Startup 101 - On Structure, Equity, and Avoiding Legal Headaches

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This presentation demystifies the legal process of starting a new venture and discusses the tools needed to grow ideas and create jobs.

Learn about the early steps of proper company formation and how to know which one is right for you, how to determine the right equity structure for your startup, as well as tips & tactics you can execute in the earliest stages of your company to prevent big (and expensive!) legal headaches later on.
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  • We need a simple model to help us properly slice the pie. It needs to be flexible and fair. By fair I mean it needs to give each founder what they deserve. And by flexible I mean it needs to adapt over time to re-allocate the equity so that the distribution stays fair until the fledgling company takes flight. check out mike moyer's book slicing pie it talks about 50/50 share and how to divide it through his grunt calculator. www.slicingpie.com
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Startup 101 - On Structure, Equity, and Avoiding Legal Headaches

  1. 1. UNIVERSITY OF NEW HAMPSHIRE Startup 101 Paul C. Remus Devine, Millimet & Branch, P.A. pcremus@dmb.com 603.669.1000www.devinemillimet.com
  2. 2. Paul C. Remus Yale College B.S. (Physics) University of Michigan Law School J.D.www.devinemillimet.com
  3. 3. POPE Planning 1. Written Business Plan Organization 1. Choose Entity 2. Define Founders’ Relationships in Writing Positioning 1. Funding – Written Subscription Agreement 2. Goods/Services – Written Contracts/License 3. Employees – Written Employment & Nondisclosure Agreements 4. Intellectual Property – Patents, Trademarks, Trade Secrets Exit 1. Sell Company – Written Purchase & Sale Agreement 2. IPOwww.devinemillimet.com
  4. 4. Planning 1. Written Business Plan – 3 years • What do you plan to do? • What will it cost? • Where will you get the money?www.devinemillimet.com
  5. 5. Organization 1. Choose Entity A. Sole Proprietorship – Register Trade Name with State • No Limited Liability – Get Insurance • Not Perpetual • Difficult to Raise Capital • No Separate Entitywww.devinemillimet.com
  6. 6. Organization 1. Choose Entity B. Corporation • Limited Liability • Perpetual • Raise Capital by Selling Shares (Borrowing) • Separate Entity (including for taxes) See Subchapter S – Limited Utility • Corporate Law – Well Defined Structure • Formalities – Why God Created Lawyers/Accountantswww.devinemillimet.com
  7. 7. Organization 1. Choose Entity C. Limited Liability Company (LLC) • Limited Liability • Perpetual • Raise Capital by Selling Shares (Borrowing) • Separate Entity (not for taxes) • LLC Law – Much More Flexible • Formalities – Why God Created Lawyers/Accountantswww.devinemillimet.com
  8. 8. Organization 2. Define Founders’ Relationships in Writing – Shareholders/Members Agreement • Who is the “Big Dog” • What are rules for selling shares/units to outsiders? Rights of First Refusal?www.devinemillimet.com
  9. 9. Positioning 1. Funding – “See Dick raise money. See Dick violate securities laws. See Jane visit Dick in the Big House.” • Public Offering of Securities Rules • Federal/State Exemptions Regulation D – accredited investors (rich people) Blue Sky Laws • Subscription Agreement • Offering Circularwww.devinemillimet.com
  10. 10. Positioning 2. Goods/Services • Bill of Sale • Service Contract versus • License – preserves rights in software 3. Employees – Employment Agreement & NDA NDA – Two Keys • Not disclose • Not use for anything other than employment Employment Agreement – Assignment of all IP to Companywww.devinemillimet.com
  11. 11. Positioning 4. Intellectual Property Protection • Trademarks – means to identify services or goods (i) some rights obtained by using • Copyrights – expression fixed in a tangible medium (i) most rights obtained by fixation • Trade Secrets – keep process or formulas secret (i) no disclosure so harder for competitors to reverse engineer (ii) less expensive Problem: Three or more people can’t keep a secret and once it’s gone – it’s gone • Patents – no rights until patent issues (i) Patent Bar – one year after public disclosure or “on-sale”www.devinemillimet.com
  12. 12. Patent Take-aways • No positive rights, only negative (i) stop others from making, using or selling • Just because something is patentable does not mean it is commercially valuablewww.devinemillimet.com
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  17. 17. Exit 1. Sell Company • Written Purchase & Sale Agreement 2. IPOwww.devinemillimet.com

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