9.16.2014

Before You Take Your Shot, Mr. Businessman, Get Your Ducks Lined Up in a Row


Damn... I couldn't have said it better myself... if you seek investors and are preparing your pitch as we speak, check out Craig Jacoby's article 8 Legal to-dos before you start engaging with investors for your company.
-------------------------------------------
So, you’re about to raise money for the first time. Good luck! Before you start approaching VC firms for pitch opportunities, though, be aware that investors typically expect a certain amount of organization and structure from your company despite its early stage. Below is a brief overview of 8 legal items you should take care of (for your sake) before engaging with investors.
Formation
  1. Incorporate as a Delaware C corporation. Investors will expect your company to be a “C” corporation formed in Delaware (a process that requires a suite of documents such as those included in the CooleyGO Document Generator).  If your company is not currently a Delaware C corporation, investors will likely expect you to convert from your existing entity before proceeding with raising money. See our articles Corporation Basics and Where Should You Incorporate for more information.
  2. State Business Registration. Your company must be qualified to do business in any applicable state – and beware, because state requirements vary. If you’re a Delaware C corporation doing business in California, for example, you’ll need to register as a foreign corporation with the California Secretary of State.
IP
  1. IP/Invention Assignments. This is a crucial item and one that’s too often overlooked. Make sure to establish a chain of title for all of your company’s intellectual property, including requiring all employees and consultants (and anyone else) touching your code or other IP to sign some sort of invention assignment agreement (such as the Confidential Information and Inventions Assignment Agreement available on Cooley GO Docs). Investors are particularly concerned about this issue because they don’t want a former employee coming out of the woodwork and claiming ownership once your company is successful. You want in place clean agreements that transfer an employee’s or consultant’s work product to the company, barring them from claiming ownership over the work done while they were engaged by your company.
  1. Provisional Patent Filings (if applicable). If you think you have something that is potentially worth patenting, it’s worth looking into filing a provisional patent before letting the world know the ins and outs of your product. Check out our Provisional Patent Applications FAQ and What You Need to Know About Patents article for more information.
  1. Branding and Trademark Considerations. You should begin to think about branding and trademark considerations before you seek financing, if only to enhance your credibility with investors and increase your likelihood of being funded. Although most early stage companies don’t have valuable brands yet, think about filing a trademark so you don’t run into any conflicts down the road. Registering a domain name is not enough. Before you begin to invest in your brand, you will also want to do a comprehensive trademark search, not only for other companies using the same mark, but also for companies with similar products using similar marks. Our article Neglecting Trademark Protection May Be Costly addresses some of these issues.
Equity Structure
  1. Establish Equity Structure. This is a very broad category. Highlights include:
    1. Equity Agreements. The founders (and any other stockholders) should sign equity agreements that include vesting components. The typical vesting schedule is over four years (sometimes with a one-year cliff),, although other arrangements are fairly common as well.
    2. Equity Incentive Plan. You should put an Equity Incentive Plan (sometimes referred to as a Stock Option Plan) in place so that you can grant options or restricted stock to employees and consultants.
    3. File Your Section 83(b) Elections. If anyone is purchasing stock subject to vesting (or exercising an unvested option), the purchase should be immediately followed by an 83(b) election (which must be filed within 30 days of the stock purchase). Missing this deadline is something you cannot fix later. If you don’t file your 83(b) election on time, it could have disastrous tax consequence for you in the future. Find more information in our articleWhat is a Section 83(b) Election and Why Should You File One?
Employment
  1. Employment Agreement and Offer Letters. If you’ve hired anyone, make sure to have all the appropriate employment paperwork and practices in place, including employment agreements, offer letters, and confidentiality and invention assignment agreements (see #3 above). You should also make sure to register with applicable state employment divisions. Be careful about contractors, interns (see Engaging Unpaid Interns: What You Need to Know), and compensation. You can find more tips about onboarding early stage employees here.
Online Agreements
  1. Privacy Policy and Terms of Use. If you run a website or any equivalent sales/distribution/service, you should have a privacy policy and terms of use in place. These legal agreements will essentially define your relationship with your customers, so it’s important that they be specific and well-designed. Read more about the importance of these two types of documents here. You can also use Cooley GO Docs to generate your own basic Terms of Useand Privacy Policy.
Most importantly, keep good records of everything. It will make the financing process go more smoothly, and will save you significant money and frustration. This includes keeping copies of your company charter and bylaws, minutes of board meetings, any board and/or stockholder consents, major customer list, budgets, business plan, employment agreements and offer letters, and any other documents that have been important in your course of business. You should make sure all of the applicable documents are appropriately signed and organized somewhere you have easy access to them (i.e. a secure cloud data site – many law firms provide secure cloud document hosting at no extra charge). For more tips about organization and its importance to your financing, read our article Why You Cant Afford To Be Disorganized.


