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Startup Legal Be A Competent Client – Use A Framework

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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 Legal Be A Competent Client – Use A Framework Get A Good Lawyer (Firm) Get Incorporated; Observe Formalities Use “Standard” Contracts Where Possible Use Lawyer for Big Deals (and Financings) Use “Liability Limiting Language” Otherwise.

2 Incorporation  Seed Funding  Service Providers  Options; Series A
Where Does Legal Fit? Hypothesis Problem – Solution Fit Problem – Market Fit Lean canvas Incorporation  Seed Funding  Service Providers  Options; Series A Getting 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 waste Too late is very expensive … and sometimes lethal My recommendation Establish a FRAMEWORK for compliance and control Rely on lawyer for standard dox, financings and big deals only Do 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 employee Power and ownership will be SHARED. State Statutes Articles Of Incorporation Bylaws Shareholders Board Officers Executes Orders Manages All Aspects of Company Elects Board; Approval of Big Changes Defines Entity and its “Constitution” A corporation is like the OSI model of networking – distinct layers doing different things

4 What Do These Have In Common?

5 The Control Framework Board, Stockholders, Co-founders
Stock Purchase; Board Resolutions, etc. Purchase Orders Sales Orders; Terms of Service; Privacy Policies Suppliers Company Customers Patent, Lease Employment ; Independent Contractors Service Providers Property: Patents, etc. Employees Independent Contractors

6 The Control Framework

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, Signed Primary vs. Derivative Paper vs. Electronic

8 Case Study: Acme Widgets

9 Corporate Folder Delaware corporation, qualified to do busi-ness as a “foreign corporation” in CA; C-corp Forms Availability - DIY Goodwin- Proctor Series Seed Links at Startup Co. Lawyer State of Delaware, Secretary of State MyCorporation.com, Nolo Press, Legal Zoom Hire a good lawyer and let him/her do corporation and give you the “standard documents” they prefer.

10 Capitalization Folder
Each investment in the Company will be a “Closing” or “Funding” event. You will handle the term sheet The lawyer will handle the subscription agreement, the closing and the regulatory filings (federal and state)

11 People Folder This is where most startups have their first contract issues Potholes: Misclassifying employees as IC’s Not securing IP rights (Inventions Assignment; Work For Hire) Not repeating “at will” enough Promising stock; not delivering Discrimination

12 What Do You Do Next? Find a good lawyer; negotiate deferred fee arrangement Ask for a simple incorporation and “standard” agreements Restricted Stock Agreements (and 83(b) election) for co-founders Employee and IC agreements (NDAs, inventions assignments, work-for-hire, etc.) NDA Maybe customer or channel contracts Set 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 lawyer CYA 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, consideration Parties Deliverables by each, terms Who, what, when, where, how good and how much? Conditions, before and after Term and termination; renewal “Reps and warranties” Breach, Damages, Indemnification; limits of liability Boilerplate Agreement formed … and enforced – can be oral Partial performance Accepted 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 fleas Deliverables by each, terms Be 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; renewal This 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 liability Limit liability to the amount paid; Boilerplate Use a Rider “Notwithstanding anything in the main agreement to the contrary, the parties agree that X, Y, Z…. Agreement formed … and enforced – can be oral Partial 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.


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