopping.com.
Founders often have unique tax problems and issues. Today, there is increased governmental scrutiny on founders and executives. In fact, the IRS has begun targeting executives for examination. The initiative is part of a broader IRS focus on high income and highly compensated executives, entrepreneurs and others. Various corporate scandals caused the IRS to target a range of executive compensation issues, including stock options, deferred compensation, golden parachutes and fringe benefits. After an IRS pilot program exposed problems with executives tax returns, the IRS now routinely examines the compensation of executives as part of their audits of large corporations. In fact, in large corporate audits, the IRS now asks its agents to specifically request the tax returns of key executives.
Occasionally, tax issues for founders arise primarily because of their significant shareholdings in ways that technically do not implicate or involve the company. For example, we represented founders or key insiders of a number of companies with respect to certain particular tax issues.
Representations include:
Represented a founder of Objective Systems Integrators, acquired by Agilent Technologies, Inc., in a state income tax controversy.
References available on request.
