Tag Archive for: startup

The Importance of Investor Updates

By: Gabriel Goldenberg & Natasha Harris, with comments from Steven Masur

Leading angel investor Jason Calacanis’ Rule of Startups is “If your startup isn’t sending you monthly updates it’s going out of business.”  In other words, keeping your investors up to date on what you’re doing is crucial in generating investor engagement and building the relationships that contribute to a startup’s growth. For companies working toward going public, investor updates create a helpful foundation for the type of reporting required of public companies.  Investor updates also protect you from investors claiming that you did not share enough information with them about what you were doing with your company, and their money. So, even if you are a very early stage startup, if you expect to have investors, implement the habit now of writing a monthly investor update, so that you become proficient at sharing both good and bad news in the best way.


What Are Investor Updates 

Investor updates are communications that share key qualitative and quantitative data with investors. The information that a private company discloses to investors is governed by the company’s governing documents and in some states, by statute. But, since private companies raise money from private investors and not the investing public, they are not subject to the same disclosure laws as public companies. Thus, the level and frequency of disclosures is much less for private companies than for public companies. Even so, private investors do have a right to information about their investment. Information reports can include financial data, upcoming business decisions, any press or media updates, and ways that investors can get involved. If you are doing this correctly, it should be easy for you to write, easy for investors to read, and you should receive good feedback. You can find an example of an investor update in the Resources section.


Why Is It Important 

Companies that regularly communicate with their investors are twice as likely to raise follow-on funding, and are much less likely to get into trouble with investors because they failed to keep investor expectations in line with the realities the companies face in the market.  Underlying Jason’s Rule of Startups is the principle that if a company does not communicate with investors, it is because there is nothing noteworthy to communicate – a terrible sign for business. Investors have a right to know both good and bad developments in company affairs as it affects their investment in your company.  In fact, consistent communication with investors, no matter the nature of the update, instills a sense of confidence that the business is running effectively, even if it is facing difficult times, and allows insight into the business’s overall health.

Maintaining trust with your investors is critical.  Notably, your updates should not solely focus on the company’s ‘wins.’ Highlighting only the good news can lead to doubt about whether the business is being forthcoming with crucial information, which can damage an investors’ trust, which can lead to a myriad of problems.  Instead, it is most helpful, and leads to better relationships with investors, to share a holistic view of the company’s status, including both the good, and bad news. It is important to note that investors who trust you can be helpful to the business beyond their capital. They often have knowledge, experience, and networks that startups can leverage in a growing the business. Founders who send regular updates are in a better position to ask for and receive help, contacts, and even new investments.

Investors are less likely to make introductions with their valuable contacts if they do not know what is going on in a company. With more information, they can gauge how beneficial an introduction would be for both parties and not tarnish their relationships by making perceivably wasteful introductions.


Things to Consider When Drafting an Update 

In drafting investor updates, consider the acronym STAT.


  • Beauty, Format, and Style: The style of the update should be tailored to the nature of the brand and investors. Whatever the chosen style, be sure to divide the information into digestible sections for easy reading. Also, once you have developed a good format, stick with it, so that it is easy for you to draft the next update, and easy for investors to read it quickly.
  • Frequency: Updates should be scheduled so that there is enough time to make progress and provide substantive updates as a result.  If monthly updates feel too often, provide quarterly updates.  Once you decide upon the frequency, it is important to ensure the updates are delivered consistently at those times. Consistency signals reliability and increases the level of trust investors have.
  • Disclaimer: It would be prudent to add a disclaimer in updates that confirms that the information is strictly confidential, and provided as a courtesy; It is not intended to establish a course of future conduct and should not be construed as varying the terms expressed in the Company’s definitive agreements; and the update should not be construed as a guarantee of future performance and undue reliance should not be placed on it.
  • Brevity: The point is to have consistent contact, so there is no need for lengthy updates. It lessens the work required to draft the update and makes it more likely that investors actually read it.


  • Include short narratives about how things have changed for the better or any setbacks experienced.
  • Create helpful metrics that will help investors understand how growth is measured. As the values change, include brief blurbs with insightful context.
  • Highlight any added traction that the business has been getting, whether through profitability, revenues, publicity, partnerships, or other engagement.


