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Startups centered around a technological development or product are highly popular in this day and age—and for good reason. Companies such as Apple or Facebook originated in garages or dorm rooms and are now each valued at hundreds of billions of dollars. Even if you are not a technical person and know nothing about programming or coding, you can still start a successful tech startup, as evidenced by companies such as Pandora. It is not surprising that individuals are continually trying to bring the next big idea to life and start their own tech company.

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However, like any other type of business, there are many legal concerns for tech startups. One highly important concern is how to properly protect your intellectual property (IP). A novel and viable idea is generally the heart of a tech startup and you do not want to risk your success by failing to adequately protect your idea. The following are only some IP concerns that may be relevant to your tech startup.

Choosing the right type of IP protection

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Many startups in the tech sector are idea-rich and cash-poor, meaning that their most valuable (and often only) asset is their intellectual property that may have the potential to be worth a substantial amount of money. While some startups are able to move their ideas from concept to deployment with relatively little labor involved, many of these ideas require the assistance of developers, programmers, engineers, and marketers, all of whom are skilled professionals who can easily command salaries well into the hundreds of thousands of dollars per year.

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For this reason, many startups are faced with the issue of how to pay their employees during the development and launch phase, before they are generating any revenue. Of course, one option is to borrow the money or to seek investors – a solution that has significant pros and cons which should be considered. Another very popular option is to offer employees equity shares in a company in lieu of cash compensation. In some cases, this may take the form of equity for a lower salary than they would normally expect, while in others an equity share may be the only compensation they receive.

There are many issues that tech entrepreneurs and founders should consider when offering equity as compensation. These include the following:

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According to an article published by Forbes in late 2014, 42 technology startups potentially looking at a 2015 IPO had raised venture financing of at least $1 billion. With the potential for the creation of significant wealth in a relatively short period of time, it is no wonder that many people are seeking to enter the tech marketplace with new ideas that have the potential to impact the way that millions of people conduct their daily lives.

Incorporation is one of the major steps involved in the growth of a tech startup and involves creating a distinct business entity that can own intellectual property, issue stock, raise capital, and is subject to rules of corporate governance. Incorporation can be a complicated process and involves filing paperwork with the Secretary of State’s office in the jurisdiction in which you wish to incorporate.Business-ball-300x245

What are Bylaws?

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A comprehensive evaluation of a target company is a critical component of any successful corporate acquisition. Often referred to as a “due diligence evaluation” or “due diligence review,” this process involves fully evaluating the company that is being acquired (the target) in terms of its assets, liabilities, litigation risks, intellectual property matters, as well as other issues that could have an impact on the feasibility and advisability of a particular acquisition.

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The most effective way to ensure that a thorough due diligence investigation is conducted is to retain legal counsel that is familiar with representing buyers in mergers & acquisitions. Some of the most important issues to address in a due diligence review of a potential corporate acquisition are discussed below.

  • The target company’s financial matters – Issues such as financial statements, liabilities, margins, future projections, and potential capital expenditures should all be fully evaluated. This is often the first aspect of due diligence.
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Starting a business entity is a complicated issue that can be compounded by things such as founder’s stock and each founder’s respective contribution. Equity considerations can be extremely important in starting a business, especially when one founder contributes intellectual property (IP) rather than cash or labor.

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What is Founder’s Stock?

Awarding a company founder stock is a relatively common practice in business formation, particularly in situations in which a startup is new and not yet generating income.  Doing so gives the contributing founder a measurable property interest in the newly formed entity. Typically, these stocks have a very low face value so that the founder receives a large amount of stock respective to his or her contribution.

