This is the equivalent of a hand-out for the “Legally Lean” presentation I did last night [2012-12-13] for the Houston Lean Startup meetup. Thanks again to moderators Javid Jamae and Glenn Gutierrez for inviting me, and of course to Greg Wright and the Houston Technology Center for hosting the meetup yet again.
EDITED 2013-03-04: I’ve added some tax-related information from an email I sent to a client.
Here’s a list of the resources I mentioned last night, with a few extras thrown in. I don’t necessary endorse everything in them. A given document might not be right for your particular needs without editing. Remember that small changes in your factual situation could have a significant effect on your legal position; see also the Cautions page.
Incorporation and investment documents
Renowned startup accelerator Y Combinator and the equally-renowned Wilson Sonsini law firm have posted a set of organizational documents for an angel-investor round.
The Orrick law firm has a large collection of contract forms for startup companies.
The Gunderson Dettmar law firm’s document collection is posted at the Docracy Web site.
Employment agreement form
See this working draft of a set of model provisions. Suggestions and other feedback are welcome in the comments on that page.
Contract negotiation tips for consultants
Here are some basic points to keep in mind.
Intellectual property tips
IP ownership claims by former employers / clients
- Check everyone’s previous contracts [employment agreements, severance agreements, consulting agreements, NDAs, etc.]
- Check the facts to see whether an employer might owns someone’s IP work product by default
- Hired to invent?
- Set to experimenting?
- Corporate officer?
- Copyrighted work created “within the scope of employment”?
- Get a waiver from the employer?
- Can existing Web content be “re-purposed” for your site? It depends.
- Just because there’s no copyright notice doesn’t mean it’s up for grabs (but a copyright notice is definitely a good idea for your own stuff)
- All kinds of things can be subject to copyright ownership — text, graphics, sounds, videos, sound recordings, data compilations, etc.
- Damages for infringement can include “indirect profits” — MGM Grand Hotel had to pay 2% of its casino profits for unauthorized use of Kismet musical material in its Hallelujah Hollywood floor show.
- Put copyright notices in your code, etc., early
- Form: Copyright © [year of first publication] [owner's name]
- Example: Copyright © 2012 D. C. Toedt III
Watch out for possible dilution of others’ trademarks — see the Victoria’s Secret example
- Check USPTO and Web for possibly conflicting marks
- Test is “likelihood of confusion” — doesn’t need to be a certainty of confusion, but it does need to be more than a mere possibility
- Consider engaging a professional trademark search firm to clear a mark before making big investments in promoting the mark — you don’t want to have to change the name after you’ve started getting traction, and it might cost a lot of money to pay off a senior user. (On the latter point, Apple found that out the hard way with its Mac trademark.)
- Consider filing a provisional patent application
- Watch out for filing deadlines (U.S. law will change in March 2013)
- Most foreign countries are “absolute novelty” jurisdictions for patent filings — no grace period
Infringing someone else’s rights
Just because you have a patentable invention, or a copyrightable work of authorship, or a protectable trademark, doesn’t automatically mean you don’t infringe someone else’s pre-existing rights.
For more information about patent infringement, see this 2010 post I did.
Initial tax-related information
If you create an LLC, or a corporation that qualifies to be taxed under subchapter S of the (U.S.) Internal Revenue Code, you’ll need to decide whether, for tax purposes, the company’s income and losses are going to be passed through to its members (the default for LLCs, like a partnership) or whether instead you want to file an election to have the company taxed as a C or S corporation. This is something to discuss with someone who knows tax law.
I found a Nolo article that looks quite useful in discussing the pros and cons of various approaches: http://www.nolo.com/legal-encyclopedia/how-llcs-are-taxed-29675.html.
Employer identification number (EIN)
The company will need to get a federal tax ID. If the company applies for bank financing, or even to open a checking account, the bank will almost certainly require the company to provide a tax ID. You can get a tax ID, or “EIN,” on-line at https://sa2.www4.irs.gov/modiein/individual/index.jsp.
Unemployment tax registration
(For Texas companies, and probably for other states as well:) When you hire your first employee, you’ll need to register with the Texas Workforce Commission and make quarterly unemployment tax payments. See http://www.twc.state.tx.us/ui/tax/unemployment-tax-registration.html and https://portal.cs.oag.state.tx.us/wps/portal/employer.
When you’re ready to start making sales, you’ll need a sales-tax permit. You can get one on-line at http://www.window.state.tx.us/taxpermit/.
Employee tax withholding
The IRS is pretty fierce about the need for employers to withhold (and remit) employees’ income taxes, Social Security taxes, and Medicare taxes. (In some circumstances an officer, director, or manager could be personally liable for a company’s failure to withhold the required taxes, and possibly for up to a 100% noncompliance penalty.) See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Employment-Taxes-2 for more information.