Starting a company can be exciting, but the sheer amount of administrative and legal things you have to do at the outset can be a hassle. In this post you will find tips to make the process as pain-free as possible
Starting a company can be exciting, but the sheer amount of administrative and legal things you have to do at the outset can be a hassle. Below are some tips to make the process as pain-free as possible!
First, keep good records and save everything in a central and organized location.
Also, hire good legal counsel early and utilize their expertise* in order to put all crucial documents and processes in place as early as possible. This will save you a ton of time, money, and headache. There are many law firms with strong startup practices; they’re used to working with startups on a tight budget, and they can help you with all incorporation-related stuff for minimal (sometimes flat) fees. You’ll have to do all of this stuff eventually (and certainly before raising any money), and doing it early means you’ll avoid the complication of having to change things around later.
Now, on to some specifics:
Incorporate as a Delaware C corporation: Investors will expect your company to be a “C” corporation formed in Delaware. If your company is not currently a Delaware C corporation, many investors will expect you to convert into one before or concurrently with your financing. Don’t worry if you already incorporated as something else; your lawyers can help you make the switch. Explaining why Delaware C-corps are standard is beyond the scope of this article, but your lawyers can fill you in!
IP/Invention Assignments: This is a crucial item, and will be a major focus of investor diligence at every stage of your company. You need to make sure that the company’s ownership of its intellectual property is rock solid. This means that you should require all employees to sign an IP Assignment Agreement. By signing this agreement, the employee agrees that the company (not the employee) owns any relevant IP that the employee creates during their employment. These agreements also typically include confidentiality language. Your law firm will have a form of IP Assignment Agreement that you can use. NOTE: Consultants typically won’t sign a separate IP Assignment Agreement, but will instead sign a standard form of Consulting Agreement that includes similar language regarding IP assignment and confidentiality.
Establish Equity Structure: This is a very broad category with a lot of nuance (more on different types of equity here). Highlights include:
Employment Agreements and Offer Letters: Work with your counsel to implement the appropriate employment paperwork and practices. This usually includes having employees sign offer letters, employment agreements, and IP Assignment Agreements (see above). Your law firm will have forms of all of these agreements that you can use, and they can help you customize and/or negotiate them as needed.
*NOTE: We don’t usually recommend online incorporation services - they only cover a portion of what you really need, they don’t offer strategic advice for some very important early decisions, and they sometimes result in mistakes that you/your lawyers need to correct later (which will cost you time and money). You’ll need real legal counsel before raising money from sophisticated investors anyway, so you might as well hire them at the outset and leverage their expertise (and low incorporation fees) to get everything correct from the jump.
Disclaimer: The content provided in the Amplify Legal Hub is intended for informational purposes only and should not be construed as legal advice. Always consult a qualified legal professional for advice tailored to your specific situation.