Articles Posted in Start-Ups & Financing

Contracts are an integral part of conducting business and the necessity for certain contracts can arise from the very start of your company. The following are only some examples of important contracts for startups in California.


Founders’ Agreement — If you are going into business with one or more people, having a comprehensive and clear founders’ agreement is imperative. This agreement can be likened to a premarital agreement: it foresees and addresses potential issues that may arise and sets guidelines for dealing with those issues. A solid and enforceable founders’ agreement can prevent a lot of legal conflict and costs down the road.

Nondisclosure Agreements — If you have the idea or formula for a unique product or process, you want to keep information confidential so others do not try to misappropriate your idea. However, it will be necessary to share information with co-founders, employees, investors, contract developers, and others involved in the project. In such cases, you may have others sign a nondisclosure agreement to ensure they will not disclose confidential information to other parties.

Issuing equity in a company is a popular form of employee compensation. This trend is especially popular here in Silicon Valley, where startup companies often defer cash compensation to their employees in exchange for a share of future growth through the issuance of equity. If you own a non-public company, you may wish to compensate your employees partially by issuing them equity in the company. Equity aligns incentives between employers and employees while enabling employees to build up wealth over a longer term. Equity issuance can be done in different ways, including by issuing restricted stock grants or by issuing stock options. Each of these forms of compensation can have its own pros and cons and you want to make sure you carefully analyze the decision and decide which is best for your circumstances.


Restricted Stock

Restricted stock is a stock award that will not fully transfer to the employee until certain conditions have been met. These conditions can include a certain length of time working for your company, meeting certain performance or financial goals or milestones, and more. These restrictions can be helpful for owners to ensure that employees do not simply walk away from your venture and that they must wait for the award to vest before they receive the stock benefits. In addition, by making an 83(b) election with the IRS within a certain period of time after the restricted stock grant, employees can save significantly on the tax burden once the stock vests. If no election is made, however, employees may face hefty tax liability at the time of vesting depending on the value of the shares. Restricted stock is less risky and easier to manage in comparison to regular stock.  However, restricted stock has less favorable tax treatment than options.

Starting a business with a partner can be highly beneficial: collaborations offer many benefits and are particularly popular with startups and firms providing professional services. When you start a business with another person or people, the last thing you expect is to end up in a disagreement about business ownership. Unfortunately, these kinds of disputes arise on a regular basis and can have a significant impact on the success of your business as well as your personal bottom line.

Business disputes can arise in a variety of contexts – here are some of the most common situations:

  • A party may attempt to assert authority which he or she does not have

Business formation is imperative in order to properly operate a business. The selection of a business entity is important because it helps provide important benefits regarding ownership rights, taxes, and, depending on the entity selected, limited liability. Business law is governed on a state by state basis, and every business has the flexibility of incorporating in any state, not just the state of its principal place of business.llc

Delaware is the most popular state for incorporation. Delaware has a rich history of favorable business laws that have helped give it a very pro-business reputation. Because of this pro-business reputation, it may be very attractive to incorporate in Delaware. However, it is important that businesses be aware of both the pros and cons of incorporating outside of their state and in Delaware.

Pros of Incorporating in Delaware

Contracts are utilized in every type of business and every business owner should know that written contracts should be carefully drafted, reviewed, and negotiated before signing. However, not every business deal is memorialized in writing and many agreements are based on verbal interactions and a handshake. Just as with written contracts, legal disputes can arise over deals that were verbally made. When a disagreement arises, the first question is naturally: is an oral contract enforceable under the law?


Whether an oral contract is enforceable depends on several factors. The law requires that certain types of contracts be in writing in order to enforce the terms of the contract. Some contracts that may apply to businesses that must be in writing involve the following:

  • Contracts for the purchase or sale of goods that are worth more than $500;

Whether you are starting a company or already have an established business, you will likely need legal advice on many different issues. From business formation to dissolution, an attorney can assist you regarding contracts, employees, mergers, corporate disputes, and much more. Because you want to hire the right attorney for your legal case, the following are five questions you should consider.

What is the lawyer’s business law experience?

Laws regarding businesses can be extremely complicated and difficult to decipher. Just because an attorney handles cases in court involving individuals does not mean they can skillfully interpret business law and apply the laws to your case. You should ensure that the attorneys at the law firm you hire have extensive experience specifically in business law.

In this day and age of online accessibility, all you have to do is a quick Google search to find an array of sample shareholder agreements at your disposal. While it may seem much easier to pay a few dollars and use an online template for your agreement than to consult with a business attorney, using a template can often result in costly legal disputes down the road. A shareholder agreement should always be uniquely tailored to address the specific circumstances of your corporation and a one-size-fits-all template will almost certainly miss some key issues or provisions.

Businessman signing a contract
A shareholder agreement will differ from company to company though these agreements generally set guidelines for shareholder rights, management of the corporation, and legal recourse in the event of a dispute. The following are some provisions that can be key in a shareholder agreement:

Shareholder Rights

Businesses Should Elect to Incorporate in a State with Favorable Business Laws

When starting a business, owner(s) should always be focused on incorporation. Incorporation is important because it provides owners and investors business law protections that would not otherwise extend to individuals. Not only should a startup concern itself with selecting a business entity which works best for its needs and long-term goals, but it should always be concerned with incorporating in a state whose business laws best protect the business’s needs.


Startups most often incorporate in the same state in which its owners live and do business. This choice is easiest and makes sense. However, while incorporating in the state of the startup’s principal place of business is just fine, owners may wish to incorporate elsewhere for purposes of jurisdiction, tax liabilities, protections under the law, and other considerations. 

Hiring and retaining employees is critical to success in business. While successfully managing a workforce has many components to it, understanding the basic components of the employment relationship not only protects the company when hiring, but also helps to set the expectations for new and existing employees. Clearly articulating expectations – such as whether the employee is hired at-will or for a fixed term, identifying the main responsibilities of the employee in a clearly articulated job description, informing the employee on the processes and procedures involved in the review process and protecting the company’s intellectual property assets – ensures the employer sets the stage for a successful employment relationship.

Should my Employee be At-will or Fixed Term?stretta di mano per lavorare in un ufficio

Employees can be hired as either an at-will or fixed-term employee. Unless otherwise specified in a written agreement, all employment in the State of California is “at will,” meaning either the employer or the employee can terminate the relationship at any time with or without cause. While at-will employment gives employees more flexibility in controlling how long they continue to work with a particular company, at-will employment also grants businesses with a greater control in terminating employees. Businesses can fire at-will employees at any time, with or without cause. (Obviously, this is limited to instances in which the business is not committing discrimination.) This is true because no contractual obligation exists between the business and its at-will employee.

While many well-known businesses are either corporations or limited liability companies, partnerships remain a common and savvy business entity selection. In fact, some of the biggest names in tech—Apple, Microsoft, and Google—started out as partnerships.

What is a Partnership?

cooperation
Partnerships exist whenever there is a cooperative endeavor of two or more people, entities, or some combination thereof, to provide a product or service. The main characteristic of any partnership is that the partners share in the profits and losses of the business.