  • Leverage investor expertise and point out how they can become further involved.
  • Make thoughtful asks and avoid creating a laundry list of to-do items.


  • Consider placing a spotlight on investors who have helped the business recently. It is an effective way to show appreciation and can prompt other investors to be more involved.



What to Do To Qualify For QSBS Exemption

By: Steven Masur, Tim Fisher, and Danielle Cerniello

We recently analyzed whether entrepreneurs should close their LLC and open a corporation (more specifically, C-Corp) to reduce or avoid capital gains tax on the sale of their company under Section 1202 QSBS (qualified small business stock). In response, this article will take a deeper dive into QTB (qualified trade or business); discussing the relative merits of states in which to incorporate; and describing the limitations to exclusion rates anticipated under the Biden Administration.

What is Section 1202 QSBS and How Do I Qualify?

In the event your business qualifies under Section 1202, then upon the sale of your business, instead of owing your capital gains tax to the IRS, some or all of the capital gains will be excluded from federal tax. This exclusion applies to non-corporate taxpayers, meaning individuals, partnerships, limited liabilities taxed as partnerships, and trusts. Moreover, based on a change in the law in 2010, if you acquired the small business stock after September 27, 2010, then you can exclude 100% of the capital gains. Lastly, you can exclude up to the greater of $10 million or 10 times the adjusted basis of the gain. However, if all of the capital gains are not excluded, the taxable portion has an assessment at a maximum tax rate of 28%.

In order to qualify, there is a minimum holding period of five years. This means that if today, you changed your business form from an LLC to a corporation for tax purposes (either by conversion, by merger, by electing to be taxed as a corporation, or by dissolving the LLC and forming a corporation) and sold stock or sold the entire company a year from today, you would not qualify for Section 1202 QSBS tax benefits. However, if the sale instead occurred five or more years after becoming a corporation, then you may qualify for Section 1202 QSBS tax benefits. The key is that Section 1202 should be used as a strategic planning mechanism if you are likely to sell your business in five or more years. It is not as simple as switching from an LLC to a corporation and then realizing benefits the following tax year.

Further, to be considered QSBS, the stock must be that of a domestic (US) C-Corp.. As a practical matter, once a corporation is an S-Corp it cannot qualify for Section 1202 QSBS tax benefits by changing to a C-Corp.  Moreover, the gross-asset tests must be met, meaning the company’s gross assets cannot exceed $50 million.

You Must Be A QTB To Qualify

The company must be a qualified trade or business (QTB) for substantially the entire five-year holding period. Essentially, Section 1202 does not consider a business to be a QTB if it offers value to customers primarily in the form of services. This is likely the case if the business’ principal asset is the reputation or skill of one or more of its employees.

For example, a QTB does not include performing services in fields such as: health, law, engineering, architecture, accounting, performing arts, consulting, athletics, financial services, brokerage services, etc. The law’s QTB definition also excludes businesses in banking, insurance, financing, leasing, investing, farming, and any motel, hotel, or restaurant. However, it does include industries such as manufacturing, technology, research and development, and software.

Importantly, just because your business may offer value in the form of services does not mean you will automatically not qualify as a QTB. For example, if you are in the business of architecture and primarily provide customers with tangible goods tools and equipment rather than services, then it remains possible to qualify as a QTB for the purpose of realizing benefits under Section 1202. Moreover, at least 80% of the company’s assets must be used for the QTB activities. Lastly, even if your business predominately provides services, because QTB requirement is based on the holding period and not on the entire history of the company, you may still qualify by restructuring to a business model that would qualify for the QSBS as you consider changing from an LLC to a C-Corp.

Consider the State of Incorporation

Generally, the State of Delaware is the most popular state to incorporate due to the bi-partisan political consensus to keep the corporation statute modern, and the quality of Delaware courts and judges. However, each state brings its own set of corporate laws and tax breaks which may be favorable to you and worth looking into. For example, other states that have enacted favorable laws for corporations are: Nevada, Wyoming, South Dakota, Alaska, Florida, Montana, to name a few. With your lawyer and tax advisor you should assess the laws of various states and your business objectives.

Importantly, if you decide to switch to a corporation, it is not an overnight process. Depending on the company’s complexity, the amount of equity holders, and other considerations, the process can take approximately a month or more.

