The Cross-Border Biotech Blog

Biotechnology, Health and Business in Canada, the United States and Worldwide

Ten Business Law Tips for Startups

There are lots of collections of tips for startups that have excellent business advice on building your team, hitting product milestones and pitching to VCs; but not that many that give a corporate lawyer’s perspective. So here’s mine:*

  1. You May be a Genius, but You Are Not a Lawyer
    • Your idea is brilliant and you have what it takes to be a CEO, but you are still not a lawyer (or an accountant).
    • Hire professionals and use them to help you figure out what you need and when.
    • This doesn’t have to be expensive. Figuring out priorities isn’t billable work – executing them is.
  2. Even Though You’re Not a Lawyer, It’s Still Your Job to Read Everything
    • When it comes to your business the buck stops with you
    • You need to read and understand everything you sign
    • Your lawyers’ and accountants’ job includes explaining things you don’t understand
  3. If You Don’t Incorporate, You’re Personally Liable
    • Unless you’ve incorporated (or formed an LP , LLP, S.a.r.l, etc.), you’re personally liable for everything done in the name of the company or by any of your partners
    • One you have a corporate entity, issue shares (or units, etc.) to yourself and your partners – they are the legal basis for corporate power
  4. A Shareholders Agreement is Cheaper than a Lawsuit
    • Unless you’re the only founder, you need to align everyone’s expectations
    • Drafting a shareholders agreement will help you address key controversies in advance
    • Waiting until there’s a dispute is too late
  5. Be Greedy With Your Equity
    • Once you have a shareholder, they are hard to get rid of
    • It’s tempting to use shares for compensation, advisory boards, etc.
    • Try to use non-dilutive cash or options instead
    • Make sure when you do issue equity that it doesn’t constrain your next steps
  6. Pay Your Taxes
    • There are lots of taxes that apply at early stages
    • Payroll taxes, HST, VAT, sales taxes, etc.
    • You can be personally liable if your company doesn’t pay
    • Ignoring taxes only makes it worse
  7. Protect Your IP
    • Get assignments from your inventors or institutions
    • Get signed development agreements before the work starts
    • Talk to an IP lawyer about appropriate patent filings and permissible disclosures
    • Separate your current job from your startup. If you use time, facilities or equipment that belong to your current employer, they could end up owning your new company’s IP.
  8. An NDA May Ruin First Impressions
    • Don’t drive away potential partners or investors with premature or paranoid NDAs
    • Give potential investors and partners enough non-proprietary information to generate interest
    • If in doubt, run planned disclosures by your lawyers and existing investors
  9. Be Honest With Your Customers
    • Make sure your terms of use and policies are clear, but comprehensive
    • If you’re collecting personal information, you need to comply with privacy law
  10. Talk to Your Investors
    • Let them know about progress and challenges
    • Give them advance notice of future financing rounds

* This is not legal advice (duh, it’s a blog), just my thoughts (not my firm’s – see previous) on how to use legal services efficiently when your business is new. I presented a version of these as part of Ogilvy’s How to Draft a Patent seminar at MaRS yesterday.

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