slides legal missteps startups | tapio pekelharing
DESCRIPTION
A presentation for Maastricht Week of Entrepreneurship "Common legal missteps startups make".Tips for Startups on legal issuesTRANSCRIPT
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Common legal missteps startups make
Tapio PekelharingPenn Pekelharing Stroes Advocaten LLP
May, 16th 2013
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Fact 1: research shows that you will only remember 10-15% of a presentation you are really interested in
Fact 2: you will only remember 2-7% of this LEGAL (yawn…) presentation...
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No worries: I will tell you at the end which 2-7% you should remember
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About melawyer (advocaat)/entrepreneur
• Corporate law/M&A
• (European) competition law
• Andersen Legal
• CMS
• Peek Legal
• Amsterdam
• Brussels
• Started/invested in various companies
• Guest Brands & Events
• Marketing/brand activation
• Flex Republic
• Bon Chic PR (startup)
• Maastricht
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Current focus:
One of our and my ambitions: helping startups to corporate maturity
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Forming the company
How you legally structure the company is especially important to the management and the owners of the company
Decisive factors in your choice of legal structure:
• solo or partners
• responsibilities
• management and decision making
• financing/investors
• continuity
• tax issues
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Before we touch on legal structures...
• DON’T incorporate a HOBBY
• It’s a waste of money to spend a lot of money on incorporation if it is still a hobby
• Reasons to incorporate sooner: IP, investors, large risks, employees
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What are the common legal structures for startups in NL
• Sole proprietorship (eenmanszaak)
• Partnership (VOF, maatschap, CV, LLP)
• Corporation (BV)
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Sole proprietorship: key elements
• Who has ownership? the owner, he/she owns the business IN PERSON
• Who runs the business? the owner
• Profit distribution? all profits for the owner
• What about debts? all debts responsibility of owner IN PERSON
• Legal liability? the owner, again IN PERSON
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Sole proprietorship: advantages
• easy formation: do-it-yourself
• low/no starting costs
• direct control of all decisions
• no capital requirements
• favourable tax regime if you meet the criteria (MKB Vrijstelling, Startersaftrek)
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Sole proprietorship: disadvantages
• unlimited and personal liability
• continuity is at risk
• less professional appearance
• not suitable for big risks/large investments
• fiscal: make a lot of money and you will pay high taxes via higher tax brackets
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Sole proprietorship: must do
Do it yourself!
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Partnership: key elements
• Who has ownership? collaboration between two or more individuals or corporations
• Who runs the business? each partner, together equally or whatever you have agreed
• Profit distribution? profit is split between partners equally or agreed variations, depending on time and money invested
• What about debts? depends on the type of partnership, but 9/10 times each partner is responsible for the WHOLE debt!
• Legal liability? depends on the type, most of the times partners together
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Partnership: advantages
• no one likes to work alone...
• compensating each other weaknesses
• easy to incorporate
• taxed as personal income, same nice treatment as sole proprietorship
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Partnership: disadvantages
• conflicts may arise, especially if you do not have a solid agreement in place
• no legal difference between the individuals and the business/partnership if you participate in person: PERSONALLY LIABLE
• one partner accountable for the other one’s behaviour (fraud, debts, breach of contract)
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Partnership: must do’s
• make a good agreement between partners (CHECK: lawyer)
• CHECK: prior non-competes, non-solicitation and other restrictive convenants
• Agree on (1) voting rights, (ii) who’s going to be doing what & how often, (iii) who & when can exit, also INVOLUNTARY (iv) vesting for partners (v) what happens and who has to pay what when the company needs money (vi) conflict resolution.
• This list is definitely not exhaustive...
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Limited Liability Partnership
• Interesting UK/US entity
• It is a hybrid: partnership WITH limited liability: this is GOOD
• YES: you can operate via a LLP in the Netherlands
• Was created for “professions”: lawyers, doctors, etc.
• Tax authorities in the Netherlands are indecisive whether it is also applicable to joint ventures
• Worth looking into!
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Incorporation (BV): key elements
• Who has ownership? The shareholders. Shareholders do not need to be involved in running the business.
• Who runs the business? The director or the board of directors. They are elected by the shareholders. Really important decisions: shareholders
• Profit distribution? First you have to pay corporate taxes over the BV’s profit. Surplus is for shareholders to decide, leave it in the company or pay out as dividend
• What about debts? In principle: Shareholders are responsible up until the investment they have made. NOTE: director’s liability rules!
• Legal liability? the BV is liable. NOTE: director’s liability rules!
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Incorporation (BV): advantages
• Limited liability
• I REPEAT: limited liability
• More suitable for raising money
• Professional structure, trustworthy
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Incorporation (BV): disadvantages
• Relatively high costs to incorporate
• Complex structure with administrative burden
• Fiscal wise not interesting when you are not making quite some profits (appr. EUR150.000 to EUR200.00 PER shareholder...)
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Incorporation (BV): must do
• Go to a civil notary and establish the BV: mandatory by law
• Create a clear and solid shareholders agreement next to the bylaws of the company. NOTE: this is a lawyer’s job, not a tax advisor, auditor or notary’s
• Discuss everything and agree on everything with the other shareholders. Make sure it is either in the bylaws/articles or in the shareholders agreement. NOTE: small shareholders/investors: different approach...
• NOTE: recently BV law changed in NL, became easier, more flexible to work with
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NOTE:
If you intend to raise capital/have investors join you (even if only friends, family or fools), you must properly
structure the company
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IP
What is IP?Intellectual property is the bundle of legal rights that arise from the creative genius of the human mind
name, trademark, brand, logo, codes, patent
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IP:What are you doing wrong?
• you started developing before you incorporated the company
• you had a friend helping you out with programming/codes
• the domain is registered under your name
• you think that registering a tradename is sufficient to protect the brand
• you were very enthusiastic about the name Tweetdeck for your new company
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Contracts
There is so much to be said about contracts. It is really important to get a good set of agreements/contracts
for your business
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Basic contract principles• a contract needs an offer AND an acceptance of that offer
• accurately identify the parties (check Trade Register who you are dealing with!)
• establish if the person you are dealing with has a clear mandate to bind the company
• avoid ambiguous payment terms
• make clear definitions
• check and ask for all attachments
• always try to write the first draft of a contract. Not writing the first draft, puts you in a disadvantage
• Try to stick to ONE version of your supply or client contract: resist temptation to customize a contract for every client
• make sure you at least email a PDF of your general conditions
• get a good employee contract in place when it is that time to hire someone
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Your advisors need a contract too...
• get an agreement in place before they start to work for you, YES: especially your LAWYER
• Your lawyer should not charge you for: (i) drafting an engagement letter, (ii) multiple lawyers on a conference call, (iii) introduction to an investor, (iv) meals, drinks etc.
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So what about that 2-7%?
• Legal matters ARE the right problem to focus SOME of your time on
• It is all fun and games until someone slaps you with a lawsuit
• Keep it simple if it is just you, sole proprietorship
• Discuss and agree with your partners about EVERYTHING
• Always make an agreement with your clients
• Do not start writing contracts, but read and understand every article
• IP: check ownership of codes, trademarks, domains etc.
• If you aim for investors, set up the company properly
• When it seems to get serious with an investor, it is time to CALL A LAWYER
• REMEMBER: the investor’s lawyers are not there to get you a good deal!