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Startup Legal Straight Dope

A benefit of being a speaker at Failcon was getting an invitation to a talk hosted by Anit Guha of Orrick Legal. Here’s some of his wisdom that I noted down:

  • When choosing a name use the uspto site and a 3rd party search service
  • Avoid incorporating in California; use Delaware C Corp. Not only because of the company-friendly laws in DE, but because everyone incorporates there so everyone is familiar with the legal aspects involved.
  • Founder vesting: vesting important if someone leaves. Typical is four years with a one year cliff, maybe some acceleration too. Can backdate the start of vesting if significant work was done before company was formed.
  • Worker classification: consultants vs employees; employees involve more overhead. But you must follow legal definition, state and federal laws when bringing someone on (you can’t avoid the employee overhead if the person is actually working as an employee).
  • Invention assignment – very important that everyone signs and agrees that ideas and inventions belong to the company; it’s pretty broad, it’s negotiated individually
  • Use offer letters for everyone
  • Use release agreements for involuntary terminated employees. They can refuse to sign; you need to pay them to make it enforceable.
  • Investor “finders” must be a registered broker dealer, otherwise you can’t pay them for that service.
  • Rule 701 disclosure obligations, options valued over 5 mil in 12 month period should be disclosed.
  • Only raise from accredited investors.
  • Taxes at acquisition can lead to a liability if you’re not careful.