STARTUP: NOTES AND GUIDE

When you are starting a company, there is a lot on your mind. Many founders treat legal issues as secondary concerns, i.e. things that can be worked out at a later date. Unfortunately, this lack of attention to startup law can lead many founders to later face huge legal problems (and bills), including issues related to corporate structure and compliance. Such issues can haunt a startup for years, present issues during financing rounds and even be contributing factor to a company’s demise.

From the first days of your startup, a startup lawyer can help to ensure that you have handled the full range of salient issues before they become a problem.

Incorporation

Almost every startup forms an entity early, and with good reason. Incorporation can provide your startup the legal protections and structure that a growing business needs. Even once startups have decided to form a legal entity, however, questions remain regarding the ideal legal structure for the business and the appropriate allocation of initial shares of the company.

Legal Structure

Choosing which structure may be best for you must be done early in order to limit your liability, but figuring out the ideal structure at such an early stage can be challenging for many startups, as each have unique advantages and disadvantages. A startup lawyer can help your startup weigh these pros and cons to decide which one is best for your future needs and plans.

Dividing Shares Among Founders

The division of original shares must be done at the time of entity formation. Ideally, you should establish how much of the company each founder deserves at the earliest possible stage—and in writing. You should also specify what each founders responsibilities and cash investment will be and consider appropriate vesting agreements.

Standard Forms

Every startup should have standard forms written up that protect your company from legal issues arising with your customers, employees, and even your website.

Standard Contract

Most companies have standard form contracts for transacting with customers or clients. These standard forms are drafted to be in favor of your company and provide fast and efficient templates for beginning negotiations when entering into new business relationship. With customers, this standard contract generally establishes what your product offers and limits your liability. Common examples of these kinds of standard customer contract are a Master Services Agreement or Terms of Use/Terms of Service contract.

Employee Contracts

Without adequate employment documentation, your startup can quickly get in trouble with your state’s labor laws. Startups should prepare a core group of employment documents and contracts to be signed by employees. Some things to consider with employee contracts include:

? Letter of offer;

? Confidentiality agreements;

? Employee handbook;

? Benefits packages and forms.

If you are considering hiring workers as "contractors" rather than "employees, you may also want to talk to your lawyer about proper employee classification.

Terms of Use Agreement and Privacy Policy

From day one, your website needs a clear, tailored Terms of Use (or Terms of Service) and Privacy Policy. A Terms of Use/Terms of Service generally sets out how the site can be used and includes clauses like disclaimers, limits on liability and dispute resolution.

Corporate Governance

Starting off with solid relationships with investors, partners, advisors and your board is vital to successfully launching your business. Yet far too often, startups fail to lay out corporate governance documents early on, pushing off the task until problems have already arisen.

You should establish corporate governance documents with clear clauses as soon as you have any advisors or investors, even if these advisors and investors are your friends and family.

It’s been well established that companies with high governance standards produce a higher return on equity, which is good for you and your co-founders, as well as your investors. In addition, having all stakeholders aware of your governance standards protects investors and fosters transparency—a vital part of a successful relationship in the long-term. These documents vary based on your entity type and needs, but may include Operating Agreements, Bylaws, Shareholder Agreements, Partnership Agreements, Buy-Sell Agreements and more.