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 TOP 10
LEGAL PITFALLS
FOR START-UP/EARLY STAGE
COMPANIES
September 18, 2015
Atlantis Casino Resort
Grand Ballroom
Reno, Nevada
JAMES NEWMAN
Holland & Hart LLP
5441 Kietzke Lane, 2nd Floor
Reno, NV 89511
JNewman@hollandhart.com
775/327-3014
 Non-Disclosure
 Non-Compete
 Non-Solicitation
 Don’t Take Employer Materials or Information
 Carefully Review What You Sign
 Your Former Employer May Bring Legal Action
Against You and/or Your New Company/
Employer
 Choice of Entity
◦ Corporation
 S or C Corp.
◦ Limited Liability Company
◦ Other
 Sole proprietorships or general partnerships are
strongly discouraged
 Roles and Duties
◦ Director/Manager v. Officer v. Employee
◦ Contracting Authority
 Actual v. “Apparent” authority
 Respecting the Entity/"Separate" Legal
Person
◦ Company Bank Accounts
◦ Executing Contracts in Company Name
◦ Helps to Avoid Claims of "Alter Ego" or Piercing
the Corporate Veil
◦ Personal Obligations
 Guarantees
 Not Always “Friends”
 Provisions of LLC Operating Agreement or
Shareholder Agreement
◦ Management/voting
◦ Transfer Restrictions
 Equity is personal property and freely transferable
[subject to securities laws] unless restricted by contract
◦ Triggering Events
 Marriage Dissolution
 Death
 Disability
 Termination of Employment
◦ Buy/Sell Terms
◦ Valuation Method(s)
 Raising Capital is Difficult
 Double the Amount
 3 to 6 Months Effort
 Time Consuming
 Debt or Equity
◦ Notes
 Convertibility
 Senior to equity
◦ Equity
 Common Stock v. Preferred Stock
 Securities Laws Will Apply
◦ Registration requirements and exemptions
◦ Anti-fraud rules
 Regardless of circumstances or exemptions, you can't commit
fraud in the sale of securities
◦ Both federal and state laws apply
◦ Why you care/remedies
 Rescission
 Regulatory action
5. RAISING MONEY (continued)
 Select Your Investors Carefully
◦ Fewer investors can be easier to manage
◦ More sophisticated and/or experienced
investors may better understand your
situation
◦ Experienced investors can also provide
non-financial assistance to your company
5. RAISING MONEY (continued)
 Initial Assignments of Property
 Confidentiality and Assignment of
Invention Agreements
 Consulting Agreements
 Loans and other arrangements
 Minutes and ownership records
 Fiduciary Duties
◦ To shareholders/members
◦ To creditors
 Securities Laws
◦ Anti-fraud rules
 Tax Laws
◦ Withholdings on compensation
 Fair Labor Standards Act
◦ Wage, hour, O-T and other laws
 Identify IP
◦ Patents
◦ Copyrights and Trademarks
 Advantages
◦ Barriers to entry
◦ Higher valuations
 Non-Disclosure and Assignment of
Inventions
 Don’t Be Surprised
 It’s Your Business!
 Attorney
 Accountant/CPA
 Banker
 Insurance Broker/Agent
 Others?
2015 NCET Expo:  Jim Newman - Legal pitfalls for start-up / early stage companies

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2015 NCET Expo: Jim Newman - Legal pitfalls for start-up / early stage companies

  • 1.  TOP 10 LEGAL PITFALLS FOR START-UP/EARLY STAGE COMPANIES September 18, 2015 Atlantis Casino Resort Grand Ballroom Reno, Nevada JAMES NEWMAN Holland & Hart LLP 5441 Kietzke Lane, 2nd Floor Reno, NV 89511 JNewman@hollandhart.com 775/327-3014
  • 2.  Non-Disclosure  Non-Compete  Non-Solicitation  Don’t Take Employer Materials or Information  Carefully Review What You Sign  Your Former Employer May Bring Legal Action Against You and/or Your New Company/ Employer
  • 3.  Choice of Entity ◦ Corporation  S or C Corp. ◦ Limited Liability Company ◦ Other  Sole proprietorships or general partnerships are strongly discouraged
  • 4.  Roles and Duties ◦ Director/Manager v. Officer v. Employee ◦ Contracting Authority  Actual v. “Apparent” authority  Respecting the Entity/"Separate" Legal Person ◦ Company Bank Accounts ◦ Executing Contracts in Company Name ◦ Helps to Avoid Claims of "Alter Ego" or Piercing the Corporate Veil ◦ Personal Obligations  Guarantees
  • 5.
  • 6.  Not Always “Friends”  Provisions of LLC Operating Agreement or Shareholder Agreement ◦ Management/voting ◦ Transfer Restrictions  Equity is personal property and freely transferable [subject to securities laws] unless restricted by contract ◦ Triggering Events  Marriage Dissolution  Death  Disability  Termination of Employment ◦ Buy/Sell Terms ◦ Valuation Method(s)
  • 7.  Raising Capital is Difficult  Double the Amount  3 to 6 Months Effort  Time Consuming
  • 8.  Debt or Equity ◦ Notes  Convertibility  Senior to equity ◦ Equity  Common Stock v. Preferred Stock
  • 9.  Securities Laws Will Apply ◦ Registration requirements and exemptions ◦ Anti-fraud rules  Regardless of circumstances or exemptions, you can't commit fraud in the sale of securities ◦ Both federal and state laws apply ◦ Why you care/remedies  Rescission  Regulatory action 5. RAISING MONEY (continued)
  • 10.  Select Your Investors Carefully ◦ Fewer investors can be easier to manage ◦ More sophisticated and/or experienced investors may better understand your situation ◦ Experienced investors can also provide non-financial assistance to your company 5. RAISING MONEY (continued)
  • 11.  Initial Assignments of Property  Confidentiality and Assignment of Invention Agreements  Consulting Agreements  Loans and other arrangements  Minutes and ownership records
  • 12.  Fiduciary Duties ◦ To shareholders/members ◦ To creditors  Securities Laws ◦ Anti-fraud rules  Tax Laws ◦ Withholdings on compensation  Fair Labor Standards Act ◦ Wage, hour, O-T and other laws
  • 13.  Identify IP ◦ Patents ◦ Copyrights and Trademarks  Advantages ◦ Barriers to entry ◦ Higher valuations  Non-Disclosure and Assignment of Inventions
  • 14.  Don’t Be Surprised  It’s Your Business!
  • 15.  Attorney  Accountant/CPA  Banker  Insurance Broker/Agent  Others?