Many entrepreneurs have a good understanding of statutory limitations and regulatory constraints on the operations of the businesses they are starting. That understanding often comes as a result of familiarity gained from years of experience operating in an industry. Other entrepreneurs may be newer to an industry, or despite their comfort level and expertise with an industry, may not have a solid grasp on the scope of laws and regulations affecting a startup’s operations. Therefore, it is often helpful for early-stage entrepreneurs to assemble a team of specialists who can provide guidance early so as to avoid regulatory headaches and disruptions to a business later on.
Issues can vary widely depending on a business’s industry and the structure of its model and operations, but typically involve, at a minimum, matters related to tax, employment and intellectual property (IP). A significant number of businesses we work with utilize technology in their operations, and for those businesses IP can take on even greater importance. Attorneys who have worked with startups frequently are able to anticipate issues in advance of the company itself seeing problems, and by doing so can present a company with a menu of options that can help offset or reduce risk. Examples include:
- Informing a company of best practices when hiring and compensating employees.
- Reviewing a website’s or an application’s processes related to revenue generation to confirm whether such processes comply with applicable laws regarding payment mechanics.
- Ensuring that a company has obtained proper rights to use certain data or property on its website or in its application.
First-time entrepreneurs may either consider the risks low and therefore disregard them, or view them as items that can be addressed later, after the company obtains some traction. Ignoring or deferring these matters can carry significant risks in certain cases, as companies may unwittingly be setting themselves up for interruptions or severe financial hits to their businesses later on. For those reasons, we oftentimes suggest that a company connect at an early stage with legal counsel and advisors to vet elements of their model and their key decisions with experienced personnel who are highly attuned to the legal and practical risks involved in running a business in a specific industry. Investing time on the front end can dramatically reduce the prospects for problems later on, and thereby help entrepreneurs improve their prospects for success.
Holders of stock options must exercise their vested options within a certain predefined time period after they cease providing services to the company. This time period is known as the “post-termination exercise period” (PTEP). What is the standard PTEP? The standard PTEP is three months. This means…
Transfer restrictions are one of the principal tools that startups use to prevent secondary transfers of their capital stock and maintain tight control over their cap tables. The majority view in the market is that it is best to omit transfer restrictions from the bylaws because future…
The difference is in the potential dilutive impact of the SAFE on founders. Post-money SAFEs can dilute founders significantly more than pre-money SAFEs. When SAFEs with a valuation cap convert to equity in a future financing, the price at which they convert is determined as follows: SAFE…