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Enforceable contracts that accurately describe an agreement between the parties are essential to any business, regardless of industry. Contracts arise in many relationships, including with partners, businesses, suppliers, employees, and client or customers, and a company of even moderate size could easily have thousands of contracts with various parties. For this reason, implementing a system to manage contracts and ensure compliance can significantly improve efficiency, improve compliance, and reduce the risk of incurring legal liability that can arise from contract disputes. In addition, an effective contract management system can help automate certain tasks, significantly reducing the risk of human error resulting in a costly dispute. Below are 4 ways in which implementing a contract management system can help businesses in every aspect of the contract lifecycle management process.

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  • Keep all contracts in a central repository – This benefit may seem simple, but consider the inefficiency involved in an employee searching through files upon files for a contract that may have been executed years ago. An effective contract management system can keep a copy of the contract itself while also summarizing key facts regarding the agreement in a way in which they are easily accessible to those searching.
  • Create a database of standard agreement and pre-approved substitutions – There is no need to reinvent the wheel every time your company enters into a new agreement. Creating a standardized contract for use in recurring situations as well as standard substitutions that are pre-approved for use can significantly improve efficiency in contract drafting and execution.
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Many individuals who are citizens of foreign countries want to take advantage of the economic market in the United States. More specifically, California is a particularly popular state in which to start a business as a foreign national due to the close connections with the tech industry and the large and diverse population, among other reasons. If you are a foreigner considering conducting business in California, there is good news for you—neither residency nor citizenship is required to do so. Instead, you need only go through very similar steps as a U.S. citizen starting their own business with the state.

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The following are some important steps that you must take to start your California business:

  • Choose your business entity – This is an important decision with many implications and your options, including corporation, limited liability company, limited liability partnership, or limited partnership, should be carefully weighed. An experienced business attorney can assist you in choosing the correct entity for your type of business and your goals.
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More and more startups are issuing stock and other forms of equity as a form of compensation for work, especially in the early stages of a venture. This arrangement allows a business to recruit talent that they otherwise wouldn’t be able to afford and, if the company is successful, can result in a significant windfall for people who worked to get a company off the ground without a guarantee of compensation.toad-river-brown_3737_990x742

Generally speaking, when you are transferred equity in a company it is necessary to pay taxes on the fair market value of that equity as you would with any other type of income. In many cases, however, a grant of equity is subject to a vesting agreement, which means that the equity is not actually owned by the grantee until a certain period of time passes. As a result, at the time of the grant, nothing is actually owned, so there is no tax liability associated with the initial grant. When the stock vests, however, that income becomes realized, meaning that there may be significant tax liability, particularly if the company has done well.

83(b) elections can minimize tax liability associated with grants of equity

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Many companies issue stock options as a form of compensation or as an incentive to various parties. At their most basic, stock options are the right of a party to buy company stock at a predetermined price for a period of time. Generally, the agreed-upon price is similar to the market price at the time at which the option is issued. Two of the most commonly issued types of stock options are Incentive Stock Options (ISOs) and Nonstatutory Stock Options (NSOs). The information below provides some basic information about each type and highlights some of the differences between the two. For specific information regarding these types of stock options and how they may affect your business, call the Structure Law Group today to speak with a qualified business attorney.

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Incentive Stock Options

Incentive stock options can only be issued to employees, which means that members of the board of directors or independent contractors cannot be granted ISOs. These options are not subject to federal income tax when they are granted or exercised, but alternative minimum tax

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With the United States having an extraordinarily robust economy and the highest level of consumer spending in the world, many non-U.S. resident foreign nationals are justifiably interested in starting a business in the United States, but are not sure whether it is possible or where to begin. Fortunately, it certainly is possible, and in some cases, may even be accomplished without setting foot within the U.S. Below are some of the steps required for a foreign national who is not a U.S. resident to start a business.

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Choose the state in which you wish to start your business

One of the first things that non-U.S. residents should understand about starting a business in the U.S. is that each state has its own laws regulating the way businesses are formed, the way they operate, and their tax treatment. While these laws tend to be very similar, there are often significant and nuanced differences that may have a significant impact on your ability to conduct business from overseas as well as your ability to minimize your tax liability.

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