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West,Bangal,,India,-,July,13,,2023,:,X,Ai

The Wall Street Journal recently reported that xAI, the artificial intelligence startup founded by Elon Musk, completed a funding round of $5 billion at a pre-money valuation of $45 billion ($50 billion post-money). Rumored to participate in the round according to the Journal were Sequoia Capital, a16z and Valor Equity Partners.  One could hardly blame these Silicon Valley heavyweights for wanting to make a big bet on artificial intelligence and Elon Musk’s record of success.  But one may wonder whether in their eagerness to do so, they’ve overlooked xAi’s corporate structure as a benefit corporation, which allows it to pursue stated societal goals in addition to purely financial returns.

xAI’s structure as a benefit corporation is noteworthy, but far from unusual for an AI startup.  xAI typifies a growing trend of AI startups adopting governance frameworks that prioritize societal impact alongside profit.  For example, Anthropic organized as a public benefit corporation with a stated purpose of “the responsible development and maintenance of advanced AI for the long-term benefit of humanity”.   Similarly, OpenAI has reportedly adopted plans to restructure itself as a benefit corporation. 

So why are AI startups like xAI embracing the benefit corporation structure, and are investors overlooking the risks?Continue Reading From Algorithms to Altruism: Risks and Rewards of xAI’s Benefit Corporation Strategy

Group,Of,Diverse,Software,Developers,Having,A,Meeting,In,A

I’m often asked by clients whether startups should have a separate stockholders’ agreement among the founders.  The answer largely depends on whether they have or will have certain other startup documents in place. 

First, some background on stockholders’ agreements.  These are contracts entered into by owners of privately held companies to manage the following governance and ownership issues:

  • Board Composition:  Every corporate statute provides that the business affairs of a corporation are to be managed by a board of directors, which sets policy, makes major decisions and appoints officers to whom the day-to-day management of the company is delegated.  So it makes sense to determine in advance the size of the board, who the directors will be and how those directors could be removed and replaced.  Without an agreement, the default standard would be majority rule, meaning that one or more stockholders with a majority of the outstanding shares would be able to elect the entire board.  A stockholders’ agreement ensures board participation in the manner envisioned by the founders.

Continue Reading Stockholders’ Agreements for Startups: When to Sign, When to Skip

Kazan,,Russia,-,Jan,18,,2022:,Activision,Blizzard,Logo,On

The board of directors of any Delaware corporation proposing to merge is required under Delaware law to adopt a resolution approving the merger agreement.  In the real world of M&A practice, however, the version of the merger agreement presented to and approved by the board is typically still in draft or nearly-final draft form but not yet final.  Does this practice violate Delaware law?

A recent amendment to the Delaware General Corporation Law (“DGCL”) provides that any agreement that must be approved by the board under Delaware law must be in “final or substantially final” form when approved.  The DGCL amendment was adopted in reaction to an earlier Delaware Chancery Court ruling in favor of a stockholder that claimed that the board violated Delaware law when it approved only a draft version of the merger agreement.  These developments underscore the need for boards to consider whether a merger agreement draft submitted for approval is substantially final before approving it.Continue Reading “Draft Dodging”:  Approving “Nearly Final” Merger Agreement Becomes Dangerous in Delaware