LEGAL ISSUES FOR START-UPS November 11, 2011 Adam Hull Travis Wilson.
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Transcript of LEGAL ISSUES FOR START-UPS November 11, 2011 Adam Hull Travis Wilson.
![Page 1: LEGAL ISSUES FOR START-UPS November 11, 2011 Adam Hull Travis Wilson.](https://reader030.fdocuments.net/reader030/viewer/2022032604/56649e675503460f94b6392b/html5/thumbnails/1.jpg)
LEGAL ISSUESFOR START-UPS
November 11, 2011Adam Hull
Travis Wilson
![Page 2: LEGAL ISSUES FOR START-UPS November 11, 2011 Adam Hull Travis Wilson.](https://reader030.fdocuments.net/reader030/viewer/2022032604/56649e675503460f94b6392b/html5/thumbnails/2.jpg)
Start-Up Right So You Don’t Have to Shut Down
Protecting Your Personal Ass
Choosing Which Entity to Form
Choosing Where to Form it
Negotiating and Drafting Organizational Documents
Getting the Company Up and Running
Maintaining the Liability Shield
Taking on Investors & Exit Strategies
![Page 3: LEGAL ISSUES FOR START-UPS November 11, 2011 Adam Hull Travis Wilson.](https://reader030.fdocuments.net/reader030/viewer/2022032604/56649e675503460f94b6392b/html5/thumbnails/3.jpg)
Start-Up Right So You Don’t Have to Shut Down
Protecting Your Personal Assets
Choosing Which Entity to Form
Choosing Where to Form it
Negotiating and Drafting Organizational Documents
Getting the Company Up and Running
Maintaining the Liability Shield
Taking on Investors and Exit Strategies
![Page 4: LEGAL ISSUES FOR START-UPS November 11, 2011 Adam Hull Travis Wilson.](https://reader030.fdocuments.net/reader030/viewer/2022032604/56649e675503460f94b6392b/html5/thumbnails/4.jpg)
Choosing Which Entity to Form
No Entity or D/B/A Only
Partnership
Limited Partnership
LLC
Corporation
L3C
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Taxation of CorporationsDouble Taxation
The Company
Shareholder #1
Shareholder #2
Income
IRS
Tax on Ordinary Income
Dividend
Dividend
Tax on Dividend
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Taxation of LLCs Pass Through Tax Treatment
The Company
Member #1
Member #2
Income
IRS
Distribution
Distribution
Tax on Ordinary Income
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Taxation of S-Corps Pass Through Tax Treatment Plus Dividends
The Company
Shareholder (as an owner)
Shareholder (as an employee)
Income
IRS
Dividend
Tax on Ordinary Income
Salary
Tax on Dividend
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C-Corp vs. LLC
Tax Treatment
Liability Shield
Limitations on Ownership
Types of Equity Interests Common & Preferred Interests Options & Warrants (No ISOs for LLC)
Authorized Stock vs. Units
Flexibility
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S-Corp vs. LLC
Tax Treatment
Liability Shield
Limitations on Ownership
Flexibility
LLCs as S-Corps
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Tax Issues for LLC Members
Phantom Income
Mandatory & Elective Distributions
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Start-Up Right So You Don’t Have to Shut Down
Protecting Your Personal Assets
Choosing Which Entity to Form
Choosing Where to Form it
Negotiating and Drafting Organizational Documents
Getting the Company Up and Running
Maintaining the Liability Shield
Taking on Investors & Exit Strategies
![Page 12: LEGAL ISSUES FOR START-UPS November 11, 2011 Adam Hull Travis Wilson.](https://reader030.fdocuments.net/reader030/viewer/2022032604/56649e675503460f94b6392b/html5/thumbnails/12.jpg)
Choosing Where to Form
Local vs. Foreign Jurisdictions Authority Local Filing Requirements Foreign Filing Requirements Registered Agent
Jurisdictions to Consider Delaware Nevada & Wyoming Utah
Jurisdictions to Avoid - California
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Start-Up Right So You Don’t Have to Shut Down
Protecting Your Personal Assets
Choosing Which Entity to Form
Choosing Where to Form it
Negotiating and Organizational Documents
Getting the Company Up and Running
Maintaining the Liability Shield
Taking on Investors & Exit Strategies
![Page 14: LEGAL ISSUES FOR START-UPS November 11, 2011 Adam Hull Travis Wilson.](https://reader030.fdocuments.net/reader030/viewer/2022032604/56649e675503460f94b6392b/html5/thumbnails/14.jpg)
Specific Provision to Consider (Preparing the Pre-Nup)
