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Startup Company Legal Checklist

I saw this great resource on the checklist you should follow for a start-up and wanted to share with my fellow CFO's.  

See the link for the entire article and other articles by the author.

 

Startup checklist:

1. Form a corporation, not a LLC or a partnership.

2. Incorporate in Delaware and qualify the company to do business in the state in which its principal office is located.

3. Set-up vesting schedules for the founders and file 83(b) elections with the IRS.

4. Button-down IP ownership and assignment issues.

5. Split the equity based on prior contributions and expectations going forward, not necessarily equally.

6. If you hire any employees, make sure you don’t misclassify them as an independent contractor or fail to pay them at least the minimum wage.

7. Only raise funds from “accredited investors” and don’t pay anyone a commission for raising funds for you unless they are a registered broker-dealer.

8. Put proper privacy policies in place and make sure you adhere to them.

9. Don’t issue stock options unless a proper option plan is in place and a valuation has been done in compliance with Section 409A of the Internal Revenue Code.

10. Regarding lawyers, don’t give them equity; don’t use your investors’ lawyers; and there are ways of cutting legal fees in half.

 

Reference URL: http://venturebeat.com/2011/10/25/the-legal-checklist-every-startup-should-read/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+Venturebeat+%28VentureBeat%29

Answers

Helen Rosen
Title: President
Company: Direct Approach Solutions, LLC.
(President, Direct Approach Solutions, LLC.) |

This is great information. Just curious, why a corporation instead of an LLC? Even if you're the sole owner?

Helen Rosen
President and Founder
Direct Approach Solutions

Peter Skalla
Title: CFO
Company: CFOwise
LinkedIn Profile
(CFO, CFOwise) |

Venture capital investors will rarely if ever invest in an LLC. Agreements with their limited partners typically prohibit investments in LLCs because of tax issues involved (risk of being assessed unrelated business tax income and K-1 delays). If you're sure you won't raise venture capital and will have a limited number of investors, an LLC can be a terrific corporate form.

One attractive path is to start out as an S-corp. This has tax advantages vs. a C-corp and it's easy to elect to go from S to C when/if you bring on outside investment requiring preferred stock.

Carol Valenti
Title: CPA
Company: in-between
(CPA, in-between) |

This information was very helpful. Does anyone have any similar information and/or a checklist for starting a REIT? Thanks.

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