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Answering your startup legal questions
Mike

Mike Halloran

Have a startup legal question?*  Send it to askmike@berkeley.edu

 

Michael J. Halloran is a Berkeley alum and legendary Silicon Valley attorney.  He is founding partner of the firm Halloran, Farkas, and Kittila LLP and spent more than thirty years in private practice at Pillsbury Winthrop. From 2006-2008, he served as counselor and deputy chief of staff at the Securities and Exchange Commission.

Mike is also the editor of Venture Capital & Public Offering Negotiation (1981), a leading text on investment in developing companies, formation of venture capital funds, and initial public offerings.

In this series, Mike will answer student questions and work to give his views on the legal challenges involved in building a startup.

 

*The information supplied by Mike Halloran on this website is not legal advice . They are his views in the absence of specific case facts. Legal advice can only be provided through direct interaction with a specific person or business and after an engagement letter has been entered into. Neither Mike nor his firm , Halloran Farkas + Kittila , LLP,  have any liability or responsibility for the information provided on this website. 

October 13, 2017

Dear Mike,

I'm a current Haas student working with a startup and we could use some help!

There are a few immediate questions that we could definitely use some help understanding if you have any insights here:

    1. 1. Financing provided to a subsidiary can or can't be passed to the parent company if the parent is a US entity and the subsidiary is an entity in Botswana?
    1. 2. How do the liabilities and risks of a subsidiary affect the parent company and the investors of our parent company?
    1. 3. What's the best way to cut unvested team members who aren't performing?

Any help you can provide would be much appreciated.

Signed,                                                                                                                                                                                                                                                                                                                           Enterprising Undergraduate

 

Dear Enterprising Undergraduate,

Thanks for submitting your questions! Here is my take:

    1. 1. I know zero about Botswana law. If the parent and subsidiary are US corps (Delaware or California) and the financing was provided at the subsidiary level for some reason, the sub could declare a dividend of the financing to its parent tax-free or loan the money to the parent provided it did not render the sub insolvent.
    1. 2. I assume the sub is wholly owned by a parent. Anyway, provided sub is adequately capitalized and operated separately its liabilities are its own and not its parent's and creditors of the sub could not pierce the sub corporate veil and get to parent. That is the legal answer. The business answer is that parent and sub will likely put out consolidated financials and investors will see the sub liabilities on there--will have to be careful to note they are sub liabilities
    1. 3. I assume they are located in CA. If so, the best way is to do a negative performance review or two, give them a chance to improve and cut them if they don't. Eliminates the risk of wrongful discharge actions.

Best,                                                                                                                                                                                                                                                                                                                                           Mike