Plot Twist: The Biden Administration Seeks to Limit QSBS’ Exclusion Rate

The 2010 amendment to Section 1202 allows for a 100% exclusion. In the proposed Build Back Better Act the current Administration sought to reinstate Section 1202 to its original 1993 version. If this proposed change goes through, then for taxpayers with an adjusted gross income (AGI) equal to or greater than $400,000, the capital gain exclusion would be limited to 50% (instead of 100%). Also, under the proposed changes, the gain that would not be excluded would then be subject to half the applicable capital gain tax rate of 28% and 7% of the excluded gain would constitute alternate minimum taxable income; therefore, any gain not excluded would be taxed at an effective rate of 14%, plus a possible alternate minimum tax on 3.5% of the gain.


Taxes as it relates to the law can become murky and complicated, and changes happen relatively quickly, so a decision made one day, may not serve you quite as well years later. This QSBS exclusion is the perfect example as to why we must thoroughly consider all information available to us, and hire excellent tax professionals who stay up on changes in the law. Changing from an LLC to a corporation takes time, effort, and money, especially if you have a lot of investors. Most often, it is necessary to replace all of your corporate documents, and reissue equity to your equity holders, and change the nature of the equity rights (e.g., a profits interest in an LLC does not translate well in a corporate environment.)  Regarding the uncertainty of proposed changes to Section 1202, you should consider the complexity of your current business structure and whether the efforts necessary to change to a corporation would be worth the limited exclusion rate. Alternatively, you should consider whether you would be happy to qualify for only a 50% exclusion if the proposed changes go through, remembering that it only applies to capital gains, not regular income, and your corporation would be subject to corporate taxation on its income earned during the holding period.   If you are unlikely to sell your stock, making the change is unlikely to benefit you.

Regardless of the potential changes, it’s important to remember that this QSBS exclusion is for those planning for the future. If you would qualify for QSBS, waiting at least five years to realize these benefits might be a perfect exit strategy.

tabbed files and folders

Protecting Your Business from Intellectual Property Theft

By: Steven Masur

Intellectual property refers to the original creations of the mind. Such creations can include inventions, artwork, product names, written works, website content, computer programs, to name a few. Unfortunately, intellectual property is often plagiarized, and can be done so in many forms. For instance, one can pass-off the ideas or words of another as their own; one can use another’s production without crediting the source; one can disguise a new and original idea or product that in fact is derived from an existing source. With the help of an intellectual property lawyer, you can prevent theft of your original creations or ideas. Here are some tips to help you in the process:

Carefully Guard Information

It is in your best interest to keep your original creations or ideas to yourself until you have secured legal protection. Importantly, a mere idea – as opposed to a work fixed in a tangible medium of expression – is not copyrightable. This means additional steps must be taken to protect an idea if you plan to discuss the idea with another individual. The best way to do so is to avoid having the discussion in public, and to require anyone you discuss it with to sign a non-disclosure agreement. This may seem overly cautious, but this is the best way to prevent your idea from being repackaged by others. 

Thoroughly Document Your Ideas

Starting from the onset of developing your idea, be sure to document and continue as the process evolves. These records will help you when you apply for legal protection, such as a trademark or a copyright. They will also serve as evidence if you have to file a lawsuit against another party for a trademark or copyright infringement

Apply for Legal Protection of Your Ideas 

Apply for legal protection of your original ideas that you plan to pursue. The longer you wait, the greater the risk that your idea is pursued by another. If you are an artist, musician, writer, or any other type of artist or entrepreneur, you can apply for copyright registration with the United States Copyright Office. You can also apply for trademark registration with the United States Patent and Trademark Office to protect your business name, logo, slogans, or any other part of your business identity. While the USPTO does not require an applicant to be represented by a licensed attorney, the trademark registration process can be tricky. As such, hiring an attorney may save you time and money because an attorney will know how to best advise you on the registrability of your mark, formally prepare your application to the USPTO’s liking, and respond to the USPTO on various issues that oftentimes arise during the application process.

Include Legal Protection for Existing Intellectual Property

If you have existing intellectual property, it is important to seek legal protection for that as well to avoid the risk of another individual claiming your intellectual property as their own without legal ramifications. You can do so by obtaining registration with the United States Patent and Trademark Office or the United States Copyright Office which will provide you with federal protection over your intellectual property.

graphic of a money tree

QSBS: Do I Really Have to Close My LLC and Open a Corp?

