2015 ncet expo: jim newman - legal pitfalls for start-up / early stage companies
TRANSCRIPT
TOP 10
LEGAL PITFALLS FOR START-UP/EARLY STAGE COMPANIES
September 18, 2015
Atlantis Casino ResortGrand BallroomReno, Nevada
JAMES NEWMANHolland & Hart LLP5441 Kietzke Lane, 2nd FloorReno, NV [email protected]/327-3014
Non-Disclosure Non-Compete Non-Solicitation Don’t Take Employer Materials or Information Carefully Review What You Sign Your Former Employer May Bring Legal Action Against You and/or Your New Company/ Employer
1. EXERCISE CAUTION WHEN LEAVING YOUR EMPLOYER
Choice of Entity
◦ Corporation S or C Corp.
◦ Limited Liability Company
◦ Other Sole proprietorships or general partnerships are strongly discouraged
2. CONDUCT BUSINESS THROUGH AN ENTITY
Roles and Duties◦ Director/Manager v. Officer v. Employee◦ Contracting Authority
Actual v. “Apparent” authority
Respecting the Entity/"Separate" Legal Person
◦ Company Bank Accounts◦ Executing Contracts in Company Name◦ Helps to Avoid Claims of "Alter Ego" or Piercing the Corporate Veil◦ Personal Obligations
Guarantees
2. DOING BUSINESS THROUGH AN ENTITY
3. YOU NEED A SHAREHOLDER AGREEMENT
Not Always “Friends” Provisions of LLC Operating Agreement or Shareholder Agreement
◦ Management/voting◦ Transfer Restrictions
Equity is personal property and freely transferable [subject to securities laws] unless restricted by contract
◦ Triggering Events Marriage Dissolution Death Disability Termination of Employment
◦ Buy/Sell Terms◦ Valuation Method(s)
3. YOU NEED A SHAREHOLDER AGREEMENT (Continued)
Raising Capital is Difficult Double the Amount 3 to 6 Months Effort Time Consuming
4. UNDERCAPITALIZATION
Debt or Equity◦ Notes
Convertibility Senior to equity
◦ Equity Common Stock v. Preferred Stock
5. RAISING MONEY
Securities Laws Will Apply◦ Registration requirements and exemptions
◦ Anti-fraud rules Regardless of circumstances or exemptions, you can't commit
fraud in the sale of securities
◦ Both federal and state laws apply
◦ Why you care/remedies Rescission Regulatory action
5. RAISING MONEY (continued)
Select Your Investors Carefully◦ Fewer investors can be easier to manage◦ More sophisticated and/or experienced
investors may better understand your situation
◦ Experienced investors can also provide non-financial assistance to your company
5. RAISING MONEY (continued)
Initial Assignments of Property Confidentiality and Assignment of
Invention Agreements Consulting Agreements Loans and other arrangements Minutes and ownership records
6. GOOD RECORDKEEPING
Fiduciary Duties◦ To shareholders/members◦ To creditors
Securities Laws◦ Anti-fraud rules
Tax Laws◦ Withholdings on compensation
Fair Labor Standards Act◦ Wage, hour, O-T and other laws
7. PERSONAL LIABILITY ISSUES
Identify IP ◦ Patents◦ Copyrights and Trademarks
Advantages◦ Barriers to entry◦ Higher valuations
Non-Disclosure and Assignment of Inventions
8. PROTECT INTELLECTUAL PROPERTY
Don’t Be Surprised
It’s Your Business!
9. READ YOUR CONTRACTS
Attorney Accountant/CPA Banker Insurance Broker/Agent Others?
10. STAY IN REGULAR/PERIODIC CONTACT WITH YOUR ADVISORS