startup 101 - on structure, equity, and avoiding legal headaches

www.devinemillimet.com

UNIVERSITY OF NEW HAMPSHIRE

Startup 101

Paul C. Remus Devine, Millimet & Branch, P.A.

[email protected] 603.669.1000

mailto:[email protected]


Paul C. Remus

Yale College B.S. (Physics) University of Michigan Law School J.D.


POPE

Planning 1. Written Business Plan Organization 1. Choose Entity 2. Define Founders’ Relationships in Writing Positioning 1. Funding – Written Subscription Agreement 2. Goods/Services – Written Contracts/License 3. Employees – Written Employment & Nondisclosure Agreements 4. Intellectual Property – Patents, Trademarks, Trade Secrets Exit 1. Sell Company – Written Purchase & Sale Agreement 2. IPO

Planning 1. Written Business Plan – 3 years

• What do you plan to do? • What will it cost?

• Where will you get the money?


Organization 1. Choose Entity A. Sole Proprietorship – Register Trade Name with State

• No Limited Liability – Get Insurance • Not Perpetual • Difficult to Raise Capital • No Separate Entity


Organization 1. Choose Entity B. Corporation

• Limited Liability • Perpetual • Raise Capital by Selling Shares (Borrowing) • Separate Entity (including for taxes) See Subchapter S – Limited Utility • Corporate Law – Well Defined Structure • Formalities – Why God Created

Lawyers/Accountants


Organization 1. Choose Entity C. Limited Liability Company (LLC)

• Limited Liability • Perpetual • Raise Capital by Selling Shares (Borrowing) • Separate Entity (not for taxes) • LLC Law – Much More Flexible • Formalities – Why God Created

Lawyers/Accountants


Organization 2. Define Founders’ Relationships in Writing –

Shareholders/Members Agreement • Who is the “Big Dog” • What are rules for selling shares/units to outsiders?

Rights of First Refusal?


Positioning 1. Funding – “See Dick raise money. See Dick violate

securities laws. See Jane visit Dick in the Big House.” • Public Offering of Securities Rules • Federal/State Exemptions Regulation D – accredited investors (rich people) Blue Sky Laws • Subscription Agreement • Offering Circular


Positioning 2. Goods/Services

• Bill of Sale • Service Contract versus • License – preserves rights in software

3. Employees – Employment Agreement & NDA NDA – Two Keys

• Not disclose • Not use for anything other than employment Employment Agreement – Assignment of all IP to Company


Positioning 4. Intellectual Property Protection

• Trademarks – means to identify services or goods (i) some rights obtained by using • Copyrights – expression fixed in a tangible medium (i) most rights obtained by fixation • Trade Secrets – keep process or formulas secret (i) no disclosure so harder for competitors to reverse engineer (ii) less expensive Problem: Three or more people can’t keep a secret and once

it’s gone – it’s gone • Patents – no rights until patent issues (i) Patent Bar – one year after public disclosure or “on-sale”


Patent Take-aways • No positive rights, only negative (i) stop others from making, using or selling • Just because something is patentable does not mean it is

commercially valuable


Exit 1. Sell Company

• Written Purchase & Sale Agreement

2. IPO
