‘No one likes legal issues, but entrepreneurial CEOs must know exactly what they need to do, what they need to avoid, and what to ask before they sign,” says Stephen Kaplitt. “Otherwise, investors, regulators, and even competitors can provide a ‘free’ but very expensive legal education to unwary CEOs.”
Kaplitt will be the featured speaker at the next program of Entrepreneurs University (www.EntreUniv.org) on Tuesday, March 5, at 4 p.m., at the Commercialization Center for Innovative Technologies (CCIT) in North Brunswick. He will take participants on a “guided tour” of what CEOs need to know about basic legal issues for early-stage and start-up companies trying to properly raise outside capital. Cost: $40. Registration is required. For more information, contact Dan Conley, Coordinator for Entrepreneurs University at LeadAdvisor@EntreUniv.org or 732-873-1955.
Kaplitt describes his legal background as “an unusual blend of legal, operational, management, and government skills.” His 20 years of experience include an aggregate of $3 billion in corporate, finance and mergers and acquisitions transactions with New York law firms and the International Finance Corporation, as well as serving as general counsel of both an SEC-registered investment advisory firm and a $350 million multinational public company. He has traveled to more than 30 countries in Asia, Latin America, the Middle East, Central Europe, and the Baltics.
He most recently he served as executive vice president and general counsel of Beacon Financial Corporation, an investment, wealth management, and trust business. Prior to Beacon he was senior advisor to the assistant secretary of state for economic, energy, and business affairs at the U.S. Department of State.
He has also served as senior advisor to the General Counsel of the U.S. Agency for International Development (USAID), where he advised senior management on sensitive matters involving the White House, Congress, foreign governments, other U.S. agencies, and private organizations.
Kaplitt says the law was in his blood — while his father was a cardiac surgeon, both his grandfathers were lawyers. “I grew up in a house where intellectual pursuits were valued,” he says. He received his law degree from the Georgetown University Law Center in 1992, and his degree in government from Dartmouth College in 1989.
He formed Kaplitt Legal Consulting about two years ago as “a unique solo law practice that provides innovative legal solutions tailored to suit the demands of each client,” he says. He specializes in working with small companies that need the services of a general counsel to manage its legal affairs on occasion, but do not yet need a full-time employee.
Kaplitt will cover several basic legal areas, including contracts, dispute resolution, raising capital, securities regulations and choice of form.
What Form Should You Choose? The choice of whether to form a company as an LLC, an S Corporation, or one of the “new hybrid variations” can have long range tax consequences, explains Kaplitt.
Before choosing the form, you should know your long-range plans. “A company that wants to start quickly and inexpensively may choose to begin as an LLC, and there is nothing wrong with that, but they should understand that there may be tax implications if they change form at a later date,” he explains.
In addition, some states have new forms of business entities, including Vermont, which has a “PLLC,” which has features of both a for-profit and not-for-profit entity.
Where to register? Just because a business is located in New Jersey does not mean it must register in New Jersey, Kaplitt says. Delaware is currently the most popular state for registering corporations because its corporate law and tax structure is one of the most friendly to business in the country. “Most of the large corporations with headquarters in New Jersey are registered as Delaware companies,” says Kaplitt.
However, he adds, “I would never tell a New Jersey company not to register in New Jersey. Each company must weigh the options.” If they do decide to register as a corporation in another state they will need to register as a foreign entity in New Jersey and file dual reporting and dual franchise taxes.
Don’t be afraid to get professional help. No matter what the decision or the issue, it is important for CEOs to know enough about the law to know when they need to ask for help, says Kaplitt. “Operating a business or organization always involves legal work — an unavoidable expense but also an opportunity. Today’s legal landscape is dominated by law firms, and with good reason. Simple legal issues are relatively rare, while complexity and uncertainty are the norm.”
When deciding if your company should consult an attorney, the best question to ask, he says, is “am I doing something, whether it is a conversation, a handshake, or an E-mail, that will create an obligation for my company in the future?”