Should I Call My Lawyer? Know Your Rights After Rocking a Techstars Startup Weekend

An interview between Techstars and Meyer Law

We sat down with Tricia Meyer, founder of Meyer Law and Techstars Startup Weekend local community supporter, to get the down low on what you need to know to keep your startup afloat and protected after Techstars Startup Weekend.

Q: What type of company should we become?

A: It all depends on the type of business you’re starting and how the founder’s anticipate working together, sharing responsibilities, losses and distributions. The most common for an early stage startup are a limited liability company (LLC) and a corporation (S corp. or C corp.), but it’s always best to consult with your tax advisor to see which will benefit you most from a tax standpoint. Either structure will protect you from a legal standpoint as long as you are acting in line with the requirements related to the entity type you choose.

Q: At what point should we incorporate?

A: You should set up an entity early on to avoid taking on personal liability.

Q: Do all members of the team automatically get equity in the startup?

A: No, and not all members should necessarily be treated equally from an equity standpoint. It’s important for the team to get together and discuss which members will be moving forward to build a business and have the time (and potentially money) to allocate to the new business. You may also want to make the equity subject to vesting related to time or certain milestones so that the equity is earned instead of being granted outright without restrictions. In addition, it is important to get a waiver and release from those that are not moving forward so that you avoid any potential ownership claims down the line.

Q. How is it best to document the roles, responsibilities, and rights of the team members moving forward?

A: A founder’s agreement is key! It’s essentially a prenup for founder’s, which includes details around roles, responsibilities, transfer rights, valuation methods, and more. It’s really important to work out how certain situations will be handled early on while everyone is getting along. We have seen countless disasters from cofounder disputes, many of which could have been avoided had they had a solid founder’s agreement in place.

Q: At what point should we register a trademark?

A: Let me first give you a quick piece of advice before I answer — prior to choosing a name, logo, or tagline, you should do your own due diligence to ensure you’re not infringing on anyone else’s rights. It’s important to check the United States Patent and Trademark Office’s (“USPTO”) website and also do a general search online. Once you know you’re in the clear, you can immediately put the ™ next to the name, logo, or tagline to let the world know that you are claiming superior rights.

You can register the trademark with the USPTO for additional protection, which once approved would then allow you to use ®, but most startups tend to wait at least a few months because they prefer to allocate their dollars towards product development or marketing early on.

Q: How do we go about protecting our intellectual property?

A: This is very important — if you are hiring a third party to develop something for you, such as a logo, app, SaaS product, or website, you need to make sure your company owns the intellectual property that is being created. The default under the law is the person that creates it, owns it. So often we see startups in a situation where they don’t own the intellectual property they think they own because they failed to get an agreement in place.

When you are hiring a third party to develop something for you, a contract is necessary to ensure that the person or company creating the intellectual property is transferring the ownership rights to your company and you have the appropriate remedies in place should certain situations occur. In addition, in your customer agreements you also need to make sure that you’re very clear on ownership and include parameters around what your customer can and cannot do with your intellectual property.

Q: If we’re building a new business while working our day jobs is there anything we should be thinking about?

A: Yes! If you are working a day job while building a business on the side, you want to re-review whatever you signed with your current employer to ensure that you are not prevented from starting a business, that you’re aware of any restrictions or notification requirements, and also to ensure that your current employer cannot claim ownership in your business.

**Please note that this blog post is for informational purposes only and does not constitute legal advice or create an attorney-client relationship. You should feel free to consult your own attorney for legal advice on these issues. Because of the generality of the issues discussed in this post, the information provided may not apply in all situations and should not be acted upon without specific legal advice based on particular situations.**

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