The presentation will summarize the most common legal mistakes that startup companies and their lawyers make and how to avoid making those mistakes. Some of those mistakes can be rectified, but many will result in your startup company being "dead on arrival" when it comes time for funding or acquisition opportunities. Knowing what those mistakes are and how to avoid them is essential to starting and building a successful company.

1. © 2020 Haynes and Boone, LLP
© 2020 Haynes and Boone, LLP
Top Ten Legal
Mistakes That Could
Kill Your Startup
Roger Royse
Partner
Haynes and Boone, LLP
April 6, 2021

2. © 2020 Haynes and Boone, LLP
© 2020 Haynes and Boone, LLP
USING AN EMPLOYER’S FACILITIES
Avoid using your employer's facilities or equipment to work on your
startup or outside project.
California Labor Code § 2870
▪ Employee’s Time
▪ No Employer Facilities
▪ Not Related to Employer’s Business
▪ Doesn’t Result from Work Performed for Employer
2

3. © 2020 Haynes and Boone, LLP
© 2020 Haynes and Boone, LLP
LACK OF DOCUMENTATION
Document everything, including contracts, employment agreements, and
transactions.
Common Issues:
▪ Equity Ownership
▪ Loans or Contributions
▪ Vesting
3

4. © 2020 Haynes and Boone, LLP
© 2020 Haynes and Boone, LLP
LACK OF VESTING RESTRICTIONS
It's generally a good idea for founders to agree to vesting restrictions.
▪ Founder Vesting
▪ Single vs. Double Trigger
▪ Advisor Vesting
Tax:
▪ 83(b) election
▪ Vesting Imposed on Financing
▪ Vesting Imposed on M&A
4

5. © 2020 Haynes and Boone, LLP
© 2020 Haynes and Boone, LLP
INADEQUATE TAX PREP
Many decisions, like choosing a business structure, can have a
significant impact on your tax situation.
▪ Choice of Entity (C Corp, S Corp, LLC)
▪ QSBS
▪ VC + Tax Exempt Investors
▪ Tax Sensitive Investors
▪ Passive Activity and At Risk Limitations
▪ LLC Conversions
▪ State Tax
▪ Foreign founders
5

6. © 2020 Haynes and Boone, LLP
© 2020 Haynes and Boone, LLP
IGNORING LABOR LAWS
Startups must follow federal and state labor laws
▪ Dynamex Case and AB-5
▪ IRS + EDD
▪ Workers’ Compensation
▪ Class Action Lawsuits
▪ California
6

7. © 2020 Haynes and Boone, LLP
© 2020 Haynes and Boone, LLP
FAILING TO PROTECT IP
Protect your intellectual property from claims of ownership by employers,
employees, consultants and competitors
▪ PIAIA or CIAIA
▪ Broadly Drafted Invention Assignments
▪ Federal Defend Trade Secrets Act
▪ Provisional Patents
7

8. © 2020 Haynes and Boone, LLP
© 2020 Haynes and Boone, LLP
INFRINGING UPON TRADEMARKS
▪ Trademark may be your most valuable asset
▪ Research existing names and logos.
▪ Brand your company strategically and legally.
8

9. © 2020 Haynes and Boone, LLP
© 2020 Haynes and Boone, LLP
VIOLATING 409A
Section 409A of the Internal Revenue Code is an expensive gotcha’
409A Penalties: 20% plus tax and interest
1. Stock Option Pricing
2. Deferred Salary
409A Requirements: Nonqualified Deferred Compensation
▪ Payable on separation from service, disability, death, fixed time or
schedule change of ownership or control, unforeseeable emergency
9

10. © 2020 Haynes and Boone, LLP
© 2020 Haynes and Boone, LLP
FAILING TO COMPLY WITH SECURITIES LAWS
Avoid the hefty consequences associated with state and federal
securities law violations.
▪ SAFES + Convertible Notes
▪ Blue Sky Filings
▪ Form D
▪ Potential criminal liability
▪ Crowdfunding: The Reg CF Problem
▪ ICOs, STOs, IEOs + Tokens
10

11. © 2020 Haynes and Boone, LLP
© 2020 Haynes and Boone, LLP
CHOOSING THE WRONG LAWYER
▪ Not all lawyers are startup experts.
▪ Find an experienced attorney who understands the unique challenges
faced by startups.
11

12. © 2020 Haynes and Boone, LLP
© 2020 Haynes and Boone, LLP
CONTACT US
12
Roger Royse, Partner
Haynes and Boone, LLP
+1.650.687.8820
Roger.Royse@haynesboone.com

13. © 2020 Haynes and Boone, LLP