If you have all of these bases covered, you’re well on your way to a successful financing. Happy pitching!

No comments:

Post a Comment

Labels

11th Circuit (1) 1st Amendment (2) 2015 (2) 2016 (20) 2017 (2) 2nd Circuit (8) 4th Circuit (1) 501(c)(3) (2) 7th Circuit (1) 9th Circuit (2) A-rod (1) accident (1) accounting (11) ACLU (1) acting (5) actor (2) advertising (3) advice (59) Aereo (1) age discrimination (1) agent (6) album release (3) alert (1) AlleyWatch (1) An Actor Inquires (3) analysis (6) Ancillary territories (3) angel pad (1) angels (1) anti-discrimination (1) AP (1) Apple (1) application (1) apps (2) architecture (1) art (5) art fair (1) art law (4) artist (3) asset (2) AT&T (1) athlete (1) athletes (4) Athletic Commission (1) audience metrics (1) avatar (1) bankruptcy (1) baseball (1) basketball (4) Beastie Boys (1) blog (17) Bob Marley (1) bonds (1) bone-head move (6) box office (2) boxing (1) branding (6) breach of fiduciary duty (1) brief bits (1) broadcast radio (2) broadcast TV (6) broker (1) budget (1) business (66) Business Insider (2) business manager (2) C&C Music Factory (1) CA (5) cable television (3) calendar (1) California (2) California law (5) campaign (2) cannabis (1) cases (10) casting (1) celebrities (6) Celebrity Endorsements (1) Center for Art Law (1) CFP (1) charts (1) China (1) China Law Blog (1) Chobani (1) Chubb Rock (1) class action (4) Coca Cola (1) Comcast (1) comedy (8) comic books (2) Commerce (1) Common Law Claims (1) company (14) compliance (1) contract (33) contracts (3) copyright (51) corporations (9) Creative Commons (2) crowdfunding (5) crowdsourcing (1) Cuba (2) cybersecurity (1) damages (1) Darth Vader (1) David Bowie (1) deals (11) Debmar model (1) defamation (4) demonstrations (1) development (6) DGA (2) digital (3) director (1) directors (10) DirecTV (1) disaster (2) discrimination (1) Disney (1) distribution (15) diversity (1) Division I (1) djimlaw.com (3) DMCA (3) DNA (1) DOJ (1) DOL (1) Dominican Republic (1) donor (1) Dov Seidman (1) DPRA (1) drone (1) Drumpf (1) DTSA (1) Duke Ellington (1) DVD (4) EA (1) economic espionage (1) economics (3) EEOC (2) EFF (2) EMI (1) Empire (1) employees (13) employer (13) entertainment industry (10) entrepreneur (9) ESL (1) esports (2) EST (1) ethics (3) events (1) Exclusive Use (1) executives (5) exhibitors (3) exploitation window (2) FAA (1) facebook (4) Fair Labor Standards Act (2) fair use (6) family & friends (1) fantasy sports (2) fashion (5) FBI (1) FCC (3) feature (4) FIFA (1) film (30) filmmaker (9) filmmaking (22) finance (6) finder (1) First Amendment (1) first-look deal (1) FL (2) FLSA (1) football (2) Forbes (2) forms (2) formula (3) foundation (1) FOX (2) FOX News (1) franchise (1) Free Speech (3) free trade agreements (1) funding (7) fundraising (3) gain (1) gambling (1) genetic larceny (1) Ghostface Killah (1) Google (3) Gordon Rees (1) government (28) grants (3) graphic novels (1) gross (3) guides (1) H-1B visa (1) HBR (1) hip hop (3) HOLA (3) Hollywood (9) Huffington Post (1) Hullabaloo (1) IATSE (1) IMDB (1) immigration (1) Inc magazine (1) incentives (5) Indiegogo (1) Indiewire (2) indigenous people (1) infographic (1) Information is Beautiful (3) infringement (20) Instagram (1) insurance (1) intellectual property (39) Intellirights (1) intent to use (1) International (7) internet (2) investment (10) investors (1) IP Watchdog (1) IPO (1) IPRHFF (1) Iron Man (1) IRS (10) ItsArtLaw blog (1) iTunes (1) jdsupra (5) Jersey