Must-Do’s For Companies Ready to Level Up

(This article appears on the Kader Law blog at https://www.kaderlaw.com/blog)

When you start a technology business, money may be tight, and you may have cut a few corners without a proper ‘legal’ budget because the focus is on development. This is a fairly common practice – but when you are ready to level up and sell to Enterprise companies, explore funding opportunities, or discussing acquisition – there are a few things you must put priority on. This article will give you a high level overview of Must-Do’s for Companies Ready to Level Up.

1. HAVE INCORPORATION DOCUMENTATION ON POINT

As a tech startup, you’ve probably done enough research to register a Delaware C Corporation, file your Articles of Incorporation, and have some Bylaws in place. You should also make sure you have the following:

• Administer enough shares.?
• Have a Stock Plan and Stock Ledger in place.?
• Have Stock Purchase Agreements for yourself and co-founders with a vesting schedule.?
• Have a Shareholder Agreement – determining the rights of shareholders and defining when those rights can be exercised.?
• Have Bylaws specific to your company, and make sure you’re already in the habit of doing meetings and taking minutes.

2. TRANSFER YOUR INTELLECTUAL PROPERTY

There have been (many) cases where investors would refuse to partake in a round because intellectual property (everything from the name, logo, to the code itself) is owned by individuals or long-gone contractors, and not the corporation. Don’t fall into this hole. Make sure you’ve transferred your intellectual property using:

• Technology Assignment Agreements – from founders to the company in exchange for stock.?
• Confidential Information and Invention Assignment Agreements – from both employees, and consultants – transferring over any rights to inventions to the company.

3. HAVE AN UP-TO-DATE CAP TABLE

A Cap Table is a table providing an analysis of a company’s percentages of ownership, equity dilution, and value of equity in each round of investment by founders, investors, and other owners. You should have this in place, even if just you and your co-founders are the only ones who own stock. You’ve got options for Cap Tables:

• Work with your Corporate Attorney.?
• Use software (recommended) like?Carta,?Captable.io, or?CapShare.

4. FIGURE OUT DATA PRIVACY AND SECURITY COMPLIANCE

Data Privacy is a big deal now, and it’s only going to get bigger. Regulations like he General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) apply to any technology company that processes personal data. Have a plan around Data Privacy and Compliance. This means, amongst?many?others:

• Get consent from all of your users to use their data – and make sure the consent is in plain, easy to read language.?
• Make sure your data is hosted in protected environments, and encryption at rest and encryption in transit in place.?
• Keep audit logs of who has access to your users data, and what they’re doing with it.?
• Allow your users to contact you and request that you delete their data.?
• Make sure you are only using data for specific purposes, and nothing else (don’t sell your data for money without telling your users you’re doing so).?
• Have compliance policies and procedures in place, for both general protection of your data – and in case there is a breach.?
• Have a Privacy Policy published on your site outlining how you’re using data.?
• Have a Security Policy published on your site outlining what technical and administrative security measures you take as a company.?
• Make sure your vendor’s are compliant (more on this below.)?
• Don’t just write it – DO IT.

5. HAVE A SALES CONTRACT

Your sales contracts should be air tight to protect your organization. Whether you use a Master Services Agreement with an Order Form, a clickthrough Cloud Services Agreement, or a hybrid SaaS/EULA Agreement – appropriate provisions should be in place to protect your intellectual property, make sure you get paid, and minimize your liability.

6. HAVE TERMS OF USE/SERVICE

The Terms of Use/Service should, at a minimum, have clear information around:

• How your customers use your services;?
• What they are allowed to do;?
• What they are NOT allowed to do;?
• What you can do if they violate your Terms;
• ?What you are responsible for monitoring in terms of their use.

Having a strong Terms of Use/Service is essential to protecting your SaaS from misuse.

7. HAVE A SERVICE LEVEL AGREEMENT

Enterprise customers will generally require a strong Service Level Agreement. The Service Level Agreement (SLA) is the promise of service you’re making to your customers regarding the quality, availability, and responsibilities of your company.

Some of the information an SLA should include:

• The service you are providing;
• Promised uptime;?
• Monitoring;?
• How to report issues or submit support questions;
• Response and issue resolution time-frame;?
• What happens if you don’t meet your commitments.

8. DO A VENDOR CONTRACT REVIEW

Technology companies have dozens of vendors ranging from hosting providers to consultants. A bad vendor contract with poor terms can cost both from a regulatory standpoint and from a business standpoint.

That’s why you should review, negotiate, renegotiate, and amend all of the vendor contracts you have in place.

9. DO A VENDOR COMPLIANCE AUDIT

As mentioned above – data privacy laws and regulations are a big deal – and your investors and customers take them seriously. That’s why it’s important to ensure that your vendor’s are compliant with data privacy compliance standards.

Reach out to all of your vendors handling data and ask them for their data security policies and procedures. If you’re handling personal data, and one of your vendor’s doesn’t have their stuff together – it puts you at risk.

10. HAVE EMPLOYMENT CONTRACT PACKAGES

You should make sure you have proper employment contracts with the appropriate provisions in place. This includes:

• Stock option plans and vesting schedules;
• At-Will employment provisions;
• ?Confidential Information and Invention Assignment Agreements – transferring over all inventions to the company, and making sure confidential information stays confidential;
• Required Commitments and Expectations – the promise that work hours are dedicated to work for the company;
• Company Policies – vacation days, sick days, leave policies, and benefits;
• Non-compete agreement – to make sure your employees don’t jump ship to a competitor right away;
• Termination Agreement – the promises being made if and when the employee leaves.

11. FILE YOUR TRADEMARKS

You don’t want to go-to-market complete with website, marketing material, and all the works – only to get a cease and desist letter from another company telling you they own the rights to your marks.

I’ve written an entire article on?How Trademarks Work, but here’s the gist of what you need to do:

• Research – make sure the name and logo, or anything similar to it, aren’t already registered in the United States Patent and Trademark Office Federal Register, State Registers, or in Common Law.?
• Understand why your mark might get rejected, and what your recourse is.?
• File your trademarks with the United States Patent and Trademark Office.?
• Follow the application, and respond to any Office Actions and objections the USPTO might have.

Research and register your trademarks early, and avoid having to go through a comprehensive rebrand later.

LET US HELP

Kader Law regularly works with technology companies. We offer packages, both on retainer or for a flat rate, to assist you.?Let’s connect today.

This post is not legal advice, and does not establish any attorney client privilege between Law Office of K.S. Kader, PLLC and you, the reader.