Do More Faster: TechStars Lessons to Accelerate Your Startup

Chapter 67. Default to Delaware

Jon Taylor

Jon is a partner at Kendall, Koenig, and Oelsner, PC. He has been a TechStars mentor since 2008.

You've worked for months toward closing your seed financing. From initial pitches, term sheets, due diligence, and definitive documents, you have finally reached the finish line and are scheduled to close on the day before Thanksgiving except for one significant problem. Your counsel informs you that despite paying a $700 fee for same-day service, the company's amended and restated articles of incorporation will not be filed in time to close because the secretary of state of California has rejected them. It seems a staff lawyer at the secretary of state's office has determined that a requirement in the articles that certain actions be approved by "a majority of the board, including the preferred directors" is in conflict with California law. Despite a history of both company and investor counsel having included this provision in many past filings and the fact that there is no specific provision of the California code prohibiting such a provision, the filing will not be made in time and the closing will need to be pushed back for at least another five days. This kind of thing happens frequently in California. It doesn't happen in Delaware.

While avoiding the capriciousness of the staff lawyers employed by the secretary of state of California is one ...