Shore (1) John Cones (1) journalism (1) jumpstart foundry (1) Justice Dept. (2) Kickstarter (3) Kristin Thompson (1) LA Times (1) labor (10) Lanham Act (3) Las Vegas (1) latino (3) launch (1) law (8) Law 360 (1) Law360 (1) lawsuit (21) lawyer (3) lawyers (16) legal (2) legislation (8) liability (6) libel (2) licensing (6) Likelihood of Confusion (1) litigation (42) LLC (3) madrid protocol (1) maker (1) management (2) manager (3) marketing (8) Marvel (1) media (8) mediation (1) merchandising (2) merger & acquisition (1) MLB (2) MMA (1) mobile devices (4) money (5) moral rights (1) MPAA (1) Mr. Jaar (1) MTV (1) Murdoch (1) music (25) music publishers (1) musician (6) musicians (12) NAB (1) NALIP-NY (2) Name and Likeness (1) NBA (1) NC (1) NCAA (3) negotiation (10) Netflix (3) network (4) New Line Cinema (1) New Media (2) New York (6) New York law (9) news (6) newspaper (1) NFL (3) Nikki Finke (1) NJ (1) NJ Motion Picture and TV Commission (1) NLRA (1) NLRB (1) no budget (3) non-compete (2) Nonprofit Risk Management Center (1) nonprofits (15) NY (8) NY Court of Appeals (1) NY Mag (1) NY Press (1) NY Production Alliance (1) NY Times (4) NY Yankees (1) NYC Focus (1) NYC Mayor's Office (1) NYMag (3) O visa (1) Olympics (1) online rights (2) open-source (1) OSHA (1) P visa (1) partnership (2) patent (7) patents (3) PEDs (1) photography (5) PIPA (1) piracy (2) pitching (4) plan (1) policy (3) politics (3) Power Play (2) pre-1972 (5) privacy (5) producer (2) producers (20) producing (1) production company (12) production journal (1) production resources (2) production tips (1) profit (11) progress (1) projects (8) Promaxbda (1) promotion (5) PTAB (1) public domain (3) publicity (9) publishing (4) radio (2) Rakim (1) record labels (3) recording artist (1) registration (2) regulation (2) rent (1) Reporters Committee for Freedom of the Press (1) residuals (1) revenues (5) Richard Prince (1) Richard Pryor (1) royalties (1) ruling (3) safety (1) SAG-AFTRA (3) sales (4) satellite (2) SBA (1) SBA loan (2) scandal (2) science (1) SCOTUS (5) Script Reader Pro (1) SDNY (3) SEC (6) securitisation (1) seed capital (2) seed money (1) settlement (1) Sirius (6) small business (15) soccer (2) social media (5) software (3) Sony (3) SOPA (1) SoundCloud (1) Spiderman (1) sports (24) sports agent (3) Sports Agent Blog (1) sports law (2) Star Wars (1) startup (13) Starz (1) statistics (1) stock (1) strategy (28) streaming (10) student-athlete (1) studios (7) Sub Pop (1) successul film (5) summary judgment (2) Supreme Court (11) Supreme Court of NY (1) susan sarandon (1) Tax credit (6) tax foundation (1) tax inversion (1) taxes (10) technology (16) ted hope (2) television (11) The Art Law Report (1) The Atlantic (1) The Baffler (1) The Business of Sports (1) The Guardian (1) The Upshot (1) Theater (1) theatre (3) theatrical exhibition (4) theatrical window (2) THR (9) Time Warner (2) TPM (1) TPP (1) trade secret (11) trademark (31) transmedia (1) Triple Crown (1) Trump (1) TTAB (2) TV (3) Twitter (1) UFC (1) unions (3) US International Trade Commission (1) USPTO (7) Variety (2) VC (2) vendor (2) venture capital (1) video (1) video game (2) Vimeo (1) visualizations (1) VOD (2) Vox (1) Walmart (1) Warner Bros. (2) Washington Post (1) Wattpad (1) web series (2) webcast (1) webinar (1) website (5) WGA (1) What Every Producer Should Know (8) wikipedia (1) WME (1) work for hire (1) workshop (1) write-offs (1) writer (2) writers (4) WSJ (2) YFS magazine (1) youtube (3)