Presentation providing an overview of key legal considerations on a startup\'s path from formation to financing.

1. From Formation to Financing
Benjamin M. Hron
bhron@mccarter.com
617.449.6584
@HronEsq
03.15.12

2. “From Formation to Financing”
1. Common Pitfalls
2. Deciding Whether to Go Into Business
3. Choosing / Forming a Business Entity
4. Building Your Business
5. Raising Money

3. Common Pitfalls
- Failure to Adequately Protect Your IP
- Complex or Confused Capital Structure
- Failure to Comply with Securities Laws
- Failure to Comply with Labor Laws
- Onerous B2B Contracts

4. Deciding to go into Business
a. Obligations to Former Employers
b. Rights to needed Intellectual Property
c. Startup capital
d. Relationship with Partners
e. Ownership of the Business

5. Deciding to go into Business
a. Obligations to Former Employers
- Ownership of work product
- Non-competition
- Non-solicitation
- Confidentiality

6. Deciding to go into Business
b. Rights to needed Intellectual Property
- What do you need?
- Who owns it?
- Can you get it?

7. Deciding to go into Business
c. Startup Capital
- Bootstrapping your business
- Bootstrapping your personal life

8. Deciding to go into Business
d. Relationship with Partners
- VCs like good teams
- Partners  A Business Marriage
- Do you share goals?
- Can you make effective decisions?

9. Deciding to go into Business
e. Ownership of the Business
- Capitalization
- Founders Agreements
- Voting Power
- What Happens If….

10. Forming a Business Entity
a. Corporation or Limited Liability Company
b. C Corporations vs. S Corporations
c. Delaware vs. Other States
d. Common Terms in Organizational Docs
e. Formalities of Corporate Decision Making

11. Forming a Business Entity
a. Corporation or Limited Liability Company
- Tax treatment of profit & loss
- Corporate Governance Formalities
- LLC Flexibility vs. Corporation Predictability
- Investor Preference

12. Forming a Business Entity
b. C Corporations vs. S Corporations
- S Corp  Partnership tax treatment
BUT:
- Restrictions on:
- Who can be a stockholder
- How many stockholders
- Classes of Stock

13. Forming a Business Entity
c. Delaware vs. Other States
- Delaware is #1 in customer service
- Well developed body of law
- Management friendly
BUT:
- Expense of Registered Agent, Foreign Qual.
- Easy to move Mass. corporation to Delaware

14. Forming a Business Entity
d. Common Terms in Organizational Docs
- Charter & Bylaws or LLC Certificate
- Board
- Officers
- Classes of Shares / Interests
- Decision making
- Distribution of profit & loss

15. Forming a Business Entity
e. Formalities of Corporate Decision Making
- Board of Directors / Managers & Stockholders
- When to consult
- Needed approvals
- Penalties for not observing proper
governance

16. Building Your Business
a. Employees v. Independent Contractors
b. Service Agreements
c. Stock Options and Restricted Stock
d. Building a Team of Professionals
e. B2B Agreements

17. Building Your Business
a. Employees v. Independent Contractors
- Designation determined by applicable law
- What is the nature of the relationship?
- Consequences of misclassification
- Back-pay, including overtime
- Back-taxes, including interest and penalties
- Civil/criminal penalties

18. Building Your Business
b. Service Agreements
- Basics business terms
- Important legal terms to protect your business
- Confidentiality
- IP Assignment & Work-for-Hire
- Non-competition
- Beware obligations to former employer

19. Building Your Business
c. Stock Options and Restricted Stock
- Advantages of equity incentives
- Equity Incentive Plan
- Options
- Incentive Stock Options
- Non-qualified Stock Options
- Restricted Stock

20. Building Your Business
d. Building a Team of Professionals
- Lawyer, Accountant, Banker
- Keep advisors informed
- Leverage their expertise
- Avoid problems before they arise
- Saves time, money and frustration

21. Building Your Business
e. B2B Agreements
- Non-disclosure Agreements
- Basic business terms
- Common legal terms
- Representations & Warranties
- Covenants
- Indemnification
- Assignment & Change of Control

22. Raising Money
a. Securities Laws
b. Types and Sources of Financing
c. Deal Terms

23. Raising Money
a. Securities Laws
- Apply to private and public companies
- Regulate securities issued or transferred
- Rule: no issuance/resale without registration
- Key Exception: Regulation D Private Offerings
- Who is an “accredited investor”?
- Consequences of failing to comply

24. Raising Money
b. Types and Sources of Financing
- Seed Capital (<$1M)
- Friends & Family or Angels
- Common or Preferred Stock, Convertible Debt
- Venture Capital (>$1M)
- Angels or VCs
- Preferred Stock

25. Raising Money
c. Deal Terms
- Don’t get (too) hung up on valuation
- Preferred preferences
- Protective Provisions
- Registration Rights
- Vesting of Founders’ Stock

26. McCarter & English LLP
Questions?
Benjamin M. Hron
bhron@mccarter.com
617.449.6584
@HronEsq