By: Steven Masur (with research and writing assistance from Maria Samson)

A great many entrepreneurs who believe they may one day sell their companies have been calling to ask whether they need to close their LLC and open a corporation in order to reduce or avoid capital gains tax on the sale of their company under Section 1202, QSBS (defined below), a new provision of the IRS Tax Code (the “Code”).  Here’s the answer.

Section 1202 of the Code (“Section 1202”), amended in 2017, now provides tax breaks for capital gains incurred from the sale or exchange of eligible small business, C corporation stocks. Specifically, owning qualified small business stock (“QSBS”) may excuse one from paying hefty federal capital gains tax. Congress passed Section 1202 to create incentives for individuals to either start businesses or invest in them. Because QSBS only applies to C corporations, it may make sense to disband an existing corporate structure to form a new C corporation. QSBS allows non-corporate investors to exclude up to 100% of federal capital gains tax incurred from selling their stake in the business. More people ought to know about QSBS due to recent changes in the regulation and the potential benefits of applying for it. 

To qualify for the QSBS exemption, first, the investor must be non-corporate. They must be a natural person, not a formed entity, and they must receive the QSBS at the time of issuance. This means the company must give the QSBS directly to the investor when they issue stock, not at any later date or through a resale. The total amount of the gain excludable depends on when the QSBS was issued. Importantly, the issuing company must be a C corporation, not a limited liability company (“LLC”) or a partnership. This is important for already established companies to contemplate if they wish to take advantage of QSBS. While there are advantages to having an LLC or other corporate structure, such as avoiding double taxation, benefiting from QSBS is not one of them. 

The company must also meet both the gross assets requirement and the active business requirement. To meet the gross assets test, the aggregate gross assets cannot exceed $50 million at the time of issuance. The value of the investor’s stake may increase later on, but it cannot be more than $50 million when the investor receives it. Moreover, to meet the active business test, the business must use at least 80% of its assets engaging in a “qualified trade or business.” The Code defines this by exemption. It is defined as any business that does not provide services in the fields of health, law, engineering, accounting, etc. QSBS is not available for any trade or business where the principal asset of the business is the reputation or skill of one or more of its employees. Lastly, to get the tax benefits, one must hold on to the stock of the corporation for a period of 5 years. After the 5-year period, the investor may sell the QSBS tax-free.

Seemingly, it may be in an entrepreneur’s interest to consider whether they could benefit from QSBS and if they should restructure their current structure to apply for it. For an LLC, conversion to a C corporation could allow non-corporate partners or investors to qualify for QSBS. They could use the fair market value of the LLC interests at the time of conversion to calculate for the potential tax exclusion. The eligible gain exclusion is determined either by (i) the greater of $10 million or (ii) 10 times the original basis amount. For instance, if an investor’s LLC interest is valued at $2 million when they convert the LLC to a C corporation, the maximum QSBS gain exclusion amount can jump to $20 million if they hold the stock for 5 years.

Ultimately, if a business owner has any plans to later sell the business, planning for QSBS wouldn’t hurt. An investor owning QSBS could see the price of that stock eventually skyrocket and they can profit from that investment completely tax-free. For this reason, it may be worth dissolving an existing LLC to form a C corporation for QSBS.

man handing paper to two women

Client Alert: Don’t Forget Your Year-End Corporate Due Digilence

By: Steven Masur

While 2020 is what we can only hope will be a unique year in many respects, in other ways it is just another year. The end of any year presents an opportunity for each of us to take stock of where we are and to resolve to make sure we are living healthy lives as we move into the new year.  The same principle should also be true for companies.  How has your business developed this past year? Have you kept pace with your company’s legal needs? MGA has prepared the below checklist as a tool for helping you assess the health of your business and encourages you to consider making any adjustments that might help your company to maintain its health and vitality as it enters the new year.

