Live by Series A Representations from the Time of Formation

“All outstanding shares of the Company’s Common Stock . . . are subject to (i) a right of first refusal in favor of the Company upon any proposed transfer . . .; and (ii) a lock-up or market standoff agreement . . . .”

–National Venture Capital Association Model Stock Purchase Agreement, Section 2.2(c)

“Each employee and consultant has assigned to the Company all intellectual property rights he or she owns that are related to the Company’s business as now conducted and as presently proposed to be conducted.”

–National Venture Capital Association Model Stock Purchase Agreement, Section 2.8

“Each former Key Employee whose employment was terminated by the Company has entered into an agreement with the Company providing for the full release of any claims against the Company . . . arising out of such employment.”

–National Venture Capital Association Model Stock Purchase Agreement, Section 2.16(f)

These are but a few of the many representations that a startup company is asked to make in a Series A Preferred Stock Purchase Agreement. Such standard representations and warranties are a sort of roadmap to the most common mistakes made by newly formed companies. Entrepreneurs are advised to review such representations at formation of the company instead of waiting until capital is sought. It is relatively effortless for a company to adopt policies and practices at the outset both to stay out of trouble and to ensure that it will be able to make these representations when the time comes. Without such policies and practices in place, a company may find itself unable to attract capital, or with a difficult, transaction-delaying and expensive corporate cleanup process to complete as a prerequisite to raising money.