3 Legal Mistakes to Avoid as a Startup Founder
1. Not Having Vesting Schedules For Equity
When issuing equity to employees (and co-founders) -- Always have vesting schedules for the equity. Imagine your co-founder leaves early but retains a large portion of equity. Without a vesting schedule, this can lead to issues between co-founders and make raising capital even more difficult than it already is with "dead equity" on the cap table.
2. Not Filing Your 83(b) Election
When issuing founder stock, make sure each founder personally files their 83(b) election with the IRS within 30 days of receiving stock! Don't miss this critical 30-day requirement or it can have significant tax consequences as the stock value increases. Check out Corpora -- They make it super easy to file your 83(b) election -- and will even do it for you. Fantastic service to ensure you don't make this costly mistake at the beginning of your startup.
3. Not Having Co-Founders & Employees Sign IP Assignment Agreements
If an employee or co-founder doesn't have an IP Assignment Agreement, they could potentially claim ownership of their work, which can cause legal headaches and significant issues when raising capital. Make sure all contributors sign IP assignments to protect your company’s rights to its intellectual property. If you plan to raise capital, investors will also require this to be documented, so make it part of your company formation and hiring process from the beginning.
🔑 An ounce of prevention is worth a pound of cure. Stay legally aware and protect your startup's future! 💡
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2moThe topic of startup valuation and how to treat potential investors can’t be discussed enough! Even as early as last week, we were dealing with a valuation that was completely off base and trying to get it aligned with reality. Thank you Forecastr and Jeff Erickson for helping the #community in this regard.