1. BOSTON // HARTFORD // NEW YORK // NEWARK // STAMFORD // PHILADELPHIA // WILMINGTON
Advising a Startup Company
Boston Bar Association
May 23, 2012
Rick Lucash and Ben Hron
McCarter & English, LLP
265 Franklin Street
Boston, MA 02110
617-449-6500
rlucash@mccarter.com bhron@mccarter.com
@ricklucash @hronesq

2. ♦ Some issues are universally applicable;
some not
♦ Tech start ups
♦ Low tech
♦ Grocery – Retail - Film studio –
Restaurants
♦ Today’s focus: Entrepreneurial Tech
Companies
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What is a “Start Up”

3. The Situation
♦ Two founders
– Engineer with some developed technology
– Marketing Expert
♦ With no
– corporation or LLC,
– patents,
– registered trademarks,
– written agreements.
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4. Ethical Considerations
♦ Who is/are the client(s):
– Principal founder?
– Both founders?
– The company?
– Both founders; then the company (alone) after
it’s formed?
♦ Engagement letter must spell out; contain
conflicts waivers
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5. Entity Formation
♦ The entity embodies the business deal
between the founders
♦ IP in the entity means shared ownership
– A major step for some founders – can’t just
take it back and try again if things don’t work
out
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6. Entity Formation
♦ Type of Entity
♦ Jurisdiction
♦ Capital Contributions
– Founders
– “Outside”
♦ IP Contributions
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7. Entity Formation
♦ Relationship between the founders
♦ Equity Split
– 50-50 or not?
♦ Vesting – how and why
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8. Entity Formation
♦ Equity Compensation
– For employees, consultants, vendors
♦ Stock Options
♦ Restricted Stock
– 83(b) Election
♦ Other
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9. Issuing Equity
♦ Securities Law/Regulatory Compliance
♦ Issued to
– Founders Stock
– Friends and Family
– Angels and VCs
– Board of Advisors (Directors later)
– Employees and Other Service Providers
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10. Founders Agreement
♦ Vesting
♦ Board Control
♦ Officers
♦ Restrictions on share transfer
– Co-sales and tags
– ROFR
♦ Drags
♦ Noncompetes/NDA/Invention
♦ Deadlock Provisions
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11. IP Protection
♦ Corporate name clearance/reservation (State)
♦ Trademark/service mark
– Company name Brand/features
– Words and pictures/logos
♦ Patent take-aways:
– 12 months to file after first sale, disclosure –
use NDAs
– Disclosure before filing defeats European
coverage
♦ Copyright Registration
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12. Hiring
♦ Employees vs. Independent Contractors
♦ Terms of the deal
– Wage/hour rules for employees
♦ Equity compensation
♦ Options or restricted stock
– Tiers for awards
♦ Invention Confidentiality and (maybe)
Noncompete Agreement
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13. Financing
♦ Form of investment
– Common Stock
– Preferred Stock
– Convertible Debt
♦ Securities Law and Regulation
– 4(2) of Securities Act of 1933; Rule 506
– 110A M.G.L. 402(b)
LOE: 950 CMR 14.402(B)(9)
NSMIA: 950 CMR 14.402(B)(13)
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14. Financing
♦ A word about Crowdfunding
– It’s not legal yet
Limits on non-accredited investors
General solicitation for accrediteds
♦ Note: KickStarter is not equity
– Looks good for product companies
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15. Questions?
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Rick Lucash Ben Hron
McCarter English, LLP
265 Franklin Street
Boston MA 02110
rlucash@mccarter.com
bhron@mccarter.com
@ricklucash @hronesq
www.mccarter.com
Representing Startups