Major Categories of Legal Needs for Technology Companies

In today’s business world, all companies, regardless of the technology-related aspects of their business model and activities, are required to understand and comply with a plethora of laws and regulations, including:

  • Common law legal relationships with employees, creditors, and landlords;

  • Various licensing requirements imposed by federal, state, and local governments;

  • Federal and state securities laws;

  • Intellectual property rights;

  • Employment laws;

  • Federal and state tax laws and regulations, including the reporting obligations imposed under such laws;

  • Domestic and foreign laws regulating technology transfers and the form and content of many common commercial relationships;

  • Federal and state statutes relating to antitrust and unfair competition;

  • Corporate governance rules and regulations;

  • Federal and state laws relating to privacy and data security; and

  • Federal and state statutes relating to consumer protection and other matters.

These requirements apply regardless of whether the business is operated as a proprietorship, a partnership, a limited liability company, or a corporation.  Moreover, each form of entity has its own set of operational rules that must be followed in order to gain the legal benefits from the use of the entity.  For example, in order for the shareholders of a corporation to take advantage of the limited liability offered through the use of the corporate form, they must observe certain governance procedures and operational formalities.

 

Based on what I have been seeing a list of the major categories of legal needs for technology companies should include the following:

  • Management of existing intellectual property assets and establishment of strategies and procedures for creating and protecting new assets;

  • Compliance with environmental, product testing, health, and safety regulations, including new “green” initiatives;

  • Employment-related issues including compliance with applicable federal and state employment laws;

  • Federal securities laws including Sarbanes-Oxley;

  • International operations including compliance with export/import law requirements;

  • Privacy and data security laws and industry guidelines;

  • Accounting and financial reporting requirements;

  • E-Commerce; and

  • Litigation and e-discovery.

In the last two years increased emphasis has been placed on international operations, as more companies are pushed into global business activities, and e-discovery.  Concerns about Sarbanes-Oxley principles have also expanded to include many private companies.  E-discovery and privacy and data security laws are generally quite a mystery and surprise to executives, and each expansion into new foreign markets typically leads to unforeseen challenges that are not always planned for in advance.  For example, the lack of speed and expected costs associated with obtaining business licenses in new foreign markets often upsets even the best strategic plan for launching new activities in those markets.  Another problem is attempting to enforce legal rights in foreign courts.  The scope, complexity, and costs of litigation continue to rise even as the economy remains flat, and litigation generally takes up a much larger percentage of the resources allocated to the legal needs of technology companies.

 

Changes in the legal needs of technology companies tend to follow changes in the risk profile associated with their business activities.  In addition to the legal audit and compliance programs discussed later in this chapter, technology companies and their counsel must establish and continuously maintain risk assessment programs that facilitate identification and management of the material business risks faced by such companies.  Any such assessment must address all threats to management achieving its objectives, including those in the areas of operations, financial reporting, and compliance with laws and regulations.  The process of risk assessment includes identifying the risks, estimating the significance of the risks, and then selecting methods to manage them.  Auditors and others have identified a number of factors that they consider strong indications of increased financial risk.  Therefore, management should be aware of their existence and increase its control mechanisms when the following factors exist:

  • Changes in the organization’s regulatory or operating environment;

  • Changes in personnel;

  • New or revamped information systems;

  • Rapid growth of the organization;

  • Changes in technology affecting production processes or information systems;

  • New business models, products, or activities;

  • Corporate restructurings;

  • Expansion or acquisition of foreign operations; and

  • Adoption of new accounting principles or changing accounting principles.

The content in this report has been adapted from material that appears in Alan Gutterman’s publication entitled “Business Transactions Solutions” and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.  Alan Gutterman is the Founder/Principal of Gutterman Law & Business (www.alangutterman.com), which publishes the Emerging Companies Blog and the Business Counselor Blog, and a Partner of The General Counsel LLC (www.thegeneralcounsel.net).


 

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