Startup Legal & IP: Basic Agreements

1. Startup Legal
& IP: Basic
Agreements
By Sujatha Ganesan, Attorney at Law
Founder, TechBiz Legal
Business and Technology Law Firm
http://techbizlegal.com

2. Advisor Agreement
• Why have an advisor? An advisor provide time,
resources and input to help grow the company.
Time Period: The person will serve as an advisor
under an at-will contract and the notice period to
terminate the contract by either party should be
about 5 days, unlike an employment agreement
where the notice period is usually 30 days.
Deliverables: Clearly set out the specific
expectations, role and deliverables of the advisor
with time lines.

3. • COMPENSATION: Cash/Stock? A startup is cash
poor and so compensation is normally given as
stock.
How much Equity? Anywhere between 0.2 to 1.0
percent of the stake in the company, depending on
the level of engagement, time commitment and
domain expertise.
• Can either be options or restricted stock vesting
over a two years with a three month cliff that can
accelerate in the event of change of control.

4. • Independent Contractor: Advisor’s
relationship with the company will be that of
an independent contractor and not eligible for
any employee benefits.
• No authority to enter into contracts or create
obligations that bind the company without
prior written authorization.

5. • Confidentiality Clause: A confidentiality clause
is important to ensure that all the non-public
information gained is not revealed.
• Assignment of Intellectual Property: If the
Advisor jointly or solely conceives, develops or
reduces to practice any new IP, relating to the
Company’s business or technology, then all the
rights, titles and interest to such IP to be
assigned to the Company.

6. Non-Disclosure
Agreement (NDA)
• A Non-Disclosure Agreement (NDA) protects
confidential information concerning the business
from being disclosed to a third party.
• Two formats: The one-sided agreement is when
only one side will be sharing confidential
information with the other side.
• The mutual NDA is for situations where each side
may share confidential information. Mutual form
is not needed if one is not planning to receive
confidential information from the other side.

7. • Scope of the Confidentiality Obligation: There are two
restrictions in an NDA. The non-disclosure provision
prevents the recipient from disclosing the confidential
information to unauthorized parties. The non-use
provision prevents the recipient from using the
information other than for a specified purpose.
• The recipient will want the information clearly
identified as confidential. Oral information can be
deemed confidential information, but the disclosing
party has to confirm to the other side in writing shortly
after disclosure which oral statements are deemed
confidential.

8. • Exclusions: A NDA has certain confidentiality
exclusions.
• Information -- (i) Already known to the recipient
(ii) Already publicly known (as long as the
recipient didn’t wrongfully release it to the public)
(iii) Independently developed by the recipient
without reference to or use of the confidential
information (iv) Disclosed to the recipient by some
other party who has no duty of the confidentiality
to the disclosing party (iv) Disclosure required by
law – recipient has informed the disclosing party
in advance of the legal action.

9. Term: The period of time depends the strategic
value of the information to the discloser and
how quickly the information may become
obsolete. Normally 3-5 years.
The return/ destruction of the information: After
the expiry of the term of the NDA, the receipt
should either destroy or return the confidential
information.

10. • Remedy. Monetary damages or an injunction
(a court order to stop the breach).
• Jurisdiction: The NDA must specify which
court will have jurisdiction in case of a dispute.
•

11. Co-Founder Agreement
• A contract between Co-Founders setting out the
ownership, initial investments and responsibilities of each
Co-Founder.
• Role and Responsibilities: Who will handle product
development, communication with the investors,
marketing/branding/sales, operations/legal/finance
responsibilities? Time commitment by each founder and
accountability for the agreed functions.
• Equity ownership and vesting. Split up the equity between
the founding team upfront, based on capital and time
investment, intangible assets like value, work experience,
business development etc. For founders, a four year vest
with a one year cliff is common.

12. • Intellectual Property (IP) encompasses the
expression of ideas, information and
knowledge. In a company, IP can include
contributions, inventions, discoveries,
creations, developments and ideas. IP should
be irrevocably assigned to the company by the
cofounders. What about IP when a founder
works at their own time? On a different idea?
• Classify what is confidential information and
the circumstances in which it can be disclosed.

13. • Dispute Resolution: Have a sale or transfer
clause, such as “right of first refusal” if a
founder want to sell or transfer their shares.
• Right to First Refusal: If a co-founder wishes
to sell their shares to a third party, the other
co-founders in the company get preference to
buy the shares at the agreed rate with the
third party.

14. • Non-solicit and non-compete: If a founder leaves,
he or she should not solicit clients or employees of
the business or compete in the same business
space. Have a separate employment contract for
each founder. 2-3 years of non-compete is O.K.
• Letting Go: Instances of a fraud on the company
and other co-founders, non- performance,
prolonged absence from work, illness which
prevents performance or insolvency.

15. Employment Agreement
• An Employment Agreement states the rights
and expected deliverables of both the parties.
• Compensation: Basic Salary, bonuses, Yearly
raises, other perks, such as health benefits,
retirement benefits, Stock options and vesting.
• Schedule: State the term period, the number
of hours of work, options like working from
home or remotely.

16. • Confidentiality. The employee agrees not to share
information about the employer's business, secret
processes, plans, formulas, data, machinery used or
the price charged for the products. An employee must
be careful not to use or divulge confidential
information of a prior employer – the new employer
might require a covenant from the employee
prohibiting such use or disclosure.
• Agency provision. It states that the employer and
employee have an employment and not an agency
relationship. The employee has no right to enter into a
contract or obligate the employer, unless the
employer expressly gives written consent.

17. • Technology privacy policy: Rules prohibiting use of
social media and email on company computers or
mobile devices for personal use or at company time.
Prohibiting negative comments about company on
social media. Rules on BYOD to work.
• Non-competition: Employee agrees that for a certain
period post employment, the employee will not work
for any company engaged in a similar type of business
or will not set up a company that will compete with
the employer's business or solicit the employer's
customers. Usually the non-competition clause is
limited to a particular geographic area.

18. • Ownership of Inventions: Companies expect that any
inventions or business ideas developed by the employee
related to the Company’s business during the employment
period, will be owned by the Company (work for hire).
• Assignment: The employee agrees that anything invented
during the course of employment, or for a period of time
after termination, becomes the employer's invention.
Employee shall assign the inventions/IP to the employer,
cooperate with the employer in getting patents, and keep
the invention confidential as a trade secret. The employer
may agree to share a percentage of the royalties paid for
invention.

19. Contact
Sujatha Ganesan, Attorney at Law
TechBiz Legal
sujatha@techbizlegal.com
sglaw1@gmail.com
+91-9566056995
http://techbizlegal.com