These Concepts Apply Universally – Sort of… Management Structure (Members, Managers & Officers) Types of Ownership
Rights & Obligations of Each Series Distributions Capital Call Obligations
Restrictions on Transfer (ROFR, Drag Rights, Tag Rights & Rights of Assignee)
Buy/Sell Provisions Indemnification & Advancement of Costs for Managers &
Officers
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Specific Provision to Consider (Preparing the Pre-Nup) – Cont…
These Concepts Apply Universally – Sort of… Advanced Concepts for Specialty/Tech Companies
Equity Vesting Invention Assignment IP Ownership/Assignment
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Start-Up Right So You Don’t Have to Shut Down
Protecting Your Personal Assets
Choosing Which Entity to Form
Choosing Where to Form it
Negotiating and Drafting Organizational Documents
Getting the Company Up and Running
Maintaining the Liability Shield
Taking on Investors & Exit Strategies
![Page 17: LEGAL ISSUES FOR START-UPS November 11, 2011 Adam Hull Travis Wilson.](https://reader030.fdocuments.net/reader030/viewer/2022032604/56649e675503460f94b6392b/html5/thumbnails/17.jpg)
Getting the Company Upand Running
Federal Employer Identification Number
Sales & Use Tax License
Bank Accounts
Business Licenses
Insurance
Trademarks & Other Intellectual Property Considerations
Employee/Independent Contractor Agreements
Formation Due Diligence – Founder Concerns
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Knowing Which Hat You are Wearing
• Fiduciary Duties• Compensation
Shareholder/Member
• Fiduciary Duties• Compensation
Director/Manager
• Fiduciary Duties• Compensation
Officer/Employee
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Start-Up Right So You Don’t Have to Shut Down
Protecting Your Personal Assets
Choosing Which Entity to Form
Choosing Where to Form it
Negotiating and Drafting Organizational Documents
Getting the Company Up and Running
Maintaining the Liability Shield
Taking on Investors & Exit Strategies
![Page 20: LEGAL ISSUES FOR START-UPS November 11, 2011 Adam Hull Travis Wilson.](https://reader030.fdocuments.net/reader030/viewer/2022032604/56649e675503460f94b6392b/html5/thumbnails/20.jpg)
Maintaining the Liability Shield
Basic Principle – Owners Not Liable
Piercing the Veil
Preventing Veil Piercing Arguments Money Management Using Formalities Remembering Which Hat You Are Wearing
Take a Mulligan (Ratifying Past Acts)
Sign in Your Official Capacity
Become a Tree Hugger
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Become a Tree Hugger(Utilizing Subsidiaries)
The Company
IPProfit
Stream #1
Profit Stream
#2Property
1. Separating Assets2. Limiting the Contracting Parties3. Intercompany Agreements
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Start-Up Right So You Don’t Have to Shut Down
Protecting Your Personal Assets
Choosing Which Entity to Form
Choosing Where to Form it
Negotiating and Drafting Organizational Documents
Getting the Company Up and Running
Maintaining the Liability Shield
Taking on Investors & Exit Strategies
![Page 23: LEGAL ISSUES FOR START-UPS November 11, 2011 Adam Hull Travis Wilson.](https://reader030.fdocuments.net/reader030/viewer/2022032604/56649e675503460f94b6392b/html5/thumbnails/23.jpg)
Taking on Investors
Private Offerings (33 & 34 Acts) Registration Requirement Unregistered Offerings
Accredited Investors Anti-Fraud Requirements
Promoting 3Ps Private Offering (New Laws)
Dealing With Angels, VCs & Private Equity Funds
To I-Bank or Not to I-Bank
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Early Stage VC Investment Trends
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Exit Strategies
No Exit Profitable Existence Joint Ventures
Sale of Assets (Tax Consideration for Corps)
Merger or Sale of Company
IPOs
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Final Thoughts—Preventing Implosion
Get Help – Do it Right the First Time
Don’t Assume that Fair = Legal
Abide by the Terms of Your Organizational Documents
Get Insurance
Hire a CPA (a good one)
Consider a Part-Time CFO
Be Nice
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LEGAL ISSUESFOR START-UPS
Adam Hull, Attorney at [email protected]
Travis Wilson, Attorney at [email protected]