Multiple entrepreneur. $4M+ raised for LawTrades - on demand lawyers (500 Startups '15). Scaled Facebook web app to over 30M hits/mo. Published in Forbes, Inc. Apple News. Law school graduate and natural born hustler. I am passionate about helping entrepreneurs at the early stages in their cycle.
The structure of your company is the foundation of your entity or in other words - it’s really important! Thus, solely relying on generic answers found online can be the beginning to the end of your new business. Business lawyers will easily identify potential blindspots particular to your company. With that said, the best state in which to incorporate is usually your own state. Although Delaware is typically thought of as the default state to set up shop, that notion really only applies to startups which plan on going public or seek VC.
Delaware has a strong grip over the incorporation landscape and is often an automatic default for new entities (and lawyers hired to assist in making the decision). Delaware’s Chancery Courts specialize in corporate law and do not require a jury. Delaware also offers C-corps, which do not tax royalties and other intangible assets. Lastly, Delaware corporate law protects the privacy of shareholder and director identities, and provides flexibility that favors directors and minority stockholders - all of which makes Delaware very attractive to VCs and companies planning to go public.
On the other hand, Delaware requires you to maintain a registered agent with a physical address in Delaware, which can add some expense. All Delaware corporations are required to pay annual franchise taxes too. Furthermore, Delaware has mandatory annual reporting requirements, which you’ll need to file in addition to those in your home state or states where you are doing business.
If you’re not planning to raise or go public, California will likely provide you with the most advantages and favorable business treatment. Also, as Brian spoke to already, California requires you to pay them an annual fee for doing business in the state so you’ll be paying fees to two states every year if you decide to incorporate in a foreign state.
If you’d like additional guidance about where and how to incorporate your company, please feel free to take a look at LawTrades (www.lawtrades.com). Also feel free to message me directly with any questions or concerns you might have about the incorporation process.
This is a complicated question that likely requires legal advice particular to the startup. However, compensating employees at a seed stage typically takes the form of stock options or restricted stock units (RSU)s.
Stock options essentially give you the right to buy shares at a certain price (“strike price”) after a vesting period - typically, after your one-year anniversary date, with 25% transferred to you each year over a four-year period. The key here is that you must purchase the options. Your hope is that by the time you’re eligible to buy the options, the stock has appreciated. However, stock value could have eroded making it worthless, which doesn’t happen with RSUs.
RSUs are a relatively new financial creature. Similar to options, there’s a vesting period where the employee must satisfy certain conditions before the stock or its value is transferred (typically, there’s a period of time and other conditions - e.g., work performance). Unlike stock options, there’s no purchase involved. Instead, a certain number of units are allocated - or granted - to the employee, but there’s no value/funding until after the employee has satisfied the vesting requirements.
As always, please understand this answer is not offered as advice, but only to provide general information. Since there are many considerations involved with the complexities of these transactions, you really need to have personalized advice specific to your circumstances. Please check out LawTrades (www.lawtrades.com) and connect with an experienced startup attorney for additional guidance about evaluating equity distribution.
The first step you need to take is to do a patent search. This will tell you whether your idea has already received patent protection. Start here (https://www.google.com/?tbm=pts&gws_rd=ssl) with Google Patent search. You’ll also want to search the USPTO database (http://patft.uspto.gov). Conclude your search with a simple worldwide search here (http://worldwide.espacenet.com/?locale=en_EP).
Conducting a general search (e.g., text search using Google) for inventions similar to your own that haven’t been patented is also a good exercise. This will reveal whether others have already productized your idea, and if so, how your idea is different - and hopefully superior. You’ll often find that there are many expressions of unpatented ideas floating around the marketplace. This is a rich source of information for you if you’re considering patenting your innovation.
Remember, it may be tempting to skip all the “boring” tasks as a founder especially if the business is bootstrapping. However, such tasks will pay dividends to you later on down the road if something unfortunate should occur. That being said, check out LawTrades (www.lawtrades.com), where we connect inventors to affordable, accomplished lawyers on a daily basis.
You have a few options here:
Register for a post office box by clicking here (https://reg.usps.com/register?app=POBO&appURL=https://poboxes.usps.com:443/poboxonline%2Fpages%2FmyAccount.do). Alternatively, you can fill out and take the paper form (https://about.usps.com/forms/ps1093.pdf) to your local post office.
Use a coworking space. This is probably the most expensive option, but it includes more than just a mailing address. A coworking space is usually full of entrepreneurs, which could end up being a valuable networking and learning opportunity for you.
There are a plethora of online business management companies who offer mailing address services.
Hire an attorney during the formation process. An attorney may use his or her own address as your business address on formation forms.
LawTrades (www.lawtrades.com) is a site created by entrepreneurs for entrepreneurs, where our mission to help startups find affordable legal services. Just tell it what you need, and it'll introduce you a handful of vetted startup lawyers. Then, compare by price/reviews/professional chemistry and simply hire the best lawyer.
First, it seems appropriate to point out the differences among the three forms of intellectual property protection at hand:
- Copyrights protect arts such as graphics, music, cinema, choreography, photography, music and more. They are in place to protect one artist from ripping off another artist's work.
- Patents are focused on protecting processes and things that are useful (aka “novel”) to society.
- Trademarks protect symbols or phrases used to brand a product or service you sell.
It seems as though your coaching methodology has the chance to receive copyright and/or patent protection. Copyright law protects original works of authorship so it would require you to put your methodology in a tangible form like a video or book. Your coaching strategy could also be considered novel and thus patentable but that requires much more time and money.
Either way, utilizing the services we offer at www.LawTrades.com will save you the money and time that “doing it yourself” costs you. We at LawTrades help clients connect with attorneys in order to navigate the maze of requirements, as well as select the route that makes the most sense - whether it’s a regular design or provisional patent, or trademark. An experienced attorney can save you lots of money and time, while helping you to add value to your company. LawTrades was established to meet these needs by providing fast and economical solutions. Feel free to message me directly to chat further about any other IP questions that you face.
We answer this question quite often at www.LawTrades.com as Delaware does offer C-corps the greatest flexibility in terms of structuring boards of directors, stock issuance and preference, and voting rights. It also provides the broadest privacy protections. For instance, it doesn’t require director or officer names to be revealed on formation documents. For these reasons, many investors prefer companies that have been incorporated in Delaware as C-corps.
On the other hand, you’ll be required to file periodic reports in Delaware, in addition to the state where you do business. Moreover, Delaware requires that you regularly submit franchise taxes, even if you’re paying those taxes to the state/s in which you are already doing business.
Many companies don’t require C-corp status; in fact, incorporating as a C-corp for some companies could be detrimental to their overall financial interests. Filing as an LLC with subchapter S selection or some other type of entity that’s not a C-corp - especially when there’s no expectation of going public - is often best done in the state where the company is conducting business. Frankly, where you’re incorporated isn’t going to affect the decisions of most people, with the exception of perhaps investment bankers and investors who are considering a fast growth C-corp that is planning on a future IPO - high tech or otherwise.
If you’re a high tech startup with no reason or plans to go public, you should seek legal advice from a home state attorney to explore your in-state options.
Again, these are generalities and aren’t intended to provide specific legal advice or delve into the differences between the corporate laws of different states. I would, however, again emphasize that very often the state in which the business is located is often the best state in which to incorporate.
In you need further assistance incorporating your startup and evaluating in which state would be the best fit, please feel free to check out www.lawtrades.com. You can also message me directly and I’d be happy to answer any further questions you have regarding your company’s formation.
As for attorneys’ fees, much depends on your geographical location. Traditional law firms located in larger cities will generally cost you more than those in smaller cities and towns. An average range of legal costs for a startup at the angel stage can sit anywhere between $5000 to $20,000. The more complexities involved (e.g., intellectual property transfers and number of investors), the higher the expense.
When you get to the Series A stage, you’ll be looking at legal fees easily above $30,000. Due diligence and document review are time intensive, and you’ll want to ensure that this is done thoroughly. It’s also customary to pick up an investor’s legal fees in the ballpark of $10,000. VC preferred stock investment documents tend to run beyond 100 pages, and negotiating with investors’ counsel inevitably adds costs. Larger cities routinely see attorneys’ fees in the range of $50,000 to $100,000 once you enter the Series A phase.
Another option is utilizing convertible notes. A convertible note is essentially short-term debt that converts into equity. For example, your family and friends give you money and that automatically converts into shares of preferred stock when you close your Series A round. This is appealing for early stage investments because you don't have to deal with the valuation negotiations and it's much faster to close. Not to mention, it's only a few pages of legal documents which can cost between $1,500-$2,000 in legal fees.
Many attorneys offer fixed fees as an alternative to the billable hourly rate. This allows clients to anticipate costs and have clarity regarding expectations. For example, some attorneys might charge $5000 for a basic startup, which includes the incorporation, operating and/or shareholder agreements, stock issuance, confidentiality agreements and IP transfers. Higher fixed rate packages might include patent and trademark registration, drafting and negotiating notes, and compensation plans. Other lawyers offer a blend of fixed and hourly rate structures.
Feel free to check out www.lawtrades.com, which was designed to offer the high quality legal work from experienced startup attorneys at fraction of the price of law firms. Also don't hesitate to message me directly if I can answer any additional questions.
I commend you for the question as I’m sure there have been countless inventors who fail to consider this! You could follow Gal’s route and draft some sort of licensing agreement. However, as a bootstrapped startup, I agree with Nora in that more simplistic intellectual property protection would probably suffice.
There are cost-effective routes that can provide robust intellectual property protection for you. Confidentiality agreements and trade secret protection can work very well, especially when combined with exceptional innovation design and speed. This type of contract should establish ownership of the app, limit usage of the app to the “limited release” time period and to that particular individual, limit your startup’s liability, describe the ramifications for misuse of the product, and provide a forum for disputes. It is worth noting that all employees, board members, advisors, and outside testors should be required to sign agreements obligating them to assign all business-related intellectual property to the company. You will also want to extend IP protection through agreements with non-employees, including vendors, outsourced designers, engineers, and counsel, as well as testing facilities.
We at www.lawtrades.com help clients select the route that makes the most sense - whether it’s a regular utility or provisional patent, licensing agreement or trade secret protection. It can be daunting, no doubt, but an experienced attorney can save you lots of money and time, while helping you to add value to your company. Innovation in the legal marketplace is no doubt occurring, but not fast enough to help the person or business that needs immediate legal assistance at a price they can afford. LawTrades was established to meet these needs by providing effective and economical solutions. Hope that clears things up a bit. Feel free to message me directly to chat further about any other IP questions that you face.
Raad here from LawTrades (on-demand legal service for startups).
If you're looking for a fast and affordable way to get those drafted by experienced legal professionals, then have a look at http://www.lawtrades.com. It's free to request price quotes and you're in no obligation to hire. We've processed dozens of Terms of Service and Privacy Policies for bootstrapped startups.
But if you're pursuing the free route, then a simple google search will yield you a bunch of free templates.
The problem is those boilerplate templates may not cover all the rules a user must abide by in order to use YOUR particular service. This leaves you with adding in terms which may or may not appropriately address all of your businesses legal issues.
Some of these topics include:
Definitions of certain keywords
Accountability for actions/conduct
Opt out policies
Clarifying the sites legal liability
Notifying the users of any modifications of terms
In the meantime, here's a helpful guide about protecting your website from liability: http://blog.lawtrades.com/protect-website-liability/
In order to create a PP and TOS that works for your business, you should definitely seek the help of a lawyer who specializes in this field. There are plenty of experienced and affordable lawyers at www.lawtrades.com, and I recommend giving it a try if you’re serious about protecting yourself and your business. Not to mention, I have seen PP and TOS prepared routinely for $600 or less.
I understand that dealing with a lawyer is often a daunting and intimidating task, and since you’re operating a startup you certainly have other tasks to focus on. However, if you invest the time now to protect yourself it could potentially pay dividends in the future. It may be tempting to simply have these important documents created with the use of a generator, but I have seem more harm than good come from these. Additionally, the generated documents are essentially a “blanket” document and contain a lot of information that does not pertain to your business. This results in a PP and TOS that is much longer than it should be. Besides, if creating your own legal documents was so easy then why doesn’t everyone do it? I’ll tell you why and it’s the same reason why computers cannot completely automate the process of accounting. It is because human input, knowledge, and expertise is needed, period.
Think of your PP and TOS as stating how your business operates. If users doesn't feel comfortable visiting they may not convert or worse, just use a competitor. Sounds scary, doesn’t it? Just think, this potential headache could be avoided by simply taking the time now to create a proper PP and TOS.
The following article from Forbes does a great job emphasizing the importance of hiring a lawyer.
Hope this was helpful! Feel free to check out www.lawtrades.com when you're ready or just message me directly if I can further assist in any way.
And don't forget to mention "clarity" for a discount :)