Presentation on theme: "Startup Legal Be A Competent Client – Use A Framework"— Presentation transcript:
1 Startup Legal Be A Competent Client – Use A Framework Startup LegalBe A Competent Client – Use A FrameworkGet A Good Lawyer (Firm)Get Incorporated; Observe FormalitiesUse “Standard” Contracts Where PossibleUse Lawyer for Big Deals (and Financings)Use “Liability Limiting Language” Otherwise.
2 Incorporation Seed Funding Service Providers Options; Series A Where Does Legal Fit?HypothesisProblem –Solution FitProblem – Market FitLean canvasIncorporation Seed Funding Service Providers Options; Series AGetting to Product-Market fit is core. Focus there.Satisfice (Don’t Optimize) Legal. What does that mean?Cost question is not only “how much” but “when”Too early is a wasteToo late is very expensive … and sometimes lethalMy recommendationEstablish a FRAMEWORK for compliance and controlRely on lawyer for standard dox, financings and big deals onlyDo DIY things in writing and use liability limiting language
3 A Corporation Is A Legal “Person” You are merely its agent (fiduciary) (So is “your” attorney.)You have multiple relationships – shareholder, board director, officer or employeePower and ownership will be SHARED.State StatutesArticles Of IncorporationBylawsShareholdersBoardOfficersExecutes OrdersManages All Aspects of CompanyElects Board; Approval of Big ChangesDefines Entity and its “Constitution”A corporation is like the OSI model of networking – distinct layers doing different things
7 Sample Framework What You Need “Splitting vs. Clumping” Filing Cabinet (fixed)Policy/Procedure (versioned)Projects (draft; final)Whiteboard (dynamic)“Splitting vs. Clumping”Draft vs. Final, SignedPrimary vs. DerivativePaper vs. Electronic❷❺❹❺❶❸
9 ❺Corporate Folder❸Delaware corporation, qualified to do busi-ness as a “foreign corporation” in CA; C-corpForms Availability - DIYGoodwin- ProctorSeries SeedLinks at Startup Co. LawyerState of Delaware, Secretary of StateMyCorporation.com, Nolo Press, Legal ZoomHire a good lawyer and let him/her do corporation and give you the “standard documents” they prefer.❶❷❹
10 Capitalization Folder Each investment in the Company will be a “Closing” or “Funding” event.You will handle the term sheetThe lawyer will handle the subscription agreement, the closing and the regulatory filings (federal and state)
11 People FolderThis is where most startups have their first contract issuesPotholes:Misclassifying employees as IC’sNot securing IP rights (Inventions Assignment; Work For Hire)Not repeating “at will” enoughPromising stock; not deliveringDiscrimination
12 What Do You Do Next?Find a good lawyer; negotiate deferred fee arrangementAsk for a simple incorporation and “standard” agreementsRestricted Stock Agreements (and 83(b) election) for co-foundersEmployee and IC agreements (NDAs, inventions assignments, work-for-hire, etc.)NDAMaybe customer or channel contractsSet Up YOUR Framework – Dropbox,* [Gmail, GSites, GDox, GCal]Learn to use the standard agreements and drive them to final, signed documents, filed inside the framework.Use Google to research things; avoid chit-chat with lawyerCYA with “liability limiting language” (next)Buy your attorney lunch once a quarter (off the meter)Engage them for funding and thereafter.* make sure to back it up!!
13 Liability Limiting Language (1) Generic Contract – offer, acceptance, considerationPartiesDeliverables by each, termsWho, what, when, where, how good and how much?Conditions, before and afterTerm and termination; renewal“Reps and warranties”Breach, Damages, Indemnification; limits of liabilityBoilerplateAgreement formed … and enforced – can be oralPartial performanceAccepted by action
14 Liability Limiting Language (1) Generic Contract – offer, acceptance, consideration – “Discussion Draft”; “Non-binding term outline”; “not binding … definitive legal agreements”Parties – deal only with honorable people; observed/enforced; dogs and fleasDeliverables by each, termsBe super clear; don’t waffle. Better to say “no” than get sued.Limit your risks – small amounts at first; inspection/rejection; option; negotiate!Term and termination; renewalThis is the most overlooked “gotcha” and best door out. Termination on X days, either way; no auto-renewal for long periods.Breach, Damages, Indemnification; limits of liabilityLimit liability to the amount paid;BoilerplateUse a Rider “Notwithstanding anything in the main agreement to the contrary, the parties agree that X, Y, Z….Agreement formed … and enforced – can be oralPartial performance – use to confirm and be sure there’s a “meeting of the minds” before proceeding.Accepted by action – make clear than only written documentation
15 The Lawyer’s Role … and Yours The lawyer represents the Company, not you.You, as CEO, are the boss; they are the “professional” (but, like a doctor).They advise, recommend and represent.You decide.You are wise to defer to them for “legal points” … but you don’t have to.Don’t be afraid to talk fees and money.