Corporate Compliance

  • Update state records to reflect corporate changes you made this year such as dissolutions, cancellations, name changes, or reinstatements.
  • Prepare to file Annual Reports and pay franchise taxes to your state of registration, often due during the first quarter and not on Tax Day. These franchise taxes are imposed on domestic corporations, limited liability companies, and partnerships in exchange for the privilege of doing business and existing as an entity in the state in which the entity is incorporated or organized. These payments are also often made in connection with a requirement for companies to concurrently file an annual report or registration document. These annual (or biennial) taxes are distinct from income taxes. Franchise taxes are calculated in different ways, depending on the state, but in the case of corporations, they are usually based on the corporation’s capitalization, and in the case of  LLCs and partnerships, they are usually payable in accordance with a flat fee schedule. Be warned that even if your company ceased business operations this year, these taxes will continue to accrue until the company files a document to officially terminate its existence with the state. Failure to file and pay by the specified deadline will result in a penalty fee and monthly interest, and if in arrears for several years, termination of existence by the state. See this resource from Wolters Kluwer for a full list of annual report due dates across the 50 states.
  • Comply with annual governance requirements, such as holding a shareholders meeting and updating your governance documents to reflect any major actions taken over the past year.

Intellectual Property

  • Confirm that you have a written agreement with any independent contractors assigning the rights in their work product to your company.
  • Ensure that your online terms of use and privacy policy still accurately reflect your website functionality and business practices and are up-to-date with changes in the law, especially any applicable privacy laws.
  • Consider how your brand has grown and developed, and whether you might have valuable trademarks that should be protected by registration in the United States or abroad.

Business Operations

  • Make sure you have the right agreements in place for all new hires.
  • Check that all essential business licenses are active and in good standing.
  • Determine whether there is a current and valid contract in place for each of your most important business relationships and revisit the terms of all contracts for any changes.

We wish you and your business a successful new year, and we look forward to serving your legal needs and supporting your business’ growth in 2021!


For more information calculating and paying your annual business entity taxes, contact your tax advisor or MGA LLP at info@masur.com or (212) 209-5450.

SEC Regulation A+ Recent Update

By: Jon Avidor, Jason Gershenson and Danika Johnson

Prior to the 1929 stock market crash, companies and retail investors could freely exchange stock and other securities due to minimal regulation. In the wake of the 1929 crash and resulting Great Depression, the Securities and Exchange Commission (“SEC”) was created to protect retail investors by limiting their investment choices to less sophisticated products, and by requiring companies to follow specific rules and regulations in order to be eligible to sell securities to retail investors. These new protections made it more difficult for smaller companies to raise enough funds to sell its securities publicly in an initial public offering (“IPO”) or privately among retail investors that did not meet the new SEC classification of “accredited investor”. The new SEC rules distinguished accredited investors as financially sophisticated, thus having a reduced need for the protection provided by regulatory disclosure filings. Today, the two most commonly cited criteria to determine whether an individual investor is “accredited” are an individual’s net worth of at least $1 million or an individual’s income of at least $200,000 for each of the past two calendar years. On the other hand, a non-accredited investor does not meet SEC accredited investor requirements.

In 2015, the JOBS Act opened up opportunities for non-accredited investors and small companies. It included Title IV, or Regulation A (informally, Regulation A+), creating a “mini-IPO” for small-capitalization U.S. and Canadian companies that want to raise capital and for investors looking for new access to pre-IPO investment deals. Regulation A+ creates two tiers of offerings: Tier 1 for offerings up to $20 million in a 12-month period and Tier 2 for offerings up to $50 million in a 12-month period. For offerings up to $20 million, companies can elect to fall under either Tier 1 or Tier 2. Tier 1 offerings must adhere to state blue sky laws and qualification requirements. Tier 2 offerings are more stringent, requiring a company to provide audited financial statements, ongoing financial reporting, and other updates to ensure a continuous flow of information to investors and markets.

Under Regulation A, the investment capital creates a new class of stock that may be eligible for exchange on a secondary market. Since the inception of Regulation A, $9.095 billion were sought across 382 offerings qualified by the SEC. Specifically, $859 million were sought across 105 Tier 1 offerings and $8.336 billion were sought across 277 Tier 2 offerings. It is reported that 183 issuers have raised $2.446 billion, which is $230 million under Tier 1 and $2.216 billion under Tier 2. The SEC attributes the popularity of Tier 2 to the federal preemption of state blue sky laws, making it easier to follow a single set of rules. Additionally, the SEC reports that issuances of securities by companies in the real estate industry accounted for the largest share of proceeds reportedly raise in Regulation A offerings, an estimated 69% of reported proceeds in ongoing and completed offerings. Furthermore, in 2017, the SEC began to allow reporting companies to raise capital through an online offer.

Since June 2019, The SEC has collected various comments from individuals and organizations regarding the Concept Release on Harmonization of Security Exemptions. Commenters indicate that they are interested in an expansion of the regulation, requesting the extension of Regulation A eligibility to issuers organized and with a principal place of business outside the U.S. or Canada, to business development companies, and to investment companies advised by registered investment advisers. Additionally, commenters requested that Regulation A ensures inclusion of evolving financial products, such as certain digital securities that are not strictly equity, debt, or convertible debt.

Digital, Social Media, OTT Players Should Play the Long Game, and Stop Unnecessarily Exploiting Content Creators

By: Steven Masur and Ilana Faibish

Significant revenue is driven by artists, entertainers, and content creators who become recognizable personalities in their own right. But most of the time, these talented people do not actually own the rights to the content they create. Just like the early 1950s rock-n-rollers assigning the rights to their music for the price of a Cadillac, or the WFF owning the rights to WFF character names, the content creator exploitation game has once again become the standard modus operandi for digital media, social media, and OTT platforms, with new ad-supported media companies offering shiny baubles to content creator/brand personalities in exchange for their rights, including audience platform, studio resources, recognition, and stability in exchange for ownership of the content and personalities these talented people create.

Exploiting the Talent

Many new content creators are young, unrepresented, lack experience negotiating contracts, and have little to no leverage.  As a result, they are susceptible to being exploited.  For the most part, they just take what they are handed, and in many cases are afraid to engage counsel for fear of losing their positions. Vlogs, podcasts, social media, Youtube, and digital platform channels are relatively new opportunities in the media business.  There is little to no regulatory oversight. So as a whole, these companies negotiate such opportunities through general employment or independent contractor agreements in which ownership and exclusivity over licensing, platforms, and the overall intellectual property is presented as non-negotiable. For example, in 2016, a slew of Buzzfeed Video employees left the company to become full-time YouTubers, primarily because they felt exploited and disposable, without any path toward career growth.  Their employment contracts included stringent career restrictions on the content they could create, the ownership of that content, the ability to engage in other career-defining work, or even the ability to mention their involvement in developing their own work.  So having left Buzzfeed, these content creators had to start from scratch, after already having created substantial content, followings, and in some cases fully-fledged brands for BuzzFeed.  BuzzFeed employees caught helping them were summarily fired.  In these new-age sweatshops, the bargaining power from the beginning of employment is inherently, and systemically unequal.  However, if content creators were treated as talent, and contracts were negotiated through the lens of talent agreements, more sustainable, long term, mutually beneficial relationships could be created. 

As long as content creators are treated as at-will employees rather than talent, tension between media companies and content creators will continue and will escalate.

The Best Talent will be Attracted to the Companies that Offer the Best Incentives for Success

By definition, once a content creator is successful in building subscribers and a following, bargaining power will shift toward that creator.  If the content creator’s incentives are not clearly laid out upfront, it will create unnecessary tension each and every time a show is successful.  For example, Alexandra Cooper and Sofia Franklyn’s “Call Her Daddy” contract with Barstool Sports began with $70,000 each, plus bonuses.  Not bad pay for two previously unknown creators. But the podcast garnered over two million downloads in just two months and catapulted the co-hosts to fame, allowing them to accumulate close to a million followers on each of their individual Instagram accounts.  Needless to say, given their at-will relationships with Barstool,  this created tension between Barstool and the two co-hosts as they learned that from a talent perspective, they were being grossly undervalued and could not leave Barstool without also leaving behind “Call Her Daddy,” the primary reason for their fame on Instagram.  To its credit, Barstool was willing to offer the co-hosts a guaranteed $500,000 each, increase in merchandise profits and bonuses, and shorten their three-year contract by six months. Barstool was even willing to give them the intellectual property rights to “Call Her Daddy,” after their contract with Barstool expired.  The offer was generous, given what Barstool might otherwise have offered, and what most other companies would have offered, under the terms of the original boilerplate signed by Ms. Cooper and Ms. Franklin.  The example shows what media companies should be doing in order to attract top talent. Although there was disagreement between the co-hosts as to whether to accept this deal, the offer happened because of the shift in bargaining power as a result of social capital accumulated, from the hard work of the talent.  The disruptive, expensive, and difficult negotiation could have been avoided if, earlier in the relationship, the co-hosts had been able to enter into a co-hosting agreement with each other, and a talent agreement with Barstool laying out potential payouts if they created a successful show.  So instead of starting from a pointlessly exploitative place, if Barstool’s starting point were an agreement that acknowledged the direct relationship between the talent’s social capital and the show’s success, Barstool would attract the best talent to itself from the beginning, and also spend less money paying lawyers to sort out the mess, every time a show is successful.  Alexandra Cooper’s full video describing the negotiation is highly entertaining and instructive to anyone in the process of negotiating a talent deal.

Media Companies Should get Ahead of the Game 

Currently, media company lawyers draft overly exploitative agreements with talent because they figure that starting from the most aggressive bargaining position will get the best deal for their client, the media company.  But in actuality, fair negotiations with talent may actually be mutually beneficial. The inevitable increase of followers and subscribers some brand personalities will experience should be perceived as valuable social capital considering how easily this audience can be monetized. Furthermore, the deal a media company could get early in the artist’s career is much better than they will get once the artist develops a huge following. Finally, media companies would benefit by creating longer, less disruptive, and more loyal relationships with their talent, who, regardless of who owns the content, ultimately control their following.  The inevitable tension between content creators and media companies is foreseeable, so media companies should get ahead of the game, and strive for better equity earlier in the relationship. Otherwise, the revolving door of talent will continue, and media companies will continue to sacrifice highly valuable audience and brand loyalty. Brands like Saturday Night Live and The Tonight Show created giant audiences and enormous lasting value for shareholders, celebrities, and lower-level content creators alike, while post-internet media brands go down with alarming regularity and are quickly forgotten. As new media properties move past adolescence and into maturity, they should take better note of the lessons to be learned from those who went before.

* Steven Masur is one of the first digital media attorneys and has spent the last 25 years negotiating agreements in the entertainment and digital technology arenas.  He has negotiated a wide variety of talent agreements in music, film, television, OTT, social media, eGaming, and professional sports.  In addition, Steve has helped a wide variety of early and contemporary digital media, mobile, AdTech, and network effect companies develop their licensing and business models and build substantial businesses. 

COVID-19 and the Force Majeure Clause

By: Steve Masur and Ilana Faibish

Does COVID-19 constitute a force majeure event under my contract?

The COVID-19 crisis has resulted in significant disruptions in most industries. A great many companies are struggling to meet their obligations under their commercial contracts. Now is certainly a good time for companies to dig up their commercial agreements and assess whether the force majeure clauses contained in them might provide relief under current circumstances.  If you seek to suspend performance or have already suspended performance, you should consider whether COVID-19 qualifies as a force majeure event in your contract. If so, you should determine whether the risk of nonperformance was foreseeable and if mitigation measures were taken. Lastly, you should consider whether performance is actually impossible or commercially impracticable.

What is a force majeure clause?

A force majeure clause is a boilerplate contract provision that excuses a party’s inability to perform in the event that unforeseeable circumstances occur beyond the party’s control. Kel Kim v. Central Mkts., 70 N.Y.2d 900, 902 (1987). The clause may excuse a party’s performance if any of the force majeure events listed in the clause occur.  Force majeure events could included strike, government action, acts of God, war, terrorist attack, pandemic, epidemic, or any other uncontrollable hazard on which the parties have agreed. However, merely including a force majeure clause in your agreement, and merely mentioning words like “epidemic,” or “pandemic” may not excuse performance. Rather, the fine print of your force majeure clause will become critical in a court of law, and by extension, in any negotiation that precedes going to court.

Does COVID-19 qualify as a force majeure event in my contract?

On its face, COVID-19 should qualify as a force majeure event if the force majeure clause in your contract includes words like “pandemic” or “government action” as events that excuse performance. If such events are not listed, it is possible that a reference to “acts of God,” which is more often intended to cover natural disasters like floods, hurricanes, and earthquakes, may cover nonperformance. But courts tend to narrowly interpret force majeure clauses. As a result, the more narrowly tailored the events listed in your clause are to COVID-19, the more likely performance might be excused.  If your contract does NOT have an express contractual force majeure provision, there are other common law avenues of relief to consider, including impossibility of performance, frustration of purpose, and impracticability of performance. The doctrine of impracticability may provide relief if you can prove that “superseding events occur, the nonoccurrence of which was a basic assumption when the contract was made” and it would be unreasonable or commercially senseless to require performance in light of such events. This is a very high standard to meet and a court’s interpretation may vary depending on your respective jurisdiction.

In analyzing your situation, you should examine whether the event was foreseeable and as a result should have been contemplated upon signing the agreement. Courts will not typically apply force majeure when the parties could have expected the event to occur at the time of contracting, yet did not include the event in the clause – even with a catch-all provision. The foreseeability of a pandemic-related event is subject to debate. On one hand, the outbreak of COVID-19 may be interpreted as unpredictable and considered a classic force majeure event. On the other hand, some argue that this is not the first time in history that an epidemic or disease has affected contracts and industries, such as the 2009 flu epidemic or the 2003 SARS epidemic, and thus a foreseeable event that should have been considered in the agreement.  As a result, it is always a good idea to include in your force majeure clause words describing any event that a court might otherwise consider having been foreseeable.

In the event of nonperformance, parties should undertake reasonable efforts to mitigate the effects of a force majeure event. It is important to realize that the other party may be open to amending performance obligations, such as considering partial performance as a solution which may be possible to achieve.

Finally, consider carefully whether performance is actually impossible. It is crucial to carefully document the degree of direct causation of COVID-19 as it relates to your impossibility to perform and to note that mere increased costs or economic burden may not be sufficient to excuse performance. For example, with the cancelation of televised sporting events, advertisers are seeking to suspend their advertising spend. However, something like COVID-19 does not prevent a broadcaster from showing the ad during the specified times, even though the televised content may have changed. Therefore, it may not legally be required for broadcasters to return money to advertisers under force majeure if performance under the agreement is not actually impossible.


It is important that you closely monitor COVID-19 developments and comply with the guidance of your state laws and officials. There are certain implications that apply if the force majeure event lasts for an extended period of time, such as a complete termination of the contract. In addition, take special note of insurance policies you own that may be redeemable under these circumstances. If you are uncertain as to whether your force majeure clause applies, it may be beneficial to discuss intervening industry matters with the other party to mitigate damages best you can. 

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Secretary of State Office Deadlines Update

By: Steven Masur

As we navigate these challenging times, we remain focused on supporting you in the weeks and months ahead. To that end, we have been monitoring Secretary of State offices for updates on filing deadlines and requirements.

Here is an update with respect to Delaware, New York, California, Colorado, Nevada, Washington, and Wyoming.

Delaware filing deadlines remain the same. Online services are available on their website: https://corp.delaware.gov/paytaxes/ including the ability to pay taxes and file annual reports.

New York
New York State Tax Department deadlines remain the same; however, penalty and interest may be waived for annual filers whose taxes are due between 3/16/20 and 4/25/20.
See Tax relief for quarterly and annual sales tax vendors affected by COVID-19 to request relief from penalty and interest.

California has extended its tax filing and payment deadline to July 15 and waived interest, late filing, and late payment penalties.

Colorado has temporarily suspended the deadline for April and June estimated tax payments for 2020 taxable year and extended the deadline to July 15.

Nevada Department of Taxation deadlines remain the same. All taxpayers are advised to file and pay their taxes through the online portal, mail or via dropbox at the Taxation offices https://www.nevadatax.nv.gov/#

Washington State Department of Revenue deadlines remain the same. Upon request, the Department will provide extensions for paying tax returns. https://dor.wa.gov/file-pay-taxes

Wyoming filing deadlines remain the same. Online services are available on their website: https://wyobiz.wy.gov/business/annualreport.aspx

Information is changing daily and we will continue to update you as we learn more.

The Innovative Economy – An Online Educational Series

By: Steve Masur

Are you ready to mainstream the Crypto Industry? Steve Masur is an expert on the online educational series called The Innovative Economy to discuss the legal aspects of cryptocurrency.

The series will air from January 28th- February 7th. Steve is set to air on January 31st, Day 4 of the show. Sign up here to watch this online educational series and listen to the interview.

Thanks for signing up and see you online!