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Startup Legal 1.Be A Competent Client – Use A Framework 2.Get A Good Lawyer (Firm) 3.Get Incorporated; Observe Formalities 4.Use Standard Contracts Where.

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Presentation on theme: "Startup Legal 1.Be A Competent Client – Use A Framework 2.Get A Good Lawyer (Firm) 3.Get Incorporated; Observe Formalities 4.Use Standard Contracts Where."— Presentation transcript:

1 Startup Legal 1.Be A Competent Client – Use A Framework 2.Get A Good Lawyer (Firm) 3.Get Incorporated; Observe Formalities 4.Use Standard Contracts Where Possible 5.Use Lawyer for Big Deals (and Financings) 6.Use Liability Limiting Language Otherwise.

2 Where Does Legal Fit? 1.Getting to Product-Market fit is core. Focus there. 2.Satisfice (Dont Optimize) Legal. What does that mean? 3.Cost question is not only how much but when – Too early is a waste – Too late is very expensive … and sometimes lethal 4.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 Incorporation Seed Funding Service Providers Options; Series A Hypothesis Problem – Solution Fit Problem – Market Fit Lean canvas

3 Elects Board; Approval of Big Changes Manages All Aspects of Company Executes Orders 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 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 CompanySuppliersCustomers Employees Independent Contractors Service Providers Board, Stockholders, Co-founders Property: Patents, etc. Purchase Orders Sales Orders; Terms of Service; Privacy Policies Stock Purchase; Board Resolutions, etc. Employment ; Independent ContractorsPatent, Lease

6 The Control Framework

7 Sample Framework What You Need – 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 Goodwin- Proctor – Series Seed Series Seed – Links at Startup Co. LawyerStartup Co. Lawyer – State of Delaware, Secretary of State State of Delaware, Secretary of State – MyCorporation.com, Nolo Press, Legal Zoom MyCorporation.comNolo Press 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 sheetterm sheet The lawyer will handle the subscription agreement, the closing and the regulatory filings (federal and state) subscription agreement

11 People Folder This is where most startups have their first contract issues Potholes: – Misclassifying employees as ICs Misclassifying employees as ICs – 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 the standard agreements finalsigned 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; dont 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 theres a meeting of the minds before proceeding. – Accepted by action – make clear than only written documentation

15 The Lawyers 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 dont have to. Dont be afraid to talk fees and money.


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