The video provides legal advice for startup founders, including forming a separate legal entity, prioritizing vesting and stock incentive plans, making an 83-b election form, and prioritizing self-care while building a company.

• 💼
  00:00

  Start-up founders should form a separate legal entity, split stock equally, and pay attention to trust issues within the team.

  • Carolyn Levy gives a recap of the 2014 start-up school lecture on legal and accounting mechanics, highlighting key takeaways and urging attendees to watch the video as an adjunct to what she and her colleagues will discuss.
  • When starting a startup, the first step is to form a separate legal entity by incorporating, preferably in Delaware, using an online platform specifically geared to startups.
  • Good incorporation platforms like Clerke and Stripe provide post-incorporation services, including stock purchase by founders, forming a board of directors, appointing corporate officers, adopting corporate bylaws, and opening a corporate bank account.
  • When allocating stock among founders, it is best to split it equally and pay attention to underlying trust or commitment issues within the team, and founders need to purchase their shares using a stock purchase agreement.
  • Founders shares should be subject to vesting, meaning that full ownership of stock is not granted until a certain period of time has passed, and every company needs to keep a cap table to record every share of stock issued.
  • Founders should pay themselves minimum wage and avoid employment agreements, but ensure all employees sign a CI ia to protect the company's confidential information and intellectual property.
• 💼
  10:52

  Use company funds for business expenses, incorporate your startup early to protect yourself and your co-founders, and use a shared Dropbox folder to store important documents.

  • Use company funds for business expenses and keep all receipts and documentation.
  • Startups with Delaware corporation have to pay annual taxes to the state and file corporate tax returns with the IRS, as well as payroll taxes if they have employees, but the taxes owed are minor and can be managed through online payroll services.
  • Use a shared Dropbox folder to store important documents instead of relying on one person's email, ensure all legal documents are signed and dated correctly, and make sure all necessary parties have signed every blank to avoid looking unprofessional during fundraising and due diligence.
  • Incorporating your startup sooner rather than later is important to protect yourself and your co-founders from personal liability and to ensure that the corporation is the correct repository for all intellectual property.
  • To raise real money for a startup, forming a corporation is necessary for payroll, contracts, and avoiding messy individual ownership.
  • LLCs are better for optimizing taxes, but if you plan to fundraise from people other than a small group of your friends and family, your startup needs to be a corporation.
• 💡
  16:38

  Startups should prioritize vesting on founder shares, clear CII, and issuing stock through a stock incentive plan to avoid legal issues and incentivize early employees.

  • When starting a company, it is usually not necessary to hire a lawyer unless the startup is complicated or has already formed a non-US entity, but it is important to keep everything separate from your full-time job to avoid any legal issues.
  • Having no vesting on founder shares can lead to future problems for a company, making it unattractive to investors and causing difficulties in allocating share ownership fairly.
  • Understand every provision in your founder stock purchase agreement and avoid paying people with only stock, unless they are properly classified as an independent contractor and you have a good consulting agreement.
  • Founders should pay themselves, have vesting on their shares, and have a clear CII to decrease legal drama around breakups, and early employees should be issued stock through a stock incentive plan sooner rather than later to avoid expensive stock and incentivize them.
  • For an early-stage startup, it's best to let go of a name if another company claims trademark infringement, and trademark registration can wait while it's also not worth spending a lot of money on a domain.
  • Research efficiently and cost-effectively, and John and Jason will answer some unfiltered questions.
• 💰
  25:45

  Make an 83-b election form as a startup founder to avoid a large tax liability.

  • An 83-b election form is a tax election that allows you to be taxed on the difference between the value of the stock and the price that you pay for the stock on the day that you actually buy the stock, and it is best to make the election as a startup founder to avoid a large tax liability.
  • The 30-day period to file for restricted stock purchase agreement starts from the day of purchase, includes calendar days, and missing it can result in significant tax liability.
  • Some things can't be fixed easily and it's important to remember that.
  • Immigration issues are complex and require speaking to an expert, especially if you need to be employed by your company in the US.
  • To become an S-corp, you need to make an election on a tax form, and it is the preferred entity for investors.
  • Save 10-20% equity for key hires during company incorporation, but it's specific to the company and important to have a long-term view for employee success.
• 💼
  31:39

  Unpaid interns are illegal, non-profit startups have different legal practices, don't work with strangers, consider market when registering, use legal tech but get a lawyer for significant capital or stock issuance, full-time commitment is necessary for success.

  • Unpaid interns are generally considered employees and it is illegal to have them, with some exceptions for college credit, and it is important to consult a lawyer for guidance on the rules and to consider paying in equity or hiring contractors.
  • Starting a non-profit startup is a completely different process from for-profit startups, with different legal practices and requirements, and involves soliciting donations from foundations rather than raising money from VCs.
  • Don't work with a stranger as a partner or co-founder if you want to ensure success and avoid potential conflicts.
  • When determining where to register your company, consider your market and keep the legal mechanics simple.
  • Use legal services tech like Clerke and Stripe Out Low for incorporating and setting up, but when raising significant amounts of capital or issuing stock to employees, it's best to get a lawyer involved to avoid potential mistakes.
  • Starting a successful start-up while having a full-time job is practically impossible and requires full-time commitment.
• 💡
  38:28

  Patents protect tech, but execution is key; advisors should invest, not just advise for shares; resolve issues with co-founders early; spend on lawyer for privacy policies and compliance.

  • Patents are useful for protecting technology, especially for life sciences startups, but success ultimately depends on the execution of the founding team.
  • Advisors should ideally invest instead of advising for free shares, but in some situations, such as with life sciences companies, it may be appropriate to offer stock to consultants.
  • When co-founders who are personal friends have to be fired or cut off, it's better to resolve the problem as soon as possible to avoid hurting both the company and the friendship.
  • End the relationship if it's not working, and for startups, it's worth spending money on a lawyer to review potential loopholes in privacy policies and terms of service, although there are also excellent services available online.
  • Having a privacy policy on your website or app is required in California and while privacy policy generators can be helpful, hiring a lawyer is necessary for compliance with GDPR regulations.
• 💼
  44:02

  Don't overwork yourself as a co-founder, prioritize self-care and remember that building a company takes time.

  • Don't work 18 hours a day as a co-founder, measure and manage your commitment status, exercise, sleep, maintain relationships, and remember that building a company is a marathon, not a sprint.
  • Shareholder agreements are not common in the US for startups and are often overly detailed, unnecessary, and a waste of time.
  • There are ways to conceal some information about your company from outsiders, but it's not a priority and shouldn't be a major concern.
  • B Corp is a type of corporation with a mission to support the public good, and while gaining in popularity, it is not a topic of expertise for the speaker.
  • Incorporating as a B Corp may not be attractive to venture investors for high-growth startups, and it's important to consider where your customers are located when deciding where to incorporate, but it's generally easier to fundraise and more favorable to be a US company.
  • When adding new co-founders, the original founders' vesting schedule does not need to be restarted, but investors may choose to restart it depending on leverage.
• 💼
  53:22

  Hiring outside the US requires creating a local entity, and in India, it's best to consult with an expert on Indian law to avoid common ownership structures.

  • Hiring outside the US depends on the country's rules for employee and contractor classification, and creating a local entity such as a subsidiary or branch is often necessary when establishing a significant presence in a foreign country.
  • When creating a subsidiary in India, it's common for the American parent to own 99% and have one or two local Indian representatives, but to avoid this structure, it's best to consult with an expert on Indian law to advise on employment issues.
  • Part-time projects are just ideas, and once you start a company, you'll need to be on it full-time, and next week's session will focus on product and product market fit.