Contemporary Economic Issues Facing the Filipino Entrepreneur (1).pptx
Legal pitfalls for startups
1. Make it Legal
Key Legal Issues for Startups
RamenCamp
June 8, 2013
Richard Lucash
McCarter & English, LLP
265 Franklin Street
Boston, MA 02110
rlucash@mccarter.com
@ricklucash
2. When Should I Incorporate?
No single answer
Balance
– Cost
– Informal team spirit
– Facing the hard questions: equity split, etc.
– IP protection vs. ability to walk away
3. Choice of “Entity”
What are your plans for growth; financing
Delaware C Corp is default for venture-funded
company
LLC works for individual investors with special
concerns; others
4. Founders’ Agreement
Who owns what percentage
– Between/among founders:
“The only rule is there is no rule”
– Wasserman post: Companies with unequal splits
may be more successful on average than 50-50
companies
“Percent of the Company”: Understand the
denominator and “fully diluted”
Vesting
5. Agreements with Former Employers
Of founders; staff; consultants
Look for
– Noncompete
– NDA
– IP
Be sure the new venture isn’t using IP that belongs
to another company!
6. Secure the IP
Individuals own their work product in absence of
agreement
Jointly-owned IP may not be controlled by any
one person
– Patents – any owner can deal with freely; NO “duty
to account”
– Copyrights – any owner can deal with freely but
there IS “duty to account”
7. Secure the IP (2)
Patents – avoid disclosure before filing
application
URL – often registered by a team member not the
company
Trademarks: Company name/product name
– Clear it
– File ITU
NDA for everyone
8. Valuation/IRS Issues
Founder A puts in $X; Founder B puts in services
– Tax on Founder B?
F&F round for small $ but high post-money
valuation
– Sets high price for subsequent grants of options;
for “83(b) elections” on restricted stock
9. What Happens When You Hire Someone
Is the person an “independent contractor”?
– In MA, probably not
Minimum wage; Overtime pay; workers comp
Get a payroll service!
Rules are often violated due to lack of time,
money and knowledge
Penalties are severe and enforcement authorities
are “employee-friendly”
10. Getting Legal Forms from the Web
Incorporation
Terms of Use; Customer Contracts
Unknown quality
Words may not have plain English meaning
Don’t know what’s missing (liability limits;
warranty disclaimers)
Don’t know what law inserts by default
11. Signing Customer’s Contract Forms
It may be “standard”
But it’s designed in their favor
Watch out for
– Rights in YOUR IP
– Noncompete
– NDA
– Warranty/SLA
– Payment
– Choice of Law/Forum