Make it LegalKey Legal Issues for StartupsRamenCampJune 8, 2013Richard LucashMcCarter & English, LLP265 Franklin StreetBos...
When Should I Incorporate?No single answerBalance– Cost– Informal team spirit– Facing the hard questions: equity split, ...
Choice of “Entity”What are your plans for growth; financingDelaware C Corp is default for venture-fundedcompanyLLC work...
Founders’ AgreementWho owns what percentage– Between/among founders:“The only rule is there is no rule”– Wasserman post:...
Agreements with Former EmployersOf founders; staff; consultantsLook for– Noncompete– NDA– IPBe sure the new venture isn...
Secure the IPIndividuals own their work product in absence ofagreementJointly-owned IP may not be controlled by anyone p...
Secure the IP (2)Patents – avoid disclosure before filingapplicationURL – often registered by a team member not thecompa...
Valuation/IRS IssuesFounder A puts in $X; Founder B puts in services– Tax on Founder B?F&F round for small $ but high po...
What Happens When You Hire SomeoneIs the person an “independent contractor”?– In MA, probably notMinimum wage; Overtime ...
Getting Legal Forms from the WebIncorporationTerms of Use; Customer ContractsUnknown qualityWords may not have plain E...
Signing Customer’s Contract FormsIt may be “standard”But it’s designed in their favorWatch out for– Rights in YOUR IP– ...
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Legal pitfalls for startups

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Rick Lucash, Senior Counsel at McCarter and English shares key legal items to consider when starting your business.

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Transcript of "Legal pitfalls for startups"

  1. 1. Make it LegalKey Legal Issues for StartupsRamenCampJune 8, 2013Richard LucashMcCarter & English, LLP265 Franklin StreetBoston, MA 02110rlucash@mccarter.com@ricklucash
  2. 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. 3. Choice of “Entity”What are your plans for growth; financingDelaware C Corp is default for venture-fundedcompanyLLC works for individual investors with specialconcerns; others
  4. 4. Founders’ AgreementWho owns what percentage– Between/among founders:“The only rule is there is no rule”– Wasserman post: Companies with unequal splitsmay be more successful on average than 50-50companies“Percent of the Company”: Understand thedenominator and “fully diluted”Vesting
  5. 5. Agreements with Former EmployersOf founders; staff; consultantsLook for– Noncompete– NDA– IPBe sure the new venture isn’t using IP that belongsto another company!
  6. 6. Secure the IPIndividuals own their work product in absence ofagreementJointly-owned IP may not be controlled by anyone person– Patents – any owner can deal with freely; NO “dutyto account”– Copyrights – any owner can deal with freely butthere IS “duty to account”
  7. 7. Secure the IP (2)Patents – avoid disclosure before filingapplicationURL – often registered by a team member not thecompanyTrademarks: Company name/product name– Clear it– File ITUNDA for everyone
  8. 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-moneyvaluation– Sets high price for subsequent grants of options;for “83(b) elections” on restricted stock
  9. 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 authoritiesare “employee-friendly”
  10